Sachem Capital: Ongoing Loan Problems Downgrade Debt To Hold

2025-04-08 08:33:35 ET

Summary

• Sachem Capital's 2024 revenue declined over 10%, leading to an $18 million operating loss due to a shrinking loan portfolio and increased credit losses.
• The company sold only $55.8 million of troubled loans at less than 65 cents on the dollar, falling short of expectations.
• Despite loan performance issues, baby bonds are fairly valued with yields over 20%, and the company is generating positive operating cash flow.
• Management is optimistic about 2025, focusing on stabilizing the portfolio and future dividend growth, but I remain cautious and will not add to my position.

Introduction

Sachem Capital is a real estate investment trust that invests in short-term mortgage loans. Back in November, I wrote about how two dividend cuts would make the company’s baby bonds more attractive. At the time, I had invested in the company’s longest duration baby bond ( SCCG ). Following third quarter earnings, the company was trying to sell a swath of nonperforming loans and get back to underwriting new loans. After the fourth quarter earnings, I’ve become concerned with the company’s continuing loan performance problems and have opted to downgrade the baby bonds to a hold....

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