Sachem Capital Corp. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparison with fiscal 2022. Sachem is a REIT and non-bank real estate lender originating short-term, primarily first-mortgage loans to property investors and developers.
Business context and portfolio
- At year-end, the mortgage portfolio comprised 311 loans with $499.2 million in outstanding principal, up from 444 loans and $460.7 million in 2022. Average loan size rose to about $1.6 million from $1.0 million.
- Loans originated during 2023 totaled $204.9 million, compared with $300.3 million in 2022; repayments were $167.0 million versus $131.8 million.
- Connecticut represented 39.8% of portfolio principal, Florida 25.4%, and New York 13.8%. Commercial real estate was 37.4% of principal; residential property was 49.4%.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total revenue | $65.6 million | $52.3 million |
| Interest income from loans | $49.3 million | $42.6 million |
| Operating costs and expenses | $49.7 million | $31.4 million |
| Net income | $15.9 million | $20.9 million |
| Net income attributable to common shareholders | $12.1 million | $17.2 million |
| Basic and diluted EPS | $0.27 | $0.46 |
| Adjusted earnings per share, a non-GAAP measure | $0.25 | $0.54 |
| Cash provided by operating activities | $21.9 million | $13.1 million |
- Revenue increased 25.5%, while net income attributable to common shareholders fell 29.7%. Net margin was approximately 24% of revenue, versus 40% in 2022.
- Interest and deferred-financing-cost expense increased to $29.2 million from $21.5 million. Management reported a 12.6% loan-portfolio yield, including default interest, and a 7.22% weighted-average debt cost excluding deferred financing-cost amortization at year-end.
- Year-end total assets were $625.5 million, liabilities $395.5 million, and shareholders’ equity $230.1 million. Reported debt was approximately $377.7 million including deferred financing costs; balance-sheet debt was $371.7 million net of those costs. Debt was 60.4% of total capital, compared with 59.3% in 2022.
- Cash and cash equivalents were $12.6 million; investment securities were $37.8 million. Together these totaled approximately $50.4 million. Wells Fargo line availability was about $1.0 million; the filing does not provide a clear precise year-end availability figure for the Churchill and Needham facilities.
- Net cash used in investing activities was $72.5 million; net cash provided by financing activities was $39.5 million. Cash decreased by $11.1 million during the year.
Material changes, outlook and risks
- Credit costs rose sharply: provision for loan credit losses was $5.6 million, versus $105,000 in 2022. The year-end mortgage allowance was $7.5 million. Adoption of CECL reduced opening accumulated equity by $2.5 million; management reported a $0.15 per-share impact for 2023.
- At year-end, 56 loans were in foreclosure, with approximately $68.1 million of principal, accrued interest and borrower charges, compared with 40 loans and $24.0 million in 2022. The company reported $84.6 million of principal on nonaccrual loans. Eighty-nine loans had matured in 2023 without repayment or extension and were being evaluated for modification or collection.
- About $97.9 million of loan commitments remained unfunded, including $50.3 million due within one year; unfunded partnership commitments were $3.9 million. These commitments create future cash needs.
- Unsecured notes with $58.2 million of principal mature in 2024 ($23.7 million in June and $34.5 million in December). Another $56.4 million matures in 2025. Management said current cash, facility availability and expected operating cash flows should fund operations for the next 12 months, while noting refinancing may be more expensive and failure to refinance could constrain portfolio growth.
- Management’s 2024 priorities are selective loan growth, larger loans to experienced sponsors, geographic expansion, and operational efficiency. It expects 2024 to remain challenging because of funding costs, competitive pressure on loan pricing, uncertain property values, higher operating expenses, and geopolitical uncertainty. No quantified earnings or portfolio guidance was provided.
- The company acquired a Westport, Connecticut office property for total consideration of $10.7 million. Residential-unit approvals obtained in March 2024 could trigger additional purchase consideration of up to $600,000, subject to the agreement’s conditions and appeal period.
- Common dividends were $0.11 per share in November 2023, following three earlier 2023 payments of $0.13 each. The Board approved another $0.11 dividend for April 2024. Dividends are discretionary and subject to cash availability, debt covenants, and REIT requirements.
- Other notable items: the company expensed $477,000 associated with its SPAC investment; recorded $808,000 of credit losses on available-for-sale debt securities; and reported no material legal proceedings outside the ordinary course of business. The independent auditor gave an unqualified opinion and identified the CECL allowance estimate as a critical audit matter.
Most important facts for investors to verify
- Progress in refinancing or repaying the $58.2 million of 2024 note maturities, and compliance with lender covenants and asset-coverage requirements.
- Collections, collateral valuations, recoveries and loss severity for the $68.1 million of loans in foreclosure and the broader nonaccrual portfolio.
- Available liquidity to meet nearly $98 million of unfunded loan commitments while maintaining cash for operations and dividends.
- Whether loan yields continue to cover rising funding costs, credit provisions, operating expenses and preferred dividends.
- Whether the Westport residential approvals, leasing and any contingent purchase-price obligation proceed as expected.