Good morning, ladies and gentlemen, and welcome to the Sachem Capital Second Quarter 2021 Conference Call. At this time, all participants have been placed on a listen-only mode. And the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, David Waldman with Investor Relations. Sir, the floor is yours.

Good morning, everyone and thank you for joining Sachem Capital Corp's Second Quarter 2021 Conference Call. On the call with us today is John Villano, CPA, Chief Executive Officer and Chief Financial Officer of Sachem Capital. Yesterday, August 16, the company announced its operating results for the second quarter ended June 30, 2021 and its financial condition as of that date. The press release is posted on the company's website sachemcapitalcorp.com. In addition, the company filed its 10-Q with U.S. Securities and Exchange Commission today -- yesterday August 17, which can also be accessed on the company's website as well as the SEC's website at www.sec.gov. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 212-671-1021. Before Mr. Villano reviews the company's operating results for the second quarter of 2021 and the company's financial condition at June 30, 2021, we'd like to remind everyone that this conference call may contain forward-looking statements. All statements other than statements of historical facts contained in this conference call include 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, continued, design and the negative of such terms and other words in terms of similar expressions are intended to identify forward-looking statements. These forward-looking statements are based largely on the company's current expectations and projections about future events and trends that believes may affect its 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 the company's quarterly report on Form 10-Q for the second quarter of 2021 filed with the U.S. Securities and Exchange Commission on August 16, 2021 as well as its annual report on Form 10-K filed on March 31, 2021. Because of these risks uncertainties and assumptions, the forward-looking events and circumstances discussed in this conference call 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 the company believes that the expectations reflected in the forward-looking statements are reasonable, they cannot guarantee future results, level of activity, performance or achievements. In addition, neither the company nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. The company disclaims any duty to update any of these forward-looking statements. All forward-looking statements attributable to the company are expressly qualified in the entirety by these cautionary statements as well as others made in this conference call. You should evaluate all forward-looking statements made by the company in the context of these risks and uncertainties. With that, I'll now turn the call over to John Villano. Please go ahead, John.

Thank you, and thanks to everyone for joining us today. I am pleased to report that our company once again achieved solid financial results for the second quarter of 2021. Specifically, our quarterly revenue increased 56% to $6.7 million compared to $4.3 million for the same period of 2020. The increase in quarterly revenue was due in large part to an increase in interest income on our loan portfolio which increased 43% versus the same period last year. We also achieved net income of $2.5 million and generated over $6.1 million of cash flow from operations. We attribute these positive operating metrics to the fact the fix-and-flip market has been quite robust in our traditional markets as demand for property has outstripped supply. Nevertheless, our strategy continues to adhere to our current and strict underwriting guidelines, which we believe will allow us to continue to grow our loan portfolio while protecting and preserving capital in a manner that provides attractive risk-adjusted returns to our shareholders. At the same time, our access to the capital markets has provided us with liquidity to fuel our growth and to date, we raised approximately $114.5 million of unsecured unsubordinated notes. Although we have higher interest expense resulting from the issuance of the notes, we expect to benefit from the liquidity and financial flexibility provided by these securities. In addition we have in place a low-cost line of credit with Wells Fargo which is secured by the company's portfolio of short-term securities. The credit line bears interest at a rate of 1.5%, which is 1.75% below the prime rate as of June 30, 2021. More recently, we announced a $200 million master repurchase financing facility with Churchill MRA Funding, a subsidiary of Churchill Real Estate, an established real estate finance company based in New York.…

Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Your first question for today is coming from Tyler Batory. Please announce your affiliation then pose your question.

Hey Good morning. Yeah. Tyler Batory here from Janney. Appreciate you taking my questions and congratulations on all the progress that you've made here over the past couple of months. A couple of questions for me. And first I wanted to circle back on the rate compression topic if I could. Just help us think a little bit more potentially where that might bottom or shake out? And I think we're all aware of the variety of different factors that are causing the weighted average interest rates and yields to move a little bit lower. But if you could just address those and talk about how much of that is being driven by what's going on in the traditional residential fix-and-flip versus the expansion in the loan portfolio to some larger loans and some different borrowers as well?

Okay. Well thanks for the question Tyler. So to start off our overall weighted average interest rate portfolio-wide is just over 11.7% not including origination fees. And so most of our portfolio is being lent currently at interest rates greater than 10%. And what we're finding as we search for larger loans, better capitalized sponsors and more quality developers there's a desire for better rates. And in that regard, we are competing with some of the largest REITs in the country. And we are able to effectively compete. And our recent addition of Churchill funding will give us a phenomenal vehicle to cross the line into lower-cost finance, while still maintaining our margins. So for example our weighted average cost of capital now is about 7.5%. Our blanket -- our weighted average rate is at 11.7%. And if you compare our rate now on our Churchill facility at 4%, we can compete quite aggressively at 8%. And so what we're doing is we still have the same margin, we are still charging the same origination, but now with this new offering from Churchill we're able to spread our dollars around really creating a diversification of our portfolio from a higher-yield loan security to lower yield better quality with very similar margin.

Excellent. And then curious if you can talk a little bit more about the loan pipeline. I know you can't give specific guidance, but when you look at the growth in the first half of this year in terms of loan growth that's really tremendous. So just trying to get a sense of your thoughts around whether you think that pace is sustainable. And I'm really trying to get at how quickly you think you can start deploying some of the capital that you've been able to raise over the past couple of months?

So right now our -- we call it a whiteboard. Our whiteboard is a full computer screen. It is composed of over 90 loan requests at the moment. Now of course some will fall off some will be declined, some will be pushed to different periods. But right now the world is searching for capital and demand is fierce. Our job and the job of our underwriters is to pick the best of the bunch. And what we're seeing now is there's a lot of individuals entering this space that really shouldn't be here right? There's a little speculation here. Let's say it the way it is. Everybody has heard that it's a great way to make money. There's low-cost debt, but let's all get involved in the fix-and-flip business. And we're doing our very best to call those so-called newbies out of the space. So what's happening now is as we move into new markets, our reputation is giving us a first look at a lot of activity. And we're very prideful of our reputation in the market. And in many cases, we're able to seize a deal because of it. So, we see this demand continuing. Our challenge will be to pick the best of the best out of our significant supply of loan opportunity.

Okay, great. And then, I think last question for me. Just in terms of expenses, talk a little bit more about potentially some of the additional costs that come -- that might be coming through the P&L specifically on head count. Would you expect to continue to ramp that up as the year goes on, or do you think you're in a pretty good spot right now in terms of what you have on the payroll and whatnot?

In the past year or so, we really have bolstered our executive team. And we can all see that in the increase in compensation. I think we're done there. But to be very specific, we are promoting an individual within the firm to underwriting. We're looking to hire another underwriter. So we do have a few more people to add. I don't see those numbers being as significant expense drivers as we've had the past year. So I think at least in the next six-month period, I think are the big hits to compensation are pretty much over.

Okay, excellent. Okay. I think I’ll leave it there. That’s all for me. Thank you.

Thank you, Tyler.

Your next question is coming from Christopher Nolan. Please announce your affiliation then pose your question.

Hi. Chris Nolan, Ladenburg Thalmann. John, the SPAC is that going to be something funded? The equity for the SPAC, is that going to be funded from the Sachem Capital itself?

Yes it is. As individuals we -- our executives were offered to fund the SPAC. And that's usually not how we work here. We're all for the company. So, we feel -- for Sachem, we think it's a great vehicle for us to increase shareholder value. And with a successful de-SPAC, the return on our invested capital will be very accretive to bottom line earnings per share. And then further, through the mechanics of the SPAC, our investment is multiplied thereby giving us comfort in our bond covenants. Meaning quite simply, I don't have to run back and sell shares to build the capital base. If we all remember, we have a 1.5% asset coverage ratio with our unsecured notes. And the SPAC and the successful de-SPAC will increase that our ability to borrow without selling common equity.

Okay. And then, I guess how will that be funded? Would that just be funded to have balance sheet, cash holdings or from stock raises by Sachem itself?

No. It will be funded by cash on hand.

Okay. And then I guess, the challenge -- strategic challenge that you're facing going forward is cost of your capital. You're growing the business nicely, but you're also moving into lower-yielding investments. And it seems like on the capital front that you shifted your strategy a little bit. You're issuing more equity on a regular basis through the ATM. You have the preferred then you have the Churchill facility. Can you articulate a little bit in terms of how you see growing the capital base and how you see basically reining in some of the capital costs going forward?

So first, I want to agree that yes, our cost of capital is high. I mentioned earlier with the question from Janney, our weighted average cost of capital is approximately 7.5%. And as a lender that's high. We get it. Unfortunately as a small company trying to grow its balance sheet and build a better funding vehicle, access to affordable capital is sometimes difficult. And now with Churchill funding and our facility at Wells Fargo, we're able to borrow at less than half of our cost of capital. So the real – the exercise here is how quickly can we put this capital to work and how quickly can we replace our higher debt offerings, meaning the unsecured bonds. So that's really what we're trying to do here is to become more capital efficient. And sadly, there's no easy way to do that when you're relatively small scale in the REIT world.

Great. And final question for the Churchill. Is those going to be a sale of the loans, so you'll be booking gains on sale?

No. It's a true repurchase. So it's driven by a borrowing base. We select the loans that we would like to in effect sell to them. They will have an assignment of the note, should something occur that they can take ownership. These loans will remain on our balance sheet. And subject to their review and selection of the security of the notes we sent over it's all based on a borrowing base. And we're currently looking to establish that base right now. So we're – we sent them some securities for them to look at and review. And we have not drawn from them just yet. But like I said, we're building our borrowing base for maybe later in the third quarter.

That’s it for me. Thank you.

Your next question is coming from Brian Hollenden. Please announce your affiliation then pose your question.

Hey, good morning. Brian Hollenden from Aegis Capital. How should we think about the time frame to put the new capital – your new capital to work? Is that likely to be invested by year-end?

Good question. So we talked about having basically $105 million in cash, right? And that's a whole lot of money, sitting basically on the sidelines with the company with $300 million in assets. So let's just explain how we got there. So as we talked about, we raised – at June 30, we raised $41 million of preferred stock. Three days or four days later we had the funding of our overallotment maybe another $5 million and $25 million of ATM sales. In addition, right so we had a real surge of capital at June 30. But what was really pushing us to get liquid, right? It's not only the significant demand that we have, right? Our work in process – our loan work in process is huge. We also have $30 million of unfunded construction draws. These are projects in place and performing towards a completion and these developers call for funds. So we need to have a significant kind of – a significant chunk of cash available to support these developers. And then we need to have capital not only for our own safety and security should something occur. We all I think may agree that the world is in a very interesting place at the moment. And having a little bit of extra cash would not hurt. We're aware of where this real estate market is. We're on the 17th hole maybe or 16th hole of a round of golf. It's been very good for a long time. So we want to grow our portfolio. We want to be very selective, but we're not foolish thinking that this is going to go on for another 10 years. So there's a little bit of a defensive posture with selection criteria picking the best of the best that we can fund. So to answer your question I think we will – we have enough capital to get through the end of the year. We will do our best to utilize the cash we have on hand. And we are aware that idle cash is a drain on us as well. So our goal is to just find better quality loans, put it to work and be very mindful of economic conditions.

Okay. And that kind of dovetails to my next question. Net income margin is still compressed at 38% versus maybe 53% a year ago. As you put your capital to work can margins reach 50% again, or is the new level somewhere in the 40% range?

I think we can get back there. We spent a lot of money building the business over the past year or so. We talked about personnel. Our professional fees have been a little bit higher, getting some of these equity raises and things lined up. They all cost money. Also in finding the capital right to sell the bonds the deferred financing cost. There's an interest cost with that, that's amortized monthly. We think we can get there right? So, the idea was to build a better structure. I think we're getting there. We have a few more hires in place but we should be able to handle a significant amount of loan activity. And so yes all of this new activity should be much more accretive than we've gone through the past year.

And then last one for me. Can you talk about your -- kind of your $0.12 per share dividend. When should we anticipate earnings per share to kind of consistently cover or exceed that dividend level?

We're getting there. I don't want to forecast here but our business is growing. I'd like to think that by the end of the year we'll start to earn our $0.12. And we're not far from it to be honest. And it's just a question of time for us. So this is something our Board is working on and we're aware of it.

Thank you.

[Operator Instructions] There are no more questions in queue. I would now like to turn the floor back over to the moderators, for any closing remarks.

Thank you all for joining our call today. Any further questions, feel free to contact me. We will be happy to get back to you right away or feel free to contact Crescendo Communications for any investor inquiries. Thank you.

Thank you ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.