Sachem Capital Corp. Common Shares

Please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to hand it over to Investor Relations. Thank you, you may begin.

Good morning, and thank you for joining SACRE & CAPITOL Corp's first quarter 2025 Earnings Conference call. On the call from SACRE & CAPITOL today is Chief Executive Officer John Bolano, CPA, and Interim Chief Financial Officer Jeff Lawrievin. This morning the company announced its operating and financial results for the quarter ended March 31, 2025. The press release is posted on the company's website, .sacreandcapitalcorp.com. In addition, the company filed its Form 10Q today, which can be accessed on the company's website as well as the SEC's website at .sec.gov. As a reminder, remarks made on today's conference call may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may card actual results to differ materially from those discussed today. We do not undertake any obligation to update our forward-looking statements in light of new information or future events. For a more detailed discussion of the factors that may affect the company's results, please refer to our earnings release for this quarter and to our most recent SEC filings. During this call, the company will be discussing certain non-GAAP financial measures. More information about these non-GAAP financial measures and the reconciliations to the most directly comparable GAAP financial measures are contained in our SEC filings. With that, I'll turn the call over to John.

Thank you, and thanks to everyone for joining us today. We will begin by reviewing our operating and financial results for the first quarter and discuss the future as we continue working towards growing our lending platform and restoring bottom-line profits to the company. The difficulties of last fall, coupled with our desire to protect our balance sheets from non-accredited finance, set the stage for stability this quarter and further illuminated the path of our recovery to the second quarter of 2025. We continue to search for accredited capital to build our business. To add up today, we have two signed term sheets with well-respected lenders. We will keep you informed of our progress on these financing transactions. In 2025, our portfolio is malperforming as expected. As stated during our last earnings call, our post-COVID loan fundings are performing famously. While we still have $153 million of non-performing loans or $124 million of NPLs net, compared to $103 million of non-performing loans net as of December 31, 2024, it did not incur any material incremental markdowns during the quarter. The net increase in NPLs was due to our April Florida mortgage moving from performing to non-performing during the quarter as well as other loans totaling $25 million. Further, significant progress has been made as we continue to work through all problem assets. We realize a significant part of our dividend growth plan is directly tied to unlocking our non-performing loans. As of March 31, our book value stood at $2.57 per share, down less than 3% from year-end 2024. Further, we have successfully diversified our business model and cash flow sources through two successful partnerships. These partnerships not only add stability to our income, but create opportunities for further growth. Urbane New Haven brings expertise in real estate development and construction services and oversees our construction loan servicing and asset management. Additionally, they have added significant expertise to further enhance our underlying guidelines, as well as our construction service policies and procedures. Together, our target is to build a pipeline of development projects where we can better control risk and returns and take some current benefits from interest on invested capital and potential asset appreciation over time. As I mentioned on our last call, we currently have four Urbane Real Estate Development projects underway. One in Westport, Connecticut and three in Copernic Grove, Florida. We will continue to provide updates as these projects advance toward completion and lease-up. Second, SEMCRE Capital, a commercial real estate finance platform that provides debt capital solutions for multi-family, workforce housing and industrial real estate owners, aligns with our focus on multi-family housing as a strong credit product, especially in the current high-class environment where producing new residential supply is increasingly challenging and home ownership is less affordable. The SEM partnership allows us to participate in multi-family finance with strong borrowers, borrowers' sponsorship, while earning great risk-adjusted returns. Prior to SEM, this market was not available to us due to our elevated cost of capital. At March 31, 2025, we invested and aggregate a $51.4 million in projects managed by SEMCRE, the sixth investment fund and the fund's manager. In the first quarter, these investments generated approximately $2 million in revenue, representing an attractive low-risk double-digit yield. According to the macro environment, our industry continues to face a wide range of headwinds. Ongoing tariff uncertainty has contributed to renewed volatility in the financial markets, making cost projections and incremental capital sources less predictable. Further, many real estate construction projects will be affected by increased costs from materials and supplies originated from outside of the U.S. We do expect product shortages resulting from supply chain issues. Expectations are for interest rates to decline during 2025. However, rates remain elevated as the markets look for stability moving forward. While the volume of real estate turned actions is gradually recovering, it's still well below the levels we saw in the immediate post-pandemic period. Pricing for many property types and across many markets continues to turn downward as buyers struggle with high real estate costs and costly finance. Also, restrictive bank lending policies are still limiting the amount of capital our borrowers can access for takeout financing. While these challenges persist, they also create meaningful opportunities for stage-run. Concentrating the constraints in the broader lending markets, our pipeline of new origination opportunities remains robust and well beyond what we have the capacity to take on today. We will continue to stay highly selective in pursuit of new loans, and we will remain focused on single-family and multi-family residential assets in growing markets where market fundamentals remain strong. Our underwriting process continues to pursue highly experienced and creditworthy sponsors. As I stated earlier, our ability to work through the remaining 124 million of our net NPLs on our book can unlock significant capital to drive earnings and tap slow growth. Our success in this area will directly benefit our earnings and increase dividends for our shareholders. We will continue to seek incremental sources of a treat of capital to strengthen our balance sheet and support further growth. We are very excited with the opportunity ahead, and I will now turn the call over to Jeff.

Thank you, John. I'll walk you through Station Capital's financial highlights for the first quarter ended March 31, 2025. Starting with revenues, total revenues in the first quarter was $11.4 million compared to $16.8 million for the same period in 2024. The .9% decrease primarily reflects the cumulative effect of fewer loan originations over the past 15 months, resulting in a compression in our Earning Unpaid Principle Loan Balance portfolio alongside elevated levels of non-performing loans and conversion of loans through foreclosure to real estate loans. On a positive note, income from our preferred membership in Schen Creek LLT investment earnings increased approximately .7% as compared to the first quarter of 2024. Turning to expenses, total operating expenses were $10.4 million, down from $12.5 million in the prior year's quarter, a .9% reduction. The primary drivers were low interest and lower interest in amortization expenses due to the repayment of $58.2 million in unsecured retail notes in 2024, as well as reductions in compensation and employee benefits and credit loss provisions. On net results, this resulted in gap net income of $0.9 million and after payment of a Series A Preferred Fact Evidence of $1.1 million, net loss attributable to common shareholders was $0.2 million, or 0 cents per share, compared to $3.6 million of income, or 8 cents per share for the first quarter of 2024. On balance sheet position, total assets were $491.4 million, nearly flat compared to $492 million at December 31, 2024. Total liabilities increased just lightly to $312.1 million, mainly due to higher repurchase agreements, partially offset by reductions in lines of credit and accounts payable. Our outstanding debt at March 31 was $306 million, this resulting in total asset to total liability coverage of 1.57 times. Our shareholder's equity stands at $179.3 million, resulting in debt to equity ratio of 1.7 times, or .3% debt and .7% equity. On book value, as John mentioned earlier, our book value was very stable in the quarter, as expected. Book value per common share at March 31, 2025 was $2.57. This is down from $2.64 since that year ended 2024. This 7-cent decrease was nearly solely driven by $3.5 million in preferred and common dividends paid during the first quarter that is in excess of book net earnings. The stability of our book value demonstrates the work we continue to complete to resolve delinquencies, sell non-performing loans, and clear REO off our books. While the market continues to evolve, impacting the entire industry, we are confident that the major issues are behind us as we look to return to growth. On liquidity and capital resources, cash and cash equivalents increased to $24.4 million from $18.1 million at the start of the year. During the first quarter, we closed on a replacement credit facility with Needham Bank. This facility is nearly identical to the previous credit facility and provides for up to $50 million of committed available liquidity for stations at an attractive interest rate, subject to an assigned and pledged borrowing-based assets. We continue to maintain solid liquidity with a focus on prudent management of debt maturities and funding requirements, specifically with regard to our $56 million in retail notes coming due in September, while we would expect to be able to fully repay the notes from drawdowns from our existing credit facilities and entertaining cash on hand from principal repayments from our mortgage loans, we are in advanced stages of definitive document negotiation on two separate credit facilities, one of which will have committed term loan funds available to us that would provide proceeds to repay and replace the maturing bond principal, avoiding any additional balance sheet and loan portfolio compression. On dividends, I'll first note we declared and paid our first quarter of 2025 dividends during March of 2025. Our board regularly evaluates our dividend distribution policy on an ongoing basis, balancing our operational performance, federal tax requirements, and the importance of maintaining long-term financial flexibility. As a reminder, going forward, the company has aligned the timing of its common dividend declarations and payments to be in line with the timing of our Series A preferred stock dividends, therefore occurring in March, June, September, and December. I will now send the call back to John for closing comments.

Thanks Jeff. We are excited with our recent performance and believe station is positioned to be a market leader in small balance real estate finance. We look forward to resolving our remaining NPLs to unlock capital for growth and accessing new sources of a clean capital to refill our loan pipeline. While our recovery is well underway, more time is needed to be fully back on track. We will continue to manage our business, grow both value and our dividends with the ultimate goal to produce value for our shareholders. Thank you and we will now open the call to questions from our analyst.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone's keypad. A confirmation tone will indicate your line is in the question 2. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment please while we poll for questions. The first question is from Gorav Neta from Alliance Global Partners. Please go ahead.

Thank you. Good morning. I wanted to follow up on your comments around two term sheets with the different lenders and just wanted to get some details. So if you were to execute on those two term sheets, would that provide funds to address the upcoming debt maturity or would that provide more funds than that to maybe allocate to loan originations?

Hi, Gorav.

Good morning. The facility that you're talking about comes in two components. There is an initial funding and a delayed draw. The initial funding will provide some work in capital for us to build our business. The second, the delayed draw will provide funds

directly related to the payment of the unsecured notes in September. Okay, so it's not like a, it won't be like a note, it's

going to be like a trend line, right?

No, it is a turn note.

Okay, understood.

I'll add real quick, one of the two is the term that John just described and we're reserving a portion of that to avoid balance sheet compression via the delayed draw. The other facility is a new facility similar to like a Churchill and others that would provide other growth on kind of really a direct match of use of the funds for growth assets. So, there is a significant component of the two facilities that is related to give us expansionary growth while a portion of the one is protection, basically liquidity protection against the, from a compression perspective on the, the reduction of the bond in September.

Okay, understood. Maybe on the macro environment, you touched upon some headwinds in the market. I was wondering if you would maybe comment on what you guys saw in April in the loan market as well as credit spreads and loan origin and opportunities?

Yeah, you know, and you've heard me say this countless times. We are never at a loss for opportunity. We have a significant pipeline. As we discussed, we have more opportunities than we have capital available. Seems to be the nature of our business. The significant pricing differences that we are noticing is single family and multi-family are commanding better pricing. There is a push in the world today where they are the most thought after app that collapsed in our industry. So, lenders are aggressive with respect to mixed use, mixed use development, you know, residential with a retail component on the first floor. We're able to really maintain our standard pricing, which is 12% interest, 2% origination. And if there is a construction component, we still need to get our construction service rate. And we expect to see further rate compression in the single family, multi-family space. Again, it's just a preferred asset class and a good portion of

the industry's capital is flowing into that area. Okay, thank you. That's all I have. Thank you.

The next question is from Christopher Nolan from Lattenberg Salmon. Please go ahead.

On the new facilities that you guys mentioned, are they fixed rate or would you benefit if interest rates were cut?

We would benefit if rates were cut on one of the facilities.

Our delayed draw facility will be our fixed rate.

Great. What sort of advance rates are you getting on these various facilities, including Churchill?

You know, up until recently, Churchill was kind of all over the board and they seem to have stabilized a bit. We are getting between 60 and 70% advance rates. They are becoming a little more specific with asset price and quality. One of our potential facilities could have advance rates up to 75 or 80%, which is very attractive to us, but it is a very specific asset class. It will be Reggie and multi-family specifically. The delayed draw facility has a lot more flexibility with advance. You know, in our world, we are at 70% LTV, so we are getting much less than the amount needed to close these things. We have to maintain our liquidity to do this, so we are basically getting, in most cases, 70% on 70%.

So, it

is a special forecast pretty quick, but it does give us a nice amount of leverage and it does work with our loan covenants at one and a half times.

And then, what do all these changes, I mean, I know the baby bonds and post-leverage limits on you guys, as those mature and pay off, should we expect the leverage levels of the balance sheet to start to go up or stay around current levels?

That is an interesting question. You know, our new facilities, specifically one of our facilities, will have a one and a half times asset coverage ratio. Jeff, if you would like to expand on that, it does look like we are going to be tied to a one and a half times asset coverage ratio going forward.

Yeah, still for, at the collateral level, it is, in terms of this, it is at a one and a half times. I mean, even when you do look at the baby bonds, the last, you know, the maturity of the baby bonds, we have the 930 maturity, our next maturity is out at 12, 1231 of 26. And then we have a first quarter, second quarter, and third quarter maturity in 27. So, unless we were to do some kind of financing, you know, even just relative to the baby bonds, we have the one and a half times, you know, coverage on those bonds adventures all the way out to June 30 of 27. So, fans, an early pay off of, you know, or redemption of those bonds.

Okay, that's it for me. Thank you.

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