BRANFORD, Conn.--(BUSINESS WIRE)--Sachem Capital Corp. (NYSE American:SACH) today announced its financial results for the second quarter ended June 30, 2019. In addition, the Company announced that it will host a conference call on Friday, August 16, 2019 at 8:00 a.m. Eastern Daylight Time.
John Villano, CPA, co-chief executive officer and chief financial officer of Sachem Capital Corp., stated:
“We made substantial progress during the second quarter of 2019, both financially and operationally, which we believe has helped build a solid foundation for growth and improved profitability in the second half of 2019. Most notably, we raised net proceeds of $21.7 million through a public bond offering of 7.125% unsecured, unsubordinated notes. We also raised net proceeds of approximately $15.5 million in the first half of 2019 through our at-the-market (ATM) offering facility. As a result, on June 25, 2019 we repaid the entire outstanding balance on our $35 million revolving credit facility, including principal, accrued but unpaid interest and other fees, and terminated the facility.
“By replacing our secured, variable rate revolving credit facility with unsecured fixed rate notes, we believe we have greater flexibility to incur additional indebtedness on more favorable terms, reduced significant banking charges related to the servicing of the credit facility and, most importantly, reduced credit exposure to a single asset class (i.e., residential fix-and-flip) that we feel is highly fluid (high loan turnover) and overpriced compared to other opportunities. We now have the flexibility to lend capital where we have compelling loan to value prospects.
“In total, $30.6 million was paid towards principal on the credit facility during the second quarter of 2019 and accordingly, these loan repayments temporarily slowed the growth of our mortgage loan portfolio. Additionally, our earnings per share were adversely impacted in the second quarter of 2019 due to the increased share count and substantial non-recurring costs associated with the termination of our prior credit facility, the majority of which was a non-cash expense. Total termination charges were approximately $780,000, or $0.04 per common share (based on the weighted average number of shares outstanding at June 30, 2019.) Nevertheless, we now have a much stronger balance sheet and greater flexibility to originate new loans, which we expect to help drive cash flow as well as shareholder value going forward. Even with the termination costs, net cash provided by operations in the first half of 2019 increased approximately 27.6% to $3.7 million, compared to the first six months of 2018.
“Looking ahead, we view debt offerings similar to our recent notes offering as an attractive option to raise flexible non-dilutive capital on favorable terms, if and when needed, in order to further scale the business and take advantage of market conditions as appropriate. We may also consider a more limited revolving credit facility if the terms are reasonable. In the meantime, we recently completed a $10 million public offering of common shares, which is intended to fund new real estate loans going forward and provide us additional working capital. We also have the ability to raise additional working capital by selling equity under our existing at-the-market offering facility. Given the strength of our balance sheet, (as of June 30, 2019, our equity-to debt ratio was approximately 3:1, which does not take into account the recent $10 million equity offering), we believe we now have a more flexible, expandable platform to grow business operations. As a result, we remain encouraged by the outlook for the second half of the year, as well as the long-term prospects for the business.”
On July 11, 2019, the Company declared a dividend of $0.12 per common share, which was paid on July 29, 2019 to shareholders of record on July 22, 2019. The total amount of the dividend payment was approximately $2.35 million.
Results of operations – three months ended June 30, 2019
Total revenue for the three months ended June 30, 2019 was approximately $3.07 million compared to approximately $3.04 million for the three months ended June 30, 2018, an increase of approximately 1%. Compared to the 2018 period, for the 2019 period, interest income was lower by about $60,000 and other income was lower by approximately $25,000. These reductions were offset by increase of approximately $94,000 in fee income and $13,000 in rental income.
Total operating costs and expenses for three months ended June 30, 2019 were approximately $1.9 million compared to $832,000 for the three months ended June 30, 2018 period. The increase in operating costs and expenses is primarily attributable to $780,000 of expense incurred in connection with the termination of our $35 million revolving credit facility. In addition to being a non-recurring charge, $439,446 represents the write-off of unamortized deferred financing costs, a non-cash item. Interest and amortization of deferred financing costs increased approximately $70,000 reflecting the increase in the mortgage loan portfolio.
Net income for the three months ended June 30, 2019 was approximately $1.1 million, or $0.06 per share, compared to $2.2 million, or $0.14 per share for the three months ended June 30, 2018.
Results of operations – six months ended June 30, 2019
Total revenue for the six months ended June 30, 2019 was approximately $6.4 million compared to approximately $5.8 million for the six months ended June 30, 2018, an increase of approximately 11.3%. The increase in revenue represents an increase in lending operations. For the 2019 period, interest income was approximately $5.1 million and net origination fees were approximately $705,000. In comparison, for the six months ended June 30, 2018, interest income was approximately $4.3 million and net origination fees were approximately $689,000. Finally, fee income increased by approximately $109,000. These increases were offset, in part, by a reduction in other income of $203,000.
Total operating costs and expenses for six months ended June 30, 2019 were approximately $3.2 million compared to $1.6 million for the six months ended June 30, 2018 period, an increase of approximately 104%. The increase in operating costs and expenses is primarily attributable to $780,000 of expense incurred in connection with the termination of the credit facility, interest and amortization of deferred financing costs, which increased approximately $469,000 reflecting the increase in our mortgage loan portfolio as well as an increase in the interest rate on our credit facility, a $312,000 increase in compensation expense (including stock-based compensation) and a $107,000 increase in general and administrative expenses.
Net income for the six months ended June 30, 2019 was approximately $3.2 million, or $0.19 per share. In comparison, net income for the six months ended June 30, 2018 was $4.2 million, or $0.27 per share.
Investor Conference Call
The Company will host a conference call on Friday, August 16, 2019 at 8:00 a.m., Eastern Daylight Time, to discuss the Company’s financial results for the second quarter ending June 30, 2019 as well as the Company’s corporate progress and other meaningful developments.
Interested parties can access the conference call by calling 844-369-8770 for U.S. callers, or +862-298-0840 for international callers. The call will be available on the Company’s website via webcast at https://www.sachemcapitalcorp.com. John Villano, Co-Chief Executive Officer and Chief Financial Officer will lead the conference call and other Sachem Capital executives will also be available to answer questions.
A webcast will also be archived on the Company’s website and a telephone replay of the call will be available approximately one hour following the call, through 8:00 a.m. on Friday, August 30, 2019, and can be accessed by calling: 877-481-4010 for U.S. callers or +919-882-2331 for international callers and entering conference ID: 53272.
About Sachem Capital Corp.
Sachem Capital Corp. specializes in originating, underwriting, funding, servicing and managing a portfolio of first mortgage loans. It offers short term (i.e., three years or less) secured, nonbanking loans (sometimes referred to as “hard money” loans) to real estate investors to fund their acquisition, renovation, development, rehabilitation or improvement of properties located primarily in Connecticut. The Company does not lend to owner occupants. The Company’s primary underwriting criteria is a conservative loan to value ratio. The properties securing the Company’s 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. Each loan is also personally guaranteed by the principal(s) of the borrower, which guaranty may be collaterally secured by a pledge of the guarantor’s interest in the borrower. The Company also makes opportunistic real estate purchases apart from its lending activities. The Company believes that it qualifies as a real estate investment trust (REIT) for federal income tax purposes and has elected to be taxed as a REIT beginning with its 2017 tax year.
Forward Looking Statements
This press release may contain forward-looking statements. All statements other than statements of historical facts contained in this press release, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words “anticipate,” “estimate,” “expect,” “project,” “plan,” “seek,” “intend,” “believe,” “may,” “might,” “will,” “should,” “could,” “likely,” “continue,” “design,” and the negative of such terms and other words and terms of similar expressions are intended to identify forward- looking statements.
We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to several risks, uncertainties and assumptions as described in our Annual Report on Form 10-K for 2018 filed with the U.S. Securities and Exchange Commission on March 29, 2019. Because of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this press release may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We disclaim any duty to update any of these forward-looking statements.
All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this press release. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties.
|June 30,||December 31,|
|Cash - restricted||-||59,549|
|Mortgages receivable, affiliate||869,627||879,457|
|Interest and fees receivable||1,492,256||1,397,038|
|Due from borrowers||1,211,361||695,218|
|Property and equipment, net||1,320,707||1,180,107|
|Deposits on property and equipment||189,481||12,000|
|Real estate owned||4,936,787||2,943,438|
|Deferred financing costs||31,942||553,597|
|Liabilities and Shareholders' Equity|
Unsecured unsubordinated fixed rate notes
|Line of credit||-||27,219,123|
|Accounts payable and accrued expenses||310,712||316,413|
|Security deposits held||7,800||7,800|
|Advances from borrowers||262,764||317,324|
|Due to shareholder||2,217,000||1,200,000|
|Capital leases payable||72,622||-|
|Commitments and Contingencies|
|Preferred shares - $.001 par value; 5,000,000 shares authorized; no shares issued||-||-|
|Common stock - $.001 par value; 50,000,000 shares authorized;|
|18,905,586 and 15,438,621 issued and outstanding||18,906||15,439|
|Retained earnings (accumulated deficit)||739,137||(405,483||)|
|Total shareholders' equity||69,416,073||52,802,815|
|Total liabilities and shareholders' equity||$||95,929,721||$||86,014,050|
STATEMENTS OF OPERATIONS
|Three Months||Six Months|
|Ended June 30,||Ended June 30,|
|Interest income from loans||$||2,315,325||$||2,375,797||$||5,066,405||$||4,338,170|
|Origination fees, net||340,823||340,052||705,540||688,600|
|Late and other fees||140,537||49,986||187,033||84,083|
|Rental income, net||47,255||33,975||72,904||77,730|
|Net gain on sale of real estate||-||7,149||-|
|Operating costs and expenses:|
|Interest and amortization of deferred financing costs||452,406||381,964||1,073,454||604,920|
|Stock based compensation||4,107||-||8,214||-|
|Compensation, fees and taxes||465,193||299,729||849,420||545,304|
|Other expenses and taxes||17,139||21,121||31,332||55,601|
|Expense in connection with termination of LOC||779,641||-||779,641||-|
|General and administrative expenses||103,909||81,297||269,358||162,660|
|Total operating costs and expenses||1,921,993||832,082||3,212,815||1,576,079|
|Basic and diluted net income per common share outstanding:|
|Weighted average number of common shares outstanding:|
STATEMENTS OF CASH FLOW
|Ended June 30,|
|CASH FLOWS FROM OPERATING ACTIVITIES|
|Adjustments to reconcile net income to net cash provided by operating activities:|
|Amortization of deferred financing costs||94,323||43,614|
|Stock based compensation||8,214||-|
|Gain on sale of real estate||(7,149||)||-|
|Abandonment of office furniture||12,000||-|
|Costs in connection with termination of line of credit||439,446||-|
|Changes in operating assets and liabilities:|
|(Increase) decrease in:|
|Interest and fees receivable||(449,809||)||(570,404||)|
|Due from borrowers||780,320||(105,350||)|
|Deposits on property||(177,481||)||(18,000||)|
|(Decrease) increase in:|
|Due to note purchaser||(176,619||)||(723,478||)|
|Advances from borrowers||(54,560||)||(50,166||)|
|NET CASH PROVIDED BY OPERATING ACTIVITIES||3,727,885||2,932,991|
|CASH FLOWS FROM INVESTING ACTIVITIES|
|Proceeds from sale of real estate owned||264,809||-|
|Acquisitions of and improvements to real estate owned||(342,598||)||(61,166||)|
|Purchase of property and equipment||(165,263||)||-|
|Principal disbursements for mortgages receivable||(28,516,128||)||(30,263,339||)|
|Principal collections on mortgages receivable||21,098,466||18,982,298|
|Proceeds from sale of mortgage receivable||-||1,200,000|
|NET CASH USED FOR INVESTING ACTIVITIES||(7,660,714||)||(10,142,207||)|
|CASH FLOWS FROM FINANCING ACTIVITIES|
|Proceeds from notes sold to shareholder||1,017,000||-|
|Proceeds from line of credit||42,720,829||45,727,947|
|Repayment of line of credit||(69,939,952||)||(33,424,454||)|
|Principal payments on mortgage payable||(2,947||)||(5,019||)|
|Financing costs incurred||(12,113||)||(584,967||)|
|Proceeds from mortgage payable||795,000||-|
|Mortgage on office building paid||(290,984||)||-|
|Proceeds from notes payable, net||71,820||-|
|Issuance of common stock-ATM, net||15,460,427||-|
|STATEMENTS OF CASH FLOW (continued)|
Ended June 30,
|Gross proceeds from issuance of fixed rate notes||23,000,000||-|
|Financing costs incurred in connection with fixed rate notes||(1,270,000||)||-|
|NET CASH PROVIDED BY FINANCING ACTIVITIES||6,869,787||8,476,202|
|NET INCREASE IN CASH AND RESTRICTED CASH||2,936,959||1,266,986|
|CASH AND RESTRICTED CASH- BEGINNING OF YEAR||158,859||954,223|
|CASH AND RESTRICTED CASH - END OF PERIOD||$||3,095,818||$||2,221,209|
|June 30,||June 30,|
|SUPPLEMENTAL DISCLOSURES OF CASH FLOWS|
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
During the six months ended June 30, 2018, the Company purchased a mortgage receivable from a third party at a discount in the amount of $21,433.
Real estate acquired in connection with the foreclosure of certain mortgages, inclusive of interest and other fees receivable during the six months ended June 30, 2018 amounted to $1,439,244.
The reversal of previously accrued capitalized costs during the six months ended June 30, 2018, amounted to $6,212.
Real estate acquired in connection with the foreclosure of certain mortgages, inclusive of interest and other fees receivable during the six months ended June 30, 2019 amounted to $1,962,669.
During the six months ended June 30, 2019, the Company purchased equipment for $13,005 subject to a capital lease.