Sachem Capital Corp.
For the period ended Mar 31, 2025. Filed May 1, 2025.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2025 · Filed May 1, 2025
SACH$0.82+0.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-09-30; filed 2024-11-14.
0001410578-24-001965
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-03-31; filed 2025-05-01.
0001410578-25-001059
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 81 previous paragraphs and 59 current paragraphs.
12 unchanged; 9 reworded; 38 added; 59 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 18 previous and 10 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (38)
Current report
Sachem Capital Corp., a New York corporation, established in 2010 and completing an initial public offering in 2017 is a self-managed REIT that specializes in originating, underwriting, funding, servicing and managing a portfolio of first mortgage loans. We operate our business as one segment. We offer short-term (i.e., one to three years), secured, non-bank loans to real estate owners and investors to fund their acquisition, renovation, development, rehabilitation or improvement of properties located primarily in the northeastern and southeastern sections of the United States. The properties securing our loans are generally classified as residential or commercial real estate and, typically, are held for resale or investment. Each loan is secured by a first mortgage lien on real estate and may also be secured with additional collateral, such as other real estate owned by the borrower or its principals, a pledge of the ownership interests in the borrower by the principals thereof, and/or personal guarantees by the principals of the borrower. Our primary underwriting criteria is a conservative loan to value ratio. In addition, we may make opportunistic real estate purchases and investments apart from our lending activities.
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Revenue Recognition
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CECL Allowance
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Our Loan Portfolio
Current report
The following table highlights certain information regarding our real estate lending activities for the three months ended March 31, 2025 (in thousands, except number of loans and weighted averages):
Current report
(1)Includes default interest.
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(2)Does not give effect to extensions.
Current report
At March 31, 2025, our outstanding mortgage loan portfolio included loans ranging in size from $35,000 to $42.8 million. The table below gives a breakdown of our loans held for investment by loan size as of March 31, 2025:
Current report
As of March 31, 2025, the primary markets in which we were exposed were Connecticut, Florida, Massachusetts and New York. The table below gives a breakdown of our loans held for investment by state as of March 31, 2025:
Current report
The following table details our loans held for investment as of March 31, 2025 by year of origination:
Current report
The following tables set forth information regarding the types of properties securing loans held for investment as of March 31, 2025 and December 31, 2024:
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Allowance for Credit Losses
Current report
Our allowance for credit losses is influenced by historical loss experience, current exposure by geographical region, current expected credit losses on loans in foreclosure based on fair value less cost to sell, non-performing status, and other supportable forecasts of economic conditions. A loan is considered non-performing once it has been delinquent on its monthly payments past 90 days.
Current report
The following table presents the allowance for credit losses against unpaid principal balance of loans held for investment as of March 31, 2025 and December 31, 2024:
Current report
For further information, see Note 4 – Loans and Allowance for Credit Losses.
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Real Estate Owned
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As of March 31, 2025, we owned twenty properties, each of which previously served as collateral for first mortgage loans. One property was acquired during the three months ended March 31, 2025 in connection with foreclosure actions.
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The following table details the carrying value of each of our real estate owned properties reflected on our condensed consolidated balance sheets as of March 31, 2025:
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For further information, see Note 6 – Real Estate Owned (REO).
Current report
Total revenue for the three months ended March 31, 2025 was $11.4 million compared to $16.8 million for the three months ended March 31, 2024, a decrease of $5.4 million, or 31.9%. The change in revenue was primarily due to the cumulative effect of fewer originations over the last fifteen months resulting in a reduction in the unpaid principal balance of loans held for investment in addition to a currently elevated amount of nonperforming loans and real estate owned. On the other hand, income from our preferred membership limited liability company investments increased approximately 71.7%, quarter-over-quarter.
Current report
Operating costs and expenses
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Total operating expenses for three months ended March 31, 2025 were $10.4 million compared to $12.5 million for the three months ended March 31, 2024,a decrease of $2.1 million or 16.9%. The largest contributors to this decrease were the decreases in interest and amortization of deferred financing fees as a result of the repayment of $58.2 million of aggregate principal amount of our unsecured, unsubordinated notes in 2024, and a aggregate decrease in compensation and employee benefits, provision for credit losses related to loans held for investment, and other expenses totaling $0.9 million, partially offset by $0.01 million increase in general and administrative expenses.
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Net (loss) income attributable to common shareholders and net (loss) income attributable to common shareholders per share
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Comprehensive (loss) income
Current report
For the three months ended March 31, 2025, we had no transactions which impact comprehensive income. For the three months ended March 31, 2024, we reported a reclassification of unrealized losses to provision for credit losses of $0.2 million reflecting the recognition of unrealized losses on securities held for over one year, which were not considered temporary losses, as well as an unrealized losses on investment securities of $0.3 million.
Current report
Book value per common share
Current report
The following table sets forth the calculation of our book value per common share (in thousands, except share and per share data):
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Book value per common share as of March 31, 2025, was $2.57, a decrease of $0.07 from our book value per common share as of December 31, 2024 of $2.64. Such decrease is primarily due to cash dividends declared and paid for the three months ended March 31, 2025 on Common Shares and Series A Preferred Stock totaling $3.5 million, or $0.07 per share.
Current report
Total assets at March 31, 2025 were $491.4 million compared to $492.0 million at December 31, 2024, a decrease of $0.6 million, or 0.1%. The decrease was due primarily to a $9.4 million decrease in loans held for investment, net, partially offset by a $6.3 million increase in cash and $2.4 million increase in investments in real estate, net.
Current report
Total liabilities at March 31, 2025 were $312.1 million compared to $310.3 million at December 31, 2024, an increase of $1.8 million, or 0.6%. This increase is primarily due to a $7.8 million increase in our repurchase agreements, partially offset by a $3.9 million decrease in lines of credit, a $1.7 million decrease in accounts payable and accrued liabilities, and a $1.0 decrease in advances from borrowers.
Current report
Total shareholders’ equity at March 31, 2025 was $179.3 million compared to $181.7 million at December 31, 2024, a decrease of $2.3 million, or 1.3%. This decrease was due primarily to $3.5 million in dividends paid partially offset by $0.9 million of net income for the period and $0.3 million increase in additional paid-in capital related to stock-based compensation.
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Sources and Uses of Funds
Current report
Our primary sources of cash include principal and interest payments on mortgage loans and various fees associated with such loans, proceeds from the sales of real property, net proceeds from offerings of equity securities, and borrowings from our credit facilities. Our primary uses of cash include debt service payments (both principal and interest), new originations of loans held for investment, new investments in real estate, dividend distributions to our shareholders, and operating expenses.
Current report
These sources and uses of cash are reflected in our Condensed Consolidated Statements of Cash Flows as summarized below:
Current report
For a detailed breakdown of our cash flows during the three months ended March 31, 2025 and 2024, see the statement of cash flows included in our accompanying condensed consolidated financial statements.
Current report
Our long-term cash needs will include principal and interest payments on outstanding indebtedness maturing late in 2026 and early 2027, preferred stock dividends and funding of new mortgage loans. Funding for long-term cash needs will come from unused net proceeds from financing activities, operating cash flows, refinancing existing debt, and proceeds from sales of real estate owned.
Current report
A copy of the Credit, Security and Guaranty Agreement, dated as of March 20, 2025, among SN Holdings, Sachem and Needham, is filed as Exhibit 10.8 to this Report.
Current report
Recent Accounting Pronouncements
Removed paragraphs (59)
Previous report
We are a Connecticut-based real estate finance company that specializes in originating, underwriting, funding, servicing and managing a portfolio of short-term (i.e., three years or less) loans secured by first mortgage liens on real property. From our inception in December 2010, through our initial public offering, in February 2017, we operated as a limited liability company. On February 9, 2017, we completed our initial public offering (the “IPO”), the primary purpose of which was to raise equity capital to fund mortgage loans and expand our mortgage loan portfolio and to diversify our ownership so that we could qualify, for federal income tax purposes, as a real estate investment trust, or REIT. We believe that, since consummation of the IPO, we meet all the requirements to qualify as a REIT for federal income tax purposes and elected to be taxed as a REIT beginning with our 2017 tax year. As a REIT, we are entitled to claim deductions for distributions of taxable income to our shareholders thereby eliminating any corporate tax on such taxable income. Any taxable income not distributed to shareholders is subject to tax at the regular corporate tax rates and may also be subject to a 4% excise tax to the extent it exceeds 10% of our total taxable income. To maintain our qualification as a REIT, we are required to distribute each year at least 90% of our taxable income. As a REIT, we may also be subject to federal excise taxes and state taxes.
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Review of the First Nine Months of 2024 and Outlook for Balance of Year
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For the nine months ended September 30, 2024, revenue declined by 3.3% compared to the comparable 2023 period. In addition, for the 2024 period we reported a net loss attributable to common shareholders of $6.6 million compared to net income attributable to common shareholders of $14.2 million for the comparable 2023 period. The decrease in revenue and the swing from net income to net loss were driven by several factors. The primary factor was a $18.0 million provision for credit losses in 2024, compared to $65,000 in 2023. This increase was mainly due to declines in the value of assets securing the mortgage loans in our portfolio. Provisions for credit losses, including impairment losses, are non-cash charges and do not affect taxable income and distributable earnings as a result. The second factor was a 32.1% decrease in loan originations, which negatively impacted both interest and fee income from loans. This decline was primarily due to our inability to raise growth capital amid challenging macroeconomic conditions. The third factor was a 35.5% rise in general and administrative expenses, mainly from increased legal and advisory fees related to shareholder activism. The fourth factor was a 90.1% increase in other expenses, primarily driven by higher tax expenses from our taxable REIT subsidiary. On a positive note, income from partnership investments rose 67.1%, and interest expense, along with amortization of deferred financing costs, decreased by 1.9%, following the repayment of our unsubordinated notes in June 2024.
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Looking ahead to the remainder of 2024, further write-downs related to loans are possible, along with continued declines in interest and fee income due to ongoing challenges in the real estate and capital markets. However, we anticipate general administrative expenses will return to more typical levels, and other expenses should stabilize. Additionally, a tranche of our unsecured subordinated five-year notes, totaling $34.5 million, is due on December 30, 2024. While the repayment of these notes will not impact interest expense or amortization for the remainder of this year, it will reduce these costs in 2025. We expect to meet the repayment obligation using cash flow from operations, additional borrowings under existing credit facilities, and proceeds from the sale of a portion of our loan portfolio (details to be discussed further below).
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Our overall business strategy is as follows:
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We believe that the following factors are the major challenges confronting us for the remainder of 2024:
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High interest rate environment. The rates on our existing credit facilities, including the Churchill Facility and the New NHB Mortgage (as defined below), have all increased. The effective rate of Needham Bank Credit Facility was 7.75%, and Churchill Facility was 8.95% as of September 30, 2024. In addition, the interest rate on the September 2027 Notes, our last note offering in 2022, was 8.0%, the highest it has ever been. Although interest rates have started to come down recently, we expect interest rates to remain elevated for the remainder of 2024 and into 2025.
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Capital markets illiquidity. Our last underwritten public offering was in August 2022. Since then, our sole source of working capital has been interest and principal payments on our existing loan portfolio, our existing credit facilities (Churchill and Needham) and intermittent sales under our at-the-market offering facility. Rates have began to ease but the current U.S. 10 Year Treasury Yield would indicate rates are expected to stay elevated for longer than anticipated.
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Global and domestic political concerns. 2023 and early 2024 was marked with various geopolitical concerns, including the ongoing conflict between Ukraine and Russia, and Israel, Hamas, Hezbollah and other Iranian proxies, heightened tensions between the U.S. and China regarding Taiwan and global trade, Iran’s and North Korea’s continued pursuit of nuclear weapons and Iran’s ongoing attempts to destabilize the Middle East. These conflicts have led to market volatility, spikes in commodity prices, supply chain interruptions, heightened cybersecurity concerns and general concerns that it might lead to unconventional warfare. The true ramifications of these conflicts and their impact on the markets and our business operations, specifically our borrowers and real estate prices, are not fully known at this time. Our business is purely domestic, but our Company and our borrowers are impacted by the uncertainty created by world events and unexpected market volatility. Additionally, in the fourth quarter of this year, the United States had a presidential election pursuant to which a new president was elected. The new president and his administration is expected to take office in January 2025 and his policies and priorities remain to be seen.
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Increased competition from private lenders. In the past, our primary competitors were other non-bank real estate finance companies and banks and other financial institutions. More recently, we are encountering competition from private equity funds, hedge funds and other specialty finance entities funded by investment banks, asset managers, private equity funds and hedge funds. The primary driver for these new market participants, we believe, is their need to find higher yielding investments. Given that residential transition loan gross yields are in the 12-15% range, many institutions are deploying capital into credit products where the returns are nearing equity investments. These entities, in general, are well-funded, have relatively easy access to capital and are aggressive in terms of pricing. In addition, competition is becoming more of a factor as we implement our strategy to focus on larger loans and more sophisticated borrowers. Given recent developments regarding mid-size regional banks, we believe competition from traditional banks will continue to abate in 2024 rather than increase. However, as traditional banks exit the lending market, non-traditional lenders, such as non-bank real estate companies, hedge funds, private equity funds and insurance companies, are likely to step into the void. Our principal competitive advantages include our experience, our reputation, our size and our ability to address the needs of borrowers in terms of timing and structuring loan transactions.
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Property value fluctuations and declines. We monitor a variety of indicators to track property value trends, including the Federal Funds Rate, U.S Treasury data, days-on-market, pending sales, NAHB’s Housing Market Index and Co-Star reports. Additionally, we primarily utilize third-party valuations including, but not limited to, appraisals, broker price opinions, automated valuation models, and internal valuations to assist in both our underwriting and monitoring of our portfolio assets. Nevertheless, property value market cycles could have an adverse impact on our operations and financial condition. Over the past two years, the commercial real estate market throughout most of the United States has experienced a significant decline in value, which has led to a corresponding increase in the rate of loan defaults and foreclosures. As a result, many REITs have been forced to record additional
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allowances for credit losses and write-downs of real estate assets. Although many of our loans are secured by residential properties, 28.0% of our portfolio is secured by commercial real estate and, hence, we are not immune from this trend. On a quarterly basis, we evaluate the allowance for credit losses by analyzing several market indicators indicated above and adjust accordingly. Our total allowance for credit losses related to mortgage loans as of September 30, 2024 was $27.2 million. Our total provisions for credit losses related to loans for the three and nine month periods ended September 30, 2024 were $8.1 million and $18.0 million, respectively. Similarly, the decline in commercial real estate values has led to an increase in our foreclosure rates. At September 30, 2024, 23.9% of the loans in our portfolio were in foreclosure proceedings compared to 18.0% at December 31, 2023. We expect these trends to continue through the remainder of 2024.
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Unfunded commitments. Most of our loans are funded in full at closing. However, where all or a portion of the loan proceeds are to be used to fund the costs of renovating or constructing improvements on the property, only a portion of the loan may be funded at closing. At September 30, 2024, our mortgage loan portfolio included 80 loans with future funding obligations, in the aggregate principal amount of $71.9 million, compared 123 loans with future funding obligations, in the aggregate principal amount of $99.8 million at September 30, 2023. Advances under construction loans are funded against requests supported by all required documentation (including lien waivers) as and when needed to pay contractors and other costs of construction. To deal with these obligations, we are compelled to maintain higher cash balances, which could adversely impact our financial performance.
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Despite these challenges, the changing dynamics of the real estate finance marketplace, the debt and equity markets, shocks to the financial system and challenging political developments, we continue to believe in the viability of our business model. We believe that there continues to be a significant market opportunity for a well-capitalized “hard money” lender to originate attractively priced loans to small- and mid-scale real estate developers with good collateral, particularly in markets where, traditionally, real estate values are stable and substandard properties are improved, rehabilitated, and renovated as well as under-developed markets that are experiencing rapid growth due to population shifts. We also believe developers will prefer to borrow from us rather than other lending sources because of flexibility in structuring loans to suit their needs, our lending criteria, which places greater emphasis on the value of the collateral rather than the property cash flow or credit of the borrower, and our ability to close and service loans quickly. Our goal is, and has always been, to continue to grow our mortgage loan portfolio and increase our loan profitability, while at the same time maintaining or improving our existing underwriting and loan criteria. Specifically, we believe that the following factors will impact our performance in 2024.
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president – asset management. In addition, we have added personnel in operations, accounting and administration to accommodate the growth of our business. Although these new hires have resulted in increased compensation, they were and will continue to be necessary to accommodate our growth and to maintain our ability to continue to service our borrowers and manage our business without sacrificing quality.
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Financing Strategy Overview
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To continue to grow our business, we must increase the size of our loan portfolio, which requires that we use our existing working capital to fund new loans and raise additional capital either by selling shares of our capital stock or by incurring additional indebtedness. We do not have a policy limiting the amount of indebtedness that we may incur. Thus, our operating income in the future will depend on how much debt we incur and the spread between our cost of funds and the yield on our loan portfolio. Rising interest rates have an adverse impact on our business unless we can increase the rates on our loans to offset the increase in our cost of funds and to satisfy investor demand for yield. In addition, rapidly rising interest rates could have an unsettling effect on real estate values, which could compromise some of our collateral.
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We do not have any formal policy limiting the amount of indebtedness we may incur, but we are limited to a 150% asset coverage ratio from our debt covenants. Depending on various factors we may, in the future, decide to take on additional debt to expand our mortgage loan origination activities to increase the potential returns to our shareholders. Although we have no pre-set guidelines in terms of leverage ratio, the amount of leverage we will deploy will depend on our assessment of a variety of factors, which may include the liquidity of the real estate market in which most of our collateral is located, employment rates, general economic conditions, the cost of funds relative to the yield curve, the potential for losses and extension risk in our portfolio, the gap between the duration of our assets and liabilities, our opinion regarding the creditworthiness of our borrowers, the value of the collateral underlying our portfolio, and our outlook for interest rates and property values. At September 30, 2024, debt represented 58.5% of our total capital compared to 61.0% at September 30, 2023. To prudently grow the business and satisfy the tax requirement to distribute 90% of our taxable income, we expect to maintain our current level of debt and look to reduce our cost of capital. We intend to maintain a modest amount of leverage for the sole purpose of financing our portfolio and not for speculating on changes in interest rates.
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Loan Sale
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In October 2024 we retained Mission Capital (“Mission”), a subsidiary of Marcus and Millichap, which is a real estate capital markets firm, as our sole and exclusive advisor for the proposed sale of a pool of mortgage loans with an aggregate principal value of approximately $78.8 million. A majority of these loans are classified as “non-accrual,” meaning payments of interest owed are more than 90 days overdue. In the current market environment, selling these non-performing loans offers a strategic opportunity to improve liquidity and mitigate the opportunity cost associated with holding underperforming assets. Non-performing loans not only tie up valuable capital but also increase our cost of capital by raising risk perceptions among lenders and investors, making it more expensive for us to access financing. Current bids project recoverability of approximately 70% of unpaid principal balance indicating a loss on these loans of approximately $26.9 million which is inclusive of loss on unpaid principal balance, along with unpaid interest, fees, and charges. We are anticipating closing the transaction prior to December 31, 2024.
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The net proceeds from the sale will be used for working capital and general corporate purposes, with a portion potentially allocated to repaying the December 2024 Notes. By reducing our exposure to non-performing loans, this transaction will allow us to optimize capital allocation, lower our cost of capital, and position the Company for stronger financial flexibility moving forward.
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Debt
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Our total outstanding indebtedness at September 30, 2024 was $324.7 million, which included $23.5 million outstanding under the Churchill Facility, $1.0 million outstanding under the New NHB Mortgage, $35.5 million outstanding under the Needham Credit Facility and $264.7 million aggregate outstanding principal amount of five-year, unsecured unsubordinated notes, (the “Notes”) as set forth below. During the nine months ended September 30, 2024, the Company redeemed its 7.125% unsecured, unsubordinated
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Notes due June 30, 2024 in the aggregate principal amount of $23.7 million plus the accrued interest thereon. At September 30, 2024, the Company has six series of Notes outstanding:
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Each series of Notes was issued pursuant to the Indenture, dated June 21, 2019, and a supplement thereto, which provides for the form and terms, including default provisions and cures, applicable to each series. All seven series of Notes are subject to (i) “Defeasance,” which means that, by depositing with a trustee an amount of cash and/or government securities sufficient to pay all principal and interest, if any, on such notes when due and satisfying any additional conditions required under the Indenture, we will be deemed to have been discharged from our obligations under such notes and (ii) an “Asset Coverage Ratio” requirement pursuant to which we may not (x) pay any dividends or make distributions in excess of 90% of our taxable income, (y) incur any indebtedness or (z) purchase any shares of our capital stock unless we have an “Asset Coverage Ratio” of at least 150% after giving effect to the payment of such dividend, the making of such distribution or the incurrence of such indebtedness. “Asset Coverage Ratio” means the ratio (expressed as a percentage) of the value of our total assets relative to the aggregate amount of its indebtedness.
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Under the terms of the Indenture, we may, at our option, at any time and from time to time, redeem Notes two years after the date of their original issuance. The Notes are all currently redeemable at our option. In each case the redemption price is equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest to, but excluding, the date fixed for redemption. On and after any redemption date, interest will cease to accrue on the redeemed notes.
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Our secured indebtedness as of September 30, 2024 includes the Churchill Facility, the New NHB Mortgage and the Needham Credit Facility (each as described below).
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Under the terms of the Churchill Facility, we have the right, but not the obligation, to sell mortgage loans to Churchill, and Churchill has the right, but not the obligation, to purchase those loans. In addition, we have the right and, in some instances the obligation, to repurchase those loans from Churchill. The amount that Churchill will pay for each mortgage loan it purchases will vary based on the attributes of the loan and various other circumstances but generally will not exceed 70% of the unpaid principal balance purchased. The repurchase price is calculated by applying an interest factor, as defined, to the purchase price of the mortgage loan. We also granted Churchill a first priority security interest on the mortgage loans sold to Churchill to secure our repurchase obligation. The cost of capital under the Churchill Facility is equal to the sum of (a) the greater of (i) 0.25% and (ii) the 90-day SOFR plus (b) 3% - 4%, depending on the aggregate principal amount of the mortgage loans held by Churchill at that time. Our obligations under the Churchill Facility are secured by a lien on the mortgage loans sold to Churchill. The Churchill Facility is also subject to various terms and conditions, including representations and warranties, covenants and agreements typically found in these types of financing
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arrangements, including a covenant that (A) prohibits us from (i) paying any dividend or make any distribution in excess of 90% of our taxable income, (ii) incurring any indebtedness or (iii) purchasing any shares of our capital stock, unless, in any case, we have an asset coverage ratio of at least 150%; and (B) requires us to maintain unencumbered cash and cash equivalents in an amount equal to or greater than 2.50% of the amount of our repurchase obligations. Churchill has the right to terminate the Churchill Facility at any time upon 180 days prior notice to us. At such time, we have an additional 180 days after termination to repurchase all the mortgage loans held by Churchill. We believe the Churchill Facility gives us the ability to raise capital as needed at a relatively low rate. It also gives us the flexibility to seek other sources of funding. At September 30, 2024, the amount outstanding under the Churchill Facility was $23.5 million, which amount was accruing interest of an effective rate of 8.95% per annum.
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On February 28, 2023, we refinanced the $1.4 million adjustable-rate mortgage loan from New Haven Bank which we originally obtained in 2021, with a new $1.66 million adjustable-rate mortgage loan from New Haven Bank (the “New NHB Mortgage”). The new loan accrues interest at an initial rate of 5.75% per annum for the first 60 months. The interest rate will be adjusted on each of March 1, 2028 and March 1, 2033 to the then published 5-year Federal Home Loan Bank of Boston Classic Advance Rate, plus 1.75%. From April 1, 2023 through March 1, 2038, principal and interest is due and payable on a monthly basis. All payments under the new loan are amortized based on a 20-year amortization schedule. The unpaid principal amount of the loan and all accrued and unpaid interest are due and payable in full on March 1, 2038. The new loan is a non-recourse obligation, secured primarily by a first mortgage lien on the property located at 568 East Main Street, Branford, Connecticut.
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Currently, we are not in compliance with the debt service coverage ratio covenant in the Credit Agreement relating to the Needham Credit Facility described in the previous paragraph. Our inability to comply with this covenant is directly related to the provision for credit losses, which, as discussed elsewhere in this Report, is a non-cash charge that adversely impacts our earnings. Unlike other non-cash charges against earnings, such as depreciation and amortization, provision for credit losses related to mortgage loans is not added back to earnings under the definition of EBITDA. Needham is aware of the situation and has informed us that they are considering granting us a waiver on the debt service covenant ratio. Per the Credit Agreement, the breach of a covenant can result in a default which, if left uncured for more than 30 days, allows Needham to terminate the facility.
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Finally, from time-to-time we raise capital by selling our common shares and shares of our Series A Preferred Stock through our at-the market offering facility. During the nine months ended September 30, 2024, under our at-the-market offering facility, we sold an aggregate of 568,711 common shares, realizing gross proceeds of $2.1 million and 256,703 shares of our Series A Preferred Stock having an aggregate liquidation preference of approximately $6.4 million, realizing gross proceeds of $5.4 million (representing a discount of 15.7% from the liquidation preference.) At September 30, 2024, $48.3 million of common shares and shares of our Series A Preferred Stock having a liquidation preference of approximately $66.8 million were available for future sale under the ongoing at-the-market offering.
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REIT Qualification
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We believe that we have qualified as a REIT since the consummation of the IPO and that it is in the best interests of our shareholders that we operate as a REIT. We made the election to be taxed as a REIT beginning with our 2017 tax year. As a REIT, we are required to distribute at least 90% of our taxable income to our shareholders on an annual basis. We cannot assure you that we will be able to maintain REIT status.
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Our qualification as a REIT depends on our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Code, relating to, among other things, the sources of our gross income, the composition and values of our assets, our compliance with the distribution requirements applicable to REITs and the diversity of ownership of our outstanding common shares. We cannot assure you that we will be able to maintain our qualification as a REIT.
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So long as we qualify as a REIT, we generally will not be subject to U.S. federal income tax on our taxable income that we distribute currently to our shareholders. If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax at regular corporate income tax rates and may be precluded from electing to be treated as a REIT for four taxable years following the year during which we lose our REIT qualification. Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income.
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Total revenue for the three months ended September 30, 2024 was $14.8 million compared to $17.8 million for the three months ended September 30, 2023, a decrease of $3.0 million, or 16.8%. The decrease in revenue is primarily attributable to a decrease in our lending operations in comparison to the same 2023 period, which have been adversely impacted by current conditions in the capital markets, making it extremely difficult for us to raise the capital on terms that we deem to be acceptable. For the three months ended September 30, 2024, interest income was $11.4 million compared to $14.3 million for the same 2023 period, a decrease of $2.9 million or 20.0%. The decrease is in-line with the decline of our mortgage loan portfolio, as well as comes as a direct result of the increase of loans in nonaccrual. Fee income from loans decreased to $1.8 million compared to $2.4 million for the same 2023 period, a decrease of $0.6 million, or 23.9%. This decrease in fees was primarily attributable to a decrease in originations. For the three months ended September 30, 2024, we funded 12 new loans having an aggregate original principal amount of $6.7 million, compared to 18 loans in the amount of $28.0 million for the three months ended September 30, 2023. As a result, origination fee income decreased approximately 16.4%, from $0.6 million for the three months September 30, 2023 to $0.1 million for the three months September 30, 2024. Loan originations, modifications, and extensions for the three months ended September 30, 2024 were $14.4 million compared to $52.2 million for the same 2023 period. During the three months ended September 30, 2024, we were predominantly focused on modifying existing loans. Income from partnership investments was $1.5 million for the 2024 period compared to $0.8 million for the 2023 period, an increase of $0.8 million or 91.2%. In addition, other investment income for the three months ended September 30, 2024 was $0.03 million compared to $0.3 million for the same 2023 period, a decrease of $0.3 million or 98.9%. Other income remained relatively stagnant period over period.
Previous report
Operating expenses
Previous report
Total operating expenses for three months ended September 30, 2024 were $19.6 million compared to $11.3 million for the three months ended September 30, 2023, an increase of $8.3 million or 72.8%. The increase in operating expenses is primarily attributable to our provision for credit losses related to loans. For the 2024 period, provision for credit losses related to loans were $8.1 million compared to a $0.1 million recovery of credit losses related to loans for the comparable 2023 period. This increase is primarily due to a period-over-period increase of loans in pending and pre-foreclosure status of $13.5 million, as a result of $81.8 million of unpaid principal, interest, and charges as of September 30, 2024 compared to $68.3 million as of September 30, 2023. Such balances consist of primarily commercial assets, of which have experienced a decline in fair value throughout 2024. See Note 2 to the accompanying unaudited consolidated financial statements included elsewhere in this Report for further details on our methodology on determining allowance for credit losses and provisions for credit losses related to loans under such category. The remaining fluctuations in operating expenses were primarily attributable to (i) general and administrative expenses increased $1.0 million as a result of additional legal and advisory fees incurred in dealing with an activist shareholder, (ii) interest and amortization of deferred financing costs decreased $0.8 million as result of repayment of the June 2024 note, (iii) impairment loss on real estate owned increased $0.1 million, (iv) a $0.2 million decrease in net loss on sale of real estate owned, and property and equipment and (v) other expenses which increased $0.09 million.
Previous report
For both of the three-month periods ended September 30, 2024 and 2023, we reported a $0.2 million loss on equity securities.
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Reworded paragraphs (9)
Previous wording
The following discussion of the Company’s financial condition and results of operations should be read in conjunction with the accompanying unaudited consolidated financial statements and the notes to those statements included elsewhere in this Report. Certain statements in this discussion and elsewhere in this Report constitute forward-looking statements, within the meaning of section 21E of the Exchange Act, that involve risks and uncertainties. Actual operating results and financial conditions may differ materially from those anticipated in these forward-looking statements.
Current wording
The following discussion of the Company’s financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes to those statements included elsewhere in this Report. Certain statements in this discussion and elsewhere in this Report constitute forward-looking statements, within the meaning of section 21E of the Exchange Act, that involve risks and uncertainties. Actual operating results and financial conditions may differ materially from those anticipated in these forward-looking statements.
Previous wording
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management will base the use of estimates on (a) various assumptions that consider prior reporting results, (b) projections regarding future operations and (c) general financial market and local and general economic conditions. Actual amounts could differ from those estimates.
Current wording
Preparing our unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base the use of estimates on (a) various assumptions that consider prior reporting results, (b) our projections regarding future operations, and (c) general financial market and local and general economic conditions. Actual amounts could differ from those estimates. Significant estimates include the provisions for current expected credit losses, loans held for sale at fair value, and real estate owned. See Note 2 – Significant Accounting Policies for further details.
Previous wording
We record allowances for credit losses in accordance with ASU No. 2016-13, known as CECL (i.e., current expected credit losses) on our loan portfolio, including unfunded construction commitments, on a collective basis by assets with similar risk characteristics. This methodology replaces the probable incurred loss impairment methodology. In addition, interest and fees receivable and amounts included in due from borrowers, other than reimbursements, which include origination, modification and other fees receivable are also analyzed for credit losses in accordance with the CECL standard, as they represent a financial asset that is subject to credit risk. Further, CECL made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities if management does not intend to sell and does not believe that it is more likely than not, they will be required to sell. Also, as allowed under the CECL standard that we have adopted, as a practical expedient, the fair value of the collateral at the reporting date is compared to the net carrying amount of the loan when determining the allowance for credit losses for loans in pending/pre-foreclosure status, as defined. Fair value of collateral is reduced by estimated cost to sell if the collateral is expected to be sold. The CECL standard requires an entity to consider historical loss experience, current conditions, and a reasonable and supportable forecast of the economic environment. We utilize a loss-rate method for estimating current expected credit losses. The loss rate method involves applying a loss rate to a pool of loans with similar risk characteristics to estimate the expected credit losses on that pool of loans. In determining the CECL allowance, we consider various factors including (1) historical loss experience in its portfolio, (2) loan specific losses for loans deemed collateral dependent based on excess amortized cost over the fair value of the underlying collateral, and (3) our current and future view of the macroeconomic environment. We also utilize a reasonable and supportable forecast period equal to the contractual term of the loan plus any applicable short-term extensions that are reasonably expected for construction loans. The allowance for the mortgages receivable is presented in the consolidated balance sheets while the allowances on the interest receivable, due from borrowers, and (available-for-sale debt) investment securities are presented net of the allowance. The accrued allowance for unfunded construction commitments is included in accounts payable and accrued liabilities on the consolidated balance sheets included in the accompanying unaudited consolidated financial statements. The change in the balances during the reporting period are recorded in the consolidated statements of operations under the provision for credit losses related to loan…
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Current wording
We record an allowance for credit losses (“CECL”) in accordance with the CECL standard on our loan portfolio, including unfunded construction commitments, on a collective basis by assets with similar risk characteristics. This methodology replaces the probable incurred loss impairment methodology. In addition, interest and fees receivable and amounts included in due from borrowers, other than reimbursements, which include origination, modification and other fees receivable are also analyzed for credit losses in accordance with the CECL standard, as they represent a financial asset that is subject to credit risk. Further, CECL requires credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities if management does not intend to sell and does not believe that it is more likely than not, they will be required to sell. As allowed under the CECL standard that we have adopted, as a practical expedient, the fair value of the collateral at the reporting date is compared to the net carrying amount of the loan when determining the allowance for credit losses for loans in pending/pre-foreclosure status, as defined. Fair value of collateral is reduced by estimated cost to sell if the collateral is expected to be sold. The CECL standard requires an entity to consider historical loss experience, current conditions, and a reasonable and supportable forecast of the economic environment. We utilize a loss-rate method for estimating current expected credit losses. The loss rate method involves applying a loss rate to a pool of loans with similar risk characteristics to estimate the expected credit losses on that pool of loans. In determining the CECL allowance, we consider various factors including (1) historical loss experience in its portfolio, (2) loan specific losses for loans deemed collateral dependent based on excess amortized cost over the fair value of the underlying collateral, and (3) its current and future view of the macroeconomic environment. We also utilize a reasonable and supportable forecast period equal to the contractual term of the loan plus any applicable short-term extensions that are reasonably expected for construction loans. Loans, interest receivable, due from borrowers, unfunded commitments, and (available-for-sale debt) investment securities are all presented net on the Condensed Consolidated Balance Sheets with expanded disclosures in the notes to the condensed consolidated financial statements. The change in the balances during the reporting period are recorded in the Condensed Consolidated Statements of Operations under the provision for credit losses.
Previous wording
For the nine-month period ended September 30, 2024, we reported $0.2 million gain on equity securities compared to a $0.4 million gain on equity securities for the nine months ended September 30, 2023.
Current wording
For the three month period ended March 31, 2025, we reported a $0.1 million loss on equity securities. For the three month period ended March 31, 2024, we reported a $0.4 million gain on equity securities.
Previous wording
Net loss attributable to common shareholders for the three months ended September 30, 2024 was $6.1 million, or $0.13 per share, compared to net income to common shareholders $5.2 million, or $0.12 per share, for the three months ended September 30, 2023.
Current wording
Net loss attributable to common shareholders for the three months ended March 31, 2025 was $0.2 million, or $0.00 per share, compared to net income attributable to common shareholders of $3.6 million, or $0.08 per share, for the three months ended March 31, 2024.
Previous wording
Our long-term cash needs will include principal payments on outstanding indebtedness and funding of new mortgage loans. We project anticipated cash requirements for our operating needs as well as cash flows generated from operating activities available to meet these needs. Our short-term cash requirements primarily include funding of loans and construction draws and payments for usual and customary operating and administrative expenses, such as interest payments on notes payable, employee compensation, sales, marketing expenses and dividends. Additionally, the December 2024 Notes are due and payable on December 30, 2024. We intend to repay the December 2024 Notes with a combination of cash flow from operations, proceeds from our existing credit facilities (i.e., Churchill and Needham), and proceeds from the sale of loans (as described in Note 19 – Subsequent Events). Accordingly, we believe that our current cash balances, and our anticipated cash flows from operations will be sufficient to fund the operations for the next 12 months.
Current wording
We project anticipated cash requirements for our operating needs as well as cash flows generated from operating activities available to meet these needs. Our short-term cash requirements primarily include funding of loans, dividend payments, interest and principal payments on our indebtedness, including repayment/refinancing of the Notes maturing in September 2025, and payments for usual and customary operating and administrative expenses, such as employee compensation and sales and marketing expenses. Based on this analysis, we believe that our current cash balances, availability on our debt facilities, and our anticipated cash flows from operations will be sufficient to fund the operations for the next 12 months.
Previous wording
On March 2, 2023, we entered into a Credit and Security Agreement (the “Credit Agreement”), with Needham Bank, a Massachusetts co-operative bank, as the administrative agent ( “Needham”) for the lenders party thereto (the “Lenders”) with respect to a $45 million revolving credit facility (the “Needham Credit Facility”). Under the Credit Agreement, we have the right to request an increase in the size of the Needham Credit Facility up to $75 million, subject to certain conditions, including the approval of the Lenders. As of September 8, 2023, the Needham Credit Facility was increased to $65 million. Loans under the Needham Credit Facility accrue interest at the greater of (i) the annual rate of interest equal to the “prime rate,” as published in the “Money Rates” column of The Wall Street Journal minus one-quarter of one percent (0.25%), and (ii) four and one-half percent (4.50%). All amounts borrowed under the Needham Credit Facility are secured by a first priority lien on virtually all our assets. Assets excluded from the lien include real estate owned by us (other than real estate acquired pursuant to foreclosure), and mortgages sold under the Churchill Facility. The Needham Credit Facility expires March 2, 2026 subject to our right to extend the term for one year upon the consent of the Needham and the Lenders, which consent cannot be unreasonably withheld, and so long as we are not in default and satisfy certain other conditions. All outstanding revolving loans and accrued but unpaid interest is due and payable on the expiration date. We have the right to terminate the Needham Credit Facility at any time without premium or penalty by delivering written notice to Needham at least ten (10) days prior to the proposed date of termination. The Needham Credit Facility is subject to other terms and conditions, including representations and warranties, covenants and agreements typically found in these types of financing arrangements, including a covenant that requires us to maintain: (A) a ratio of Adjusted EBITDA (as defined in the Credit Agreement) to Debt Service (as defined in the Credit Agreement) of less than 1.40 to 1.0, tested on a trailing-twelve-month basis at the end of each fiscal quarter, commencing with the quarter ended June 30, 2023; (B) a sum of cash, cash equivalents and availability under the facility equal to or greater than $10 million; and (C) an asset coverage ratio of at least 150%. At September 30, 2024, the amount outstanding under the Needham Credit Facility was $35.5 million, which was accruing interest of an effective rate of 7.75% per annum.
Current wording
On March 20, 2025, we entered into a new Credit Agreement with Needham Bank, replacing the prior Needham Credit Facility, which was fully repaid and terminated on the same date. The new facility matures on March 2, 2026, and includes an option to extend the term by one year upon satisfaction of certain conditions. Under the new agreement, SN Holdings LLC (“SN Holdings”), our wholly owned subsidiary, serves as the borrower, and Sachem Capital, the parent, serves as guarantor of all obligations. The Needham Credit Facility is secured by a first priority lien on all the assets of SN Holdings, and includes a requirement that SN Holdings maintain assets equal to at least two times the outstanding principal balance under the facility. In addition, SN Holdings is required to collaterally assign to Needham Bank a portfolio of mortgage loans with an outstanding principal balance of no less than the greater of $30 million or the full drawn balance on the facility. Sachem Capital, as guarantor, has also granted Needham a blanket lien on substantially all of its assets, with the ability to request lien releases to facilitate other financings. The Needham Credit Facility, at the subsidiary borrower level, is subject to other terms and conditions, including representations and warranties, covenants and agreements typically found in these types of financing arrangements, including a covenant that requires SN Holdings to maintain: (A) a ratio of Adjusted EBITDA (as defined in the Credit Agreement) to Debt Service (as defined in the Credit Agreement) of not less than 1.40 to 1.0, tested on a trailing-twelve-month basis at the end of each fiscal quarter; (B) a sum of cash, cash equivalents (at the consolidated guarantor level) and availability under the facility equal to or greater than $10 million; and (C) an Asset Coverage Ratio (as defined) of at least 150%. As of March 31, 2025, SN Holdings had borrowed $36.1 million under the facility. The Company was in compliance with all covenants under the new agreement as of March 31, 2025. On April 1, 2025, SN Holdings made a principal payment of $9.9 million, further reducing the outstanding indebtedness to $26.2 million.
Previous wording
As of September 30, 2024, our contractual obligations include unfunded amounts of any outstanding construction loans and unfunded commitments for loans as well as contractual obligations consisting of operating leases for equipment, software licenses and investment in partnerships.
Current wording
As of March 31, 2025, our contractual obligations include unfunded amounts of any outstanding construction loans and unfunded commitments for loans and limited liability company investments.
Previous wording
See “Note 2 — Significant Accounting Policies” to the financial statements for explanation of recent accounting pronouncements impacting us included elsewhere in this Report and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Current wording
See “Note 2 — Significant Accounting Policies” to the unaudited condensed consolidated financial statements for explanation of recent accounting pronouncements impacting us.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
Critical Accounting Policies and Recent Accounting Pronouncements