Sachem Capital Corp.
Q1 2021 Earnings Call Transcript

Published: 18 May 2021

[Operator:]

Good day, ladies and gentlemen, and welcome to the Sachem Capital First Quarter 2021 Conference Call. All lines have been placed on listen-only mode and the floor will be open for your questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to Mr. David Waldman. Sir, the floor is yours.

[David Waldman:]

Good morning, everyone, and thank you for joining Sachem Capital Corp.’s first quarter 2021 conference call. On the call with us today is John Villano, CPA, Chief Executive Officer and Chief Financial Officer of Sachem Capital. On Friday, May 14, the company announced its operating results for the quarter ended March 31, 2021, and its financial condition as of that date. The press release is posted on the company’s website, www.sachemcapitalcorp.com. In addition, the company filed its Form 10-Q with the U.S. Securities and Exchange Commission on May 14, which can be accessed on the company’s website as well as the SEC’s website at www.sec.gov. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 212-671-1021.

[John Villano:]

Thank you, and thanks to everyone for joining us today. I am pleased to report that our company achieved solid financial results for the first quarter of 2021 while maintaining a robust loan pipeline. Specifically, we achieved a 56% increase in interest income on our loan portfolio versus the same period last year. Even though last year’s first quarter included a significant gain on the sale of investment securities, our quarterly revenue increased 33%, the $5.7 million compared to $4.3 million for the same period in 2020. We attribute this improvement to the fact that fix and flip market has continued to improve in our traditional markets as demand for property has outstripped the supply. This is further illustrated by the increase in our loans in process and the increasing number of loan payoffs. In the first quarter of 2021, Sachem had $30.5 million in loan repayments versus $31.7 million of new loan fundings. Both the loan repayments and new loan funding amounts were the highest for any quarter in the company’s history. In comparison, total loan repayments for all of 2020 were $55 million compared to $30.5 million in the first quarter alone. Sachem realized a quicker pay-off of residential fix and flip loans for the following reasons. First, our sound underwriting and analysis of each project stacks the deck in the borrower’s favor; second, a stronger more active real estate market; and lastly, there exists a limited supply of for sale real estate due to a lack of eviction and foreclosure activity. Let me clarify one important item before proceeding. The rapid repayment of our mortgage notes is accretive to earnings in one aspect and detrimental in another. On a positive note, the rapid repayment of our notes allows us to recognize all on earned origination fees from when the loan was funded. On the other hand, unplanned cash receipts in significant size reduces our interest income as it sits idle, waiting to be recommitted to new loans. The cash from note repayments coupled with our recent note sales in December hurt bottom line results. We will strive to utilize our excess cash during the second quarter as we continue to look for sound financing opportunities. According to Realtor.com, year-over-year days on the market, a common real estate market indicator declined 31%. Active listings decreased 53% and median list home prices increased 17% nationwide in April 2021. For the Connecticut market over the same period days on market decreased between 43% and 52% and median list prices increased 2% to 18% depending on the county. In light of this fast paced real estate market, the company strategy continues to focus on strict underwriting guidelines, which we believe will allow us to grow our loan portfolio while protecting and preserving capital in a manner that provides attractive risk adjusted returns to our shareholders.

[Operator:]

Thank you. We’ll go first to Christopher Nolan at Ladenburg Thalmann.

[Christopher Nolan:]

John, what is the target leverage ratio that you’ve reached for the second half of 2021?

[John Villano:]

Right now we’re below – we have $200 million in assets versus $100 million in debt – bond debt. We’d like to see how this works for awhile. The company is strong, functioning. We do not want to over lever, right? Our real estate market has been very robust. There’s a lot of things going on in the world. Like I just finished saying, we’re walking before we run. We have the ability to lever tremendously. However, we are taking a very conservative approach to the growth of our business, which is what we’ve done since our inception. We’ve certainly had opportunities to really build our balance sheet through debt, but it’s not really our mode of operation. So right now we have $228 million of assets, $114 million of bond debt. You could see we have 2

[Christopher Nolan:]

And then as a follow-up, in the comments that you’ve made in terms of examining ways to lower your cost of capital, should we look at that as being something for the second half of the year?

[John Villano:]

We’ve been in the process now for a few months and we have evaluated other opportunities that did not pan out for the company. They weren’t best for the company and the operational personnel. We think we have a lender that is suitable. It’s coming down the road here. I’d like to say we’re probably 45 days away perhaps from making an announcement.

[Christopher Nolan:]

Great. Okay. Thank you for taking the questions. I’ll get back in the queue.

[John Villano:]

Thank you.

[Operator:]

We’ll go next to Rommel Dionisio at Aegis Capital.

[Rommel Dionisio:]

Thanks for taking my question. Good morning, John. John, I wonder, I know I’ve asked this question before in prior quarters, but I just want to ask you again. I wonder if you could just give us a little more color on the expansion in Florida and Texas, just a quarterly update there and the opportunities you see on the expansion in those regions going forward. Thanks.

[John Villano:]

So, in Florida and Texas, we all know they are very robust real estate markets, two of the States of choice for retirees and they’ve seen significant growth with many thousands of people moving into them each and every week. We think they are a great place to do business, their real estate prices are high, right. We all know that, we all know the boom and bust process that goes on when real estate areas become favorable. We’re very careful. We have, right now I would like to say somewhere in the – please, don’t get an exact number, but somewhere between $15 million and $20 million in Florida. And all of this money is performing well, there are great opportunities. We are doing a lot of work in the Cape Coral area of Florida, where we feel that people can still buy a reasonably priced home. I mean that, I’ll quantify that by saying, it’s somewhere in the $400,000 to $475,000 range and this is for new construction. We’re doing a lot in that area. And Cape Coral is a suburb of Fort Myers and very, very close in proximity to Sarasota, which is just a great locale. Again, we’re moving slowly and yes, we see buckets of opportunity. It’s a question of not of speed, but of how are we building out our pipeline, our flow pipeline. Do we know our brokers, the individual sending us the deals, are we comfortable with them? And that’s really the process that takes time. Anybody can lend money and we need to get a feel for the area and we’re using – we have individuals down there that are helping us, be smart lenders, right. We’re able to manage from here. And the same for Austin, Austin is not as large of a market for us at the moment. We hope that it will be in the very near future. And we have our eyes on opportunities in Austin. We feel that it’s a great area and hopefully we can bring that to fruition in the next couple of months. But that’s kind of where we are, I mean we’re still busy here in Connecticut and the Northeast, we’ve done a little bit more in Long Island recently. We’ve been in Westchester and of course our business in Connecticut is quite strong.

[Rommel Dionisio:]

Great. Thanks for the color. Thanks, John.

[John Villano:]

You’re welcome.

[Operator:]

And Mr. Villano at this time, I do not have any other questions that have signaled. I’ll turn the conference back to you for any additional or closing comments.

[John Villano:]

Thank you everyone for joining. If you have any other additional questions, please forward them to our IR firm, Crescendo Communications and we will get back to you promptly. Thank you again.

[Operator:]

Ladies and gentlemen, that will conclude today’s call. We thank you for your participation. You may disconnect at this time and have a great day.