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What changed in Sachem Capital Corp.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Sachem Capital Corp.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+438 added−393 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-31)

Top changes in Sachem Capital Corp.'s 2023 10-K

438 paragraphs added · 393 removed · 321 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

122 edited+48 added−46 removed71 unchanged
Biggest changeThe following tables set forth information regarding the types of properties securing our mortgage loans outstanding at December 31, 2022 and 2021 and the interest earned in each category: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, ​ 2021 2022 Developer–Residential Mortgages $ 157,841,896 $ 229,943,558 Developer–Commercial Mortgages ​ 95,319,795 ​ 154,824,551 Land Mortgages ​ 20,755,891 ​ 46,499,044 Mixed Use ​ 18,383,627 ​ 29,366,115 Total Mortgages Receivable ​ $ 292,301,209 ​ $ 460,633,268 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended December 31, ​ ​ 2021 ​ 2022 ​ # of Loans Interest Earned % # of Loans Interest Earned % Residential ​ 388 ​ $ 12,044,928 ​ 54.0 ​ 296 ​ $ 21,274,891 ​ 49.9 Commercial 77 ​ 7,273,862 32.6 81 ​ 14,324,713 33.6 Land Mortgages 34 ​ 1,583,884 7.1 41 ​ 4,302,195 10.1 Mixed Use 21 ​ 1,402,856 6.3 26 ​ 2,717,018 6.4 Total 520 ​ $ 22,305,530 100.0 444 ​ $ 42,618,817 100.0 ​ At December 31, 2022: 272 loans, which accounted for approximately 43.49% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in Connecticut; 41 loans, which accounted for approximately 23.45% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in Florida; 54 loans, which accounted for approximately 12.85% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in New York; 20 loans, which accounted for approximately 4.54% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in Massachusetts; 21 loans, which accounted for approximately 4.89% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in New Jersey; six loans, which accounted for approximately 2.33% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in North Carolina: and eight loans, which accounted for approximately 1.69% of our loan portfolio, were secured by properties located in Maryland.
Biggest changeThe following tables set forth information regarding the types of properties securing our mortgage loans outstanding at December 31, 2023 and 2022 and the interest earned in each category: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, ​ 2023 2022 Residential $ 246,520,465 $ 229,943,558 Commercial ​ 186,523,426 ​ 154,929,551 Pre-Development Land ​ 35,920,038 ​ 46,499,044 Mixed Use ​ 30,271,442 ​ 29,366,115 Total Mortgages Receivable ​ $ 499,235,371 ​ $ 460,738,268 ​ At December 31, 2023: 184 loans, which accounted for approximately 39.8% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in Connecticut; 34 loans, which accounted for approximately 25.4% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in Florida; 39 loans, which accounted for approximately 13.8% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in New York; 13 loans, which accounted for approximately 5.9% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in Massachusetts; 11 loans, which accounted for approximately 3.4% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in New Jersey; four loans, which accounted for approximately 3.4% of the aggregate outstanding principal balance of our loan portfolio, were secured by properties located in North Carolina: and eight loans, which accounted for approximately 1.6% of our loan portfolio, were secured by properties located in Maryland.
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.
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.
We generate daily reports from our loan tracking software that provides us with detailed information on each loan in our portfolio including the maturity date of the loan, the date the last payment was received, the date the next payment is due, the amount, if any, in arrears, whether we have received any notice from the insurance carrier that a claim has been made or that coverage has been discontinued and whether we have received any notice from the taxing authority of a lien for non- payment of taxes.
We generate reports from our loan tracking software that provides us with detailed information on each loan in our portfolio including the maturity date of the loan, the date the last payment was received, the date the next payment is due, the amount, if any, in arrears, whether we have received any notice from the insurance carrier that a claim has been made or that coverage has been discontinued and whether we have received any notice from the taxing authority of a lien for non- payment of taxes.
The Market Opportunity In general, we believe that there is 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.
The Market Opportunity In general, we believe that there is 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, where, historically, substandard properties are improved, rehabilitated, and renovated and under-developed markets that are experiencing rapid growth due to population shifts.
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 maintain or improve our existing underwriting and loan criteria. Specifically, we believe that the following factors will impact our performance in 2023. ● Strong balance sheet.
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 maintain or improve our existing underwriting and loan criteria. Specifically, we believe that the following factors will impact our performance in 2024. ● Strong balance sheet.
At December 31, 2022, of the 444 mortgage loans in our portfolio, 40, or approximately 8.8%, were in the process of foreclosure. The aggregate outstanding principal balance and the accrued but unpaid interest and borrower charges on these loans as of December 31, 2022 was approximately $24.0 million, or approximately 5.2% of our mortgage loan portfolio.
In comparison, at December 31, 2022, of the 444 mortgage loans in our portfolio, 40 were in the process of foreclosure. The aggregate outstanding principal balance and the accrued but unpaid interest and borrower charges on these loans as of December 31, 2022 was approximately $24.0 million, or approximately 5.2% of our mortgage loan portfolio.
No other state accounted for more than four loans or 2.0% of our loan portfolio. Our Origination Process and Underwriting Criteria Our management and underwriting team are experienced in hard money lending under various economic and market conditions. Our chief executive officer, John L.
No other state accounted for more than five loans or 2.0% of our loan portfolio. Our Origination Process and Underwriting Criteria Our management and underwriting team are experienced in hard money lending under various economic and market conditions. Our chief executive officer, John L.
Finally, any loan with an original principal amount exceeding $5 million must be approved by the Board of Directors (the “Board”). Our primary objective is to grow our loan portfolio while protecting and preserving capital in a manner that provides for attractive risk-adjusted returns to our shareholders over the long term through dividends.
Finally, any loan with an original principal amount exceeding $5 million must be approved by the Board. Our primary objective is to grow our loan portfolio while protecting and preserving capital in a manner that provides for attractive risk-adjusted returns to our shareholders over the long term through dividends.
Lastly, our newly formed subsidiary, Urbane Capital, LLC, further bolsters our portfolio management by giving us the in-house expertise to resolve troubled loans and to complete construction projects to maximize shareholder value. ● Structuring flexibility.
Lastly, Urbane Capital, LLC, our subsidiary, further bolsters our portfolio management by giving us the in-house expertise to resolve troubled loans and to complete construction projects to maximize shareholder value. ● Structuring flexibility.
In addition, through our marketing efforts we are beginning to develop a brand identity in some of the other markets in which we operate, particularly those along the eastern seaboard as well as Texas. We believe we have developed a reputation among these borrowers for offering reasonable terms and providing outstanding customer service.
In addition, through our marketing efforts we are beginning to develop a brand identity in some of the other markets in which we operate, particularly those along the eastern seaboard. We believe we have developed a reputation among these borrowers for offering reasonable terms and providing outstanding customer service.
Sales and Marketing We do not engage any third parties for sales and marketing services other than Google advertising. Rather, we rely on our senior executive officers and our new marketing department to generate lending opportunities as well as referrals from existing or former borrowers, brokers, bankers and web-based advertising.
Sales and Marketing We do not engage any third parties for sales and marketing services other than Google advertising and the Scotsman Guide. Rather, we rely on our senior executive officers and our new marketing department to generate lending opportunities as well as referrals from existing or former borrowers, brokers, bankers and web-based advertising.
In 2022 we continued to execute on this strategy. Specifically, we adjusted and refined our business strategy to address changes in the marketplace and our growth to-date. ● We continue to strengthen our geographic footprint beyond Connecticut.
In 2023 we continued to execute on this strategy. Specifically, we adjusted and refined our business strategy to address changes in the marketplace and our growth to-date. ● We continue to strengthen our geographic footprint beyond Connecticut.
As a result, revenue from late payment fees increased initially. Notwithstanding our aggressive stance, we realized that certain borrowers may have difficulty staying current on 13 Table of Contents their obligations. Thus, if a borrower can demonstrate true “hardship”, we will not enforce our rights immediately and give the borrower an opportunity to cure its default.
As a result, revenue from late payment fees increased initially. Notwithstanding our aggressive stance, we realized that certain borrowers may have difficulty staying current on their obligations. Thus, if a borrower can demonstrate true “hardship”, we will not enforce our rights immediately and give the borrower an opportunity to cure its default.
Also, in the case of construction loans, the loan-to-value ratio is based on the post-construction value of the property. We rely on readily available market data, including appraisals when available or timely, automated valuation models (AVMs), recent sales transactions and brokers to evaluate the value of the collateral.
Also, in the case of construction loans, the loan-to-value ratio is based on the post-construction value of the property. We rely on readily available market data, including appraisals, automated valuation models (AVMs), recent sales transactions and brokers to evaluate the value of the collateral.
Villano, spends a significant portion of his time on business development as well as on 14 Table of Contents underwriting, structuring and servicing each loan in our portfolio. A principal source of new transactions has been repeat business from existing and former customers and their referral of new business.
Villano, spends a significant portion of his time on business development as well as on underwriting, structuring and servicing each loan in our portfolio. A principal source of new transactions has been repeat business from existing and former customers and their referral of new business.
As our business and mortgage loan portfolio has grown, we realize that late payments could adversely impact our performance and could adversely impact our ability to comply with loan covenants under a credit facility. As a result, over the last few years we have been more aggressive in asserting our right to collect late payment fees.
As our business and mortgage loan portfolio has grown, we realize that late payments could adversely impact our performance and could adversely impact our ability to comply with loan covenants under a credit facility. As a result, over the last few 13 Table of Contents years we have been more aggressive in asserting our right to collect late payment fees.
In October 2022, in connection with our acquisition of the assets of Urbane New Haven, LLC and formation of Urbane Capital, LLC, we hired Eric O’Brien as our senior vice president - asset management and Ralph Sylvester as our vice president - asset management. Both Mr. O’Brien and Mr. Sylvester are seasoned asset management professionals.
In October 2022, in connection with our acquisition of the assets of Urbane New Haven, LLC and formation of Urbane Capital, LLC, we hired Eric O’Brien as our senior vice president – asset management and Ralph Sylvester as our vice president – asset management. Both Mr. O’Brien and Mr.
Borrowers pay an application fee, an inspection fee, wire fee, bounced check fee and, in the case of construction loans, check requisition fee for each draw from the loan. In 2022, we added a construction management fee of 1% to 2% of the construction budget for construction loans.
Borrowers pay an application fee, an inspection fee, wire fee, bounced check fee and, in the case of construction loans, check requisition fee for each draw from the loan. Starting in 2022, we added a construction servicing fee of 1% to 2% of the construction budget for construction loans.
Our competitors include traditional lending institutions such as regional and local banks, savings and loan institutions, credit unions and other financial institutions as well as other market participants such as specialty finance companies, REITs, investment banks, 18 Table of Contents insurance companies, hedge funds, private equity funds, family offices and high net worth individuals.
Our competitors include traditional lending institutions such as regional and local banks, savings and loan institutions, credit unions and other financial institutions as well as other market participants such as specialty finance companies, REITs, investment banks, insurance companies, hedge funds, private equity funds, family offices and high net worth individuals.
In most cases, we will also make an on-site visit to evaluate not only the property but the neighborhood in which it is located. Finally, we analyze and assess selected financial and operational data provided by the borrower relating to its operation and maintenance of the property.
We also order title, lien and judgment searches. In most cases, we will also make an on-site visit to evaluate not only the property but the neighborhood in which it is located. Finally, we analyze and assess selected financial and operational data provided by the borrower relating to its operation and maintenance of the property.
At December 31, 2022, approximately 17.6% of the mortgage loans in our portfolio had a term of one year or less. If, at the end of the term, the loan is not in default and meets our other underwriting criteria, we will consider an extension or renewal of the loan at our then prevailing interest rate.
At December 31, 2023, approximately 86.5% of the mortgage loans in our portfolio had a term of one year or less. If, at the end of the term, the loan is not in default and meets our other underwriting criteria, we will consider an extension or renewal of the loan at our then prevailing interest rate.
However, over the last few years, we have extended our geographic footprint significantly. While most of our loans, by number and amount, are still made in Connecticut, the percentages are declining. At December 31, 2022, our mortgage loan portfolio was spread across 16 states.
However, over the last few years, we have extended our geographic footprint significantly. While most of our loans, by number and amount, are still made in Connecticut, the percentages have declined. At December 31, 2023, our mortgage loan portfolio was spread across fifteen states.
As long as these borrowers remain active real estate investors, they provide us with an advantage in securing new business and help us maintain a pipeline to attractive new opportunities that may not be available to many of our competitors or to the general market. ● Skilled workforce.
Customers are also a referral source for new borrowers. As long as these borrowers remain active real estate investors, they provide us with an advantage in securing new business and help us maintain a pipeline to attractive new opportunities that may not be available to many of our competitors or to the general market. ● Skilled and loyal workforce.
We have not registered any trademarks, trade names, service marks or copyrights in the United States Patent and Trademark Office. Employees As of December 31, 2022, we had 34 employees, of which 31 were full-time.
We have not registered any trademarks, trade names, service marks or copyrights in the United States Patent and Trademark Office. Employees As of December 31, 2023, we had 32 employees, of which 29 were full-time.
As a real estate finance company, we deal with a variety of default situations, including breaches of covenants, such as the obligation of the borrower to maintain adequate liability insurance on the mortgaged property, to pay the taxes on the property and to make timely payments to us. As such, we may not be aware that a default occurred.
As a real estate finance company, we deal with a variety of default situations, including breaches of covenants, such as the obligation of the borrower to maintain adequate liability and property insurance on the mortgaged property, to pay the taxes on the property and to make timely payments to us.
At December 31, 2022, debt represented approximately 59.3% of our total capital compared to 56.9% at December 31, 2021. 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.
At December 31, 2023, debt represented approximately 60.4% of our total capital compared to 59.3% at December 31, 2022. 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.
At December 31, 2022, approximately 77.9% our loans, accounting for approximately 23.1% of our loan portfolio, had an outstanding principal balance of $1 million or less. That means, approximately 22.1% of our loans, accounting for approximately 76.9% of our loan portfolio, had an outstanding principal balance of more than $1 million.
In comparison, at December 31, 2022, approximately 77.9% of our loans, accounting for approximately 23.1% of our loan portfolio, had an outstanding principal balance of $1 million or less. Thus, approximately 22.1% of our loans, accounting for approximately 76.9% of our loan portfolio, had an outstanding principal balance of more than $1 million.
The factors we will consider include the additional collateral provided by the borrower, the credit profile of the borrower, our previous relationship, if any, with the borrower, the nature of the property, the geographic market in which the property is located and any other information we deem appropriate. Interest rate.
The factors we will consider include the additional collateral provided by the borrower, the credit profile of the borrower, our previous relationship, if any, with the borrower, the nature of the property, the geographic market in which the property is located and any other information we deem appropriate. Loan-to-Cost Ratio.
The 16 Table of Contents cost of capital under the Churchill Facility is equal to the sum of (a) the greater of (i) 0.25% and (ii) the 30-day Libor plus (b) 3% - 4%, depending on the aggregate principal amount of the mortgage loans held by Churchill at that time.
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.
( On November 18, 2022, the Churchill Facility was amended to replace the 90-day LIBOR with the 90-day SOFR as the new benchmark rate.) 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 arrangements, including a covenant that prohibits us from (A) (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) have unencumbered cash and cash equivalents in an amount equal to or greater than 2.50% of the amount of our repurchase obligations.
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 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.
It also gives us the flexibility to seek other sources of funding. At December 31, 2022, the amount outstanding under the Churchill Facility was approximately $42.5 million, which amount was accruing interest of an effective rate of 8.52% per annum.
It also gives us the flexibility to seek other sources of funding. At December 31, 2023, the amount outstanding under the Churchill Facility was approximately $26.5 million, which amount was accruing interest of an effective rate of 9.47% per annum.
On February 28, 2023, we refinanced the NHB Mortgage with a new $1.66 million adjustable-rate mortgage loan from New Haven Bank. The new loan accrues interest at an initial rate of 5.75% per annum for the first 60 months.
The balance of the NHB Mortgage was funded when the renovations of that property were completed. On February 28, 2023, we refinanced the NHB Mortgage with a new $1.66 million adjustable-rate mortgage loan from New Haven Bank. The new loan accrues interest at an initial rate of 5.75% per annum for the first 60 months.
Revenue is generated primarily from the interest borrowers pay on our loans and, to a lesser extent, loan fee income generated on the origination and extension of loans. At December 31, 2022, our outstanding mortgage loan portfolio included loans ranging in size from approximately $2,600 to $27.3 million.
Revenue is generated primarily from the interest borrowers pay on our loans and, to a lesser extent, loan fee income generated on the origination and extension of loans. At December 31, 2023, our outstanding mortgage loan portfolio included loans ranging in size from approximately $12,000 to $37.4 million.
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.
The June 2024 Notes are due and payable in full on June 30, 2024. 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.
Our loans typically have a maximum initial term of one to three years and bear interest at a fixed rate of 5.0% to 14.2% per year and a default rate of up to 18% per year.
Our loans typically have a maximum initial term of one to three years and typically bear interest at a fixed rate of 10.0% to 13.0% per year and a default rate of up to 24% per year.
At December 31, 2022, we had loans in 15 other states – California, Florida, Georgia, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee and Texas.
At December 31, 2023, we had loans in 14 other states – California, Florida, Georgia, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Tennessee and Texas, and Washington, D.C..
At December 31, 2022 our average loan size was approximately $1.0 million and the median loan size was approximately $332,000. In comparison, at December 31, 2021, our average loan size was approximately $562,000 and the median loan size was approximately $202,000.
At December 31, 2023 our average loan size was approximately $1.6 million and the median loan size was approximately $577,000. In comparison, at December 31, 2022 our average loan size was approximately $1.0 million and the median loan size was approximately $332,000.
At December 31, 2022, our mortgage loan portfolio included 177 loans with future funding obligations, in the aggregate principal amount of approximately $114.6 million, compared to 177 loans in the aggregate principal amount of approximately $89.2 million at December 31, 2021.
At December 31, 2023, our mortgage loan portfolio included 112 loans with future funding obligations, in the aggregate principal amount of $97.9 million, compared 177 loans with future funding obligations, in the aggregate principal amount of approximately $114.6 million at December 31, 2022.
Of the 444 mortgage loans that made up our loan portfolio at December 31, 2022, 105, or approximately 23.6%, had matured in 2022 but have not been repaid in full or extended.
Of the 311 mortgage loans that made up our loan portfolio at December 31, 2023, 89, or approximately 28.6%, had matured in 2023 but have not been repaid in full or extended.
Connecticut loans represented approximately 61.3% of our portfolio measured by number of loans, but only approximately 43.5% measured by the loan balances. Similarly, historically our primary focus has been on small loans – less than $500,000. Over the last few years, our strategy shifted and we began to actively pursue larger loans.
Connecticut loans represented approximately 59.2% of our portfolio measured by number of loans, but only approximately 39.8% measured by the loan balances. Similarly, historically our primary focus has been on small loans – less than $1 million. Over the last few years our strategy shifted, and we began to actively pursue larger loans.
For example, of the loans that were repaid in full during 2022, approximately 30.7% were repaid prior to maturity. For 2021, approximately 66.7% of the loans repaid during that year were paid prior to maturity.
In 2023, of the loans that were repaid in full during the year, approximately 56.6% were repaid prior to maturity. For 2022, approximately 30.7% of the loans repaid during that year were paid prior to maturity.
Debt Our total outstanding indebtedness at December 31, 2022 was approximately $335.3 million, which included the Wells Fargo Loan balance of $3.6 million, $42.5 million outstanding under the Churchill Facility, $750,000 outstanding under the NHB Mortgage 15 Table of Contents and approximately $288.4 million aggregate outstanding principal amount of five-year, unsecured unsubordinated notes, including deferred financing costs (the “Notes”) as follows: ● $40,250,000 aggregate original principal amount, issued August 23, 2022, bearing interest at the rate of 8.00% per annum and maturing on September 30, 2027 (the “September 2027 Notes”), which trades on the NYSE American under the symbol SCCG; ● $30,000,000 aggregate original principal amount, issued May 11, 2022, bearing interest at the rate of 7.125% per annum and maturing on June 30, 2027 (the “June 2027 Notes”), which trades on the NYSE American under the symbol SCCF; ● $51,875,000 aggregate original principal amount, issued March 9, 2022, bearing interest at the rate of 6.00% per annum and maturing on March 30, 2027 (the “March 2027 Notes”), which trades on the NYSE American under the symbol SCCE; ● $51,750,000 aggregate original principal amount, issued December 20, 2021, bearing interest at the rate of 6.00% per annum and maturing on December 30, 2026 (the “2026 Notes”), which trades on the NYSE American under the symbol SCCD; ● $56,363,750 aggregate original principal amount, of which approximately $14.4 million was issued September 4, 2020, $14.0 million was issued October 23, 2020 and $28.0 million was issued December 22, 2020, bearing interest at the rate of 7.75% per annum and maturing on September 30, 2025 (the “2025 Notes”), which trades on the NYSE American under the symbol SCCC.
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. 15 Table of Contents Debt Our total outstanding indebtedness at December 31, 2023 was approximately $377.7 million, which included the Wells Fargo Loan balance of $26.8 million, $26.5 million outstanding under the Churchill Facility, $1.08 million outstanding under the NHB Mortgage, $35.0 million outstanding under the Needham Credit Facility and approximately $288.4 million aggregate outstanding principal amount of five-year, unsecured unsubordinated notes, including deferred financing costs (the “Notes”) as follows: ● $40,250,000 aggregate original principal amount, issued August 23, 2022, bearing interest at the rate of 8.00% per annum and maturing on September 30, 2027 (the “September 2027 Notes”), which trades on the NYSE American under the symbol SCCG. ● $30,000,000 aggregate original principal amount, issued May 11, 2022, bearing interest at the rate of 7.125% per annum and maturing on June 30, 2027 (the “June 2027 Notes”), which trades on the NYSE American under the symbol SCCF. ● $51,875,000 aggregate original principal amount, issued March 9, 2022, bearing interest at the rate of 6.00% per annum and maturing on March 30, 2027 (the “March 2027 Notes”), which trades on the NYSE American under the symbol SCCE. ● $51,750,000 aggregate original principal amount, issued December 20, 2021, bearing interest at the rate of 6.00% per annum and maturing on December 30, 2026 (the “2026 Notes”), which trades on the NYSE American under the symbol SCCD. ● $56,363,750 aggregate original principal amount, of which approximately $14.4 million was issued September 4, 2020, $14.0 million was issued October 23, 2020 and $28.0 million was issued December 22, 2020, bearing interest at the rate of 7.75% per annum and maturing on September 30, 2025 (the “2025 Notes”), which trades on the NYSE American under the symbol SCCC. ● $34,500,000 aggregate original principal amount, issued November 7, 2019, bearing interest at the rate of 6.875% per annum and maturing on December 30, 2024 (the “December 2024 Notes”), which trades on the NYSE American under the symbol SACC.
As such, the June 2024 Notes, the December 2024 Notes and the 2025 Notes are all currently redeemable at our option. The 2026 Notes will be redeemable as of December 20, 2023, and the March 2027 Notes, the June 2027 Notes and the September 27 Notes, will not be redeemable until 2024.
As such, the June 2024 Notes, the December 2024 Notes, the 2025 Notes, the 2026 Notes and the March 2027 are all currently redeemable at our option. The June 2027 Notes will be redeemable in May 2024, and the September 27 Notes, will be redeemable in August 2024.
In 2021, we obtained a $1.4 million adjustable-rate mortgage loan from New Haven Bank (the “NHB Mortgage”) of which $750,000 was funded at closing and remained outstanding at December 31, 2022. The initial proceeds of the NHB Mortgage were used to offset some of the costs we incurred to acquire the property located at 568 East Main Street, Branford, Connecticut.
In 2021, we obtained a $1.4 million adjustable-rate mortgage loan from New Haven Bank (the “NHB Mortgage”) of which $750,000 was funded at closing, a portion of which was used towards the costs incurred to acquire the property located at 568 East Main Street, Branford, Connecticut.
In conducting due diligence, we rely, in part, on third party professionals and experts including appraisers, engineers, title insurers and attorneys. Before a loan commitment is issued, the loan must be reviewed and approved by our management team.
In conducting due diligence, we rely, in part, on third party professionals and experts including appraisers, engineers, title insurers and attorneys. Before a loan commitment is issued, the loan must be reviewed and approved by our management team. If there is an exception to our standard guidelines, an exception report must be signed by our chief executive officer.
In most cases, a borrower may prepay the loan at any time without premium or penalty. 11 Table of Contents Covenants. To timely pay all taxes, insurance, assessments, and similar charges with respect to the property; to maintain hazard insurance; to maintain and protect the property. Events of default.
In most cases, a borrower may prepay the loan at any time without premium or penalty. Covenants. To timely pay all taxes, insurance, assessments, and similar charges with respect to the property; to maintain hazard insurance; to maintain and protect the property. Events of default. Include: (i) failure to make payment when due; or (ii) breach of a covenant.
At December 31, 2022, we had approximately $217.7 million of shareholders’ equity and total indebtedness for borrowed money of approximately $335.3 million (including deferred financing costs). Thus, our capital structure was approximately 59.3% debt and 40.7% equity compared to approximately 56.9% debt and 43.1% equity at December 31, 2021.
At December 31, 2023, we had approximately $230.1 million of shareholders’ equity and total indebtedness for borrowed money of approximately $377.7 million (including deferred financing costs). Thus, our capital structure was approximately 60.4% debt and 39.6% equity compared to approximately 59.3% debt and 40.7% equity at December 31, 2022.
In addition, we believe the migration to these types of loans will offset any rate compression and help us maintain a low foreclosure rate. 6 Table of Contents ● To leverage our expertise in real estate finance and our capital resources, on the one hand, and to capitalize on lending opportunities in specific markets, on the other, we plan to partner and invest with local “hard money” real estate lenders creating satellite offices under the “Sachem” influence.
In addition, we believe the migration to these types of loans will offset any rate compression and help us maintain a low foreclosure rate. 8 Table of Contents ● We plan to partner and invest with local “hard money” real estate lenders creating satellite offices under the “Sachem” influence.
However, if the borrower desires to extend the term of the loan, since we treat that as a new loan, we undertake all our underwriting procedures, including, if necessary, a new appraisal.
Generally, we do not make periodic inspections of the properties securing our loans. However, if the borrower desires to extend the term of the loan, since we treat that as a new loan, we undertake all our underwriting procedures, including a new appraisal.
Operating Data Our lending activities increased each year since we commenced operations and we have reported net profits in every quarter since our IPO. Our Loan Portfolio At December 31, 2022, our mortgage loan portfolio included 444 loans having an aggregate outstanding principal balance of $460.6 million.
Operating Data Our lending activities have increased each year since we commenced operations. Our Loan Portfolio At December 31, 2023, our mortgage loan portfolio included 311 loans having an aggregate outstanding principal balance of $499.2 million. In comparison, at December 31, 2022, our loan portfolio included 444 loans having an aggregate outstanding principal balance of $460.7 million.
Marcello joined us in September 2020 as director of finance and as vice president, finance and operations he has assumed a leadership role in business operations and will continue to have oversight of our financial reporting, capital markets activities, tax compliance, and investments. In July 2022, we hired John E.
Marcello joined us in September 2020 as an accounting manager, and was subsequently promoted to vice president, finance and operations, has assumed a leadership role in business operations and will continue to have oversight of our financial reporting, capital markets activities, tax compliance, and investments.
We do not believe any regulations adopted under the Dodd-Frank Act apply to us. However, it is possible that regulations that will be adopted in the future will apply to us or that existing regulations will apply to us as our business evolves.
However, it is possible that regulations that will be adopted in the future will apply to us or that existing regulations will apply to us as our business evolves.
Our Real Estate Lending Activities Our real estate lending activities involve originating, underwriting, funding, servicing and managing short-term loans ( i.e., loans with an initial term of three years or less), secured by first mortgage liens on real estate property held for investment purposes or development.
Our ability to customize financing structures to meet borrowers’ needs is one of our key business strengths. 9 Table of Contents Our Real Estate Lending Activities Our real estate lending activities involve originating, underwriting, funding, servicing and managing short-term loans ( i.e., loans with an initial term of three years or less), secured by first mortgage liens on real estate property held for investment purposes or development.
Generally, one to three years with early termination in the event of a sale of the property. We may agree to extend the maturity date so long as the borrower complies with all loan covenants, financial and non-financial, and the loan otherwise satisfies our then existing underwriting criteria.
We may agree to extend the maturity date so long as the borrower complies with all loan covenants, financial and non-financial, and the loan otherwise satisfies our then existing underwriting criteria.
The 2025 Notes are prepayable beginning on September 4, 2022; ● $34,500,000 aggregate original principal amount, issued November 7, 2019, bearing interest at the rate of 6.875% per annum and maturing on December 30, 2024 (the “December 2024 Notes”), which trades on the NYSE American under the symbol SACC; and ● $23,663,000 aggregate original principal amount, issued June 25, 2019, bearing interest at the rate of 7.125% per annum and maturing on June 30, 2024 (the “June 2024 Notes”), which trades on the NYSE American under the symbol SCCB.
The December 2024 Notes are due and payable in full on December 30, 2024. ● $23,663,000 aggregate original principal amount, issued June 25, 2019, bearing interest at the rate of 7.125% per annum and maturing on June 30, 2024 (the “June 2024 Notes”), which trades on the NYSE American under the symbol SCCB.
Business Overview 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 located primarily in the Northeastern and Southeastern United States 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.
Business Overview 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., typically three years or less) loans secured by first mortgage liens on real property located primarily in the northeastern and southeastern sections of the United States.
To deal with these obligations, we are compelled to maintain higher cash balances, which could adversely impact our financial performance. Despite these challenges, the changing dynamics of the real estate finance marketplace, the debt and equity markets, shocks to the financial system and challenging geopolitical developments, we continue to believe in the viability of our business model.
Despite these challenges, the changing dynamics of the real estate finance marketplace, the debt and equity markets, shocks to the financial system and challenging geopolitical developments, we continue to believe in the viability of our business model.
At December 31, 2022, our outstanding loan portfolio included loans ranging in size up to $27.3 million. Approximately 41.4% of the loans had an outstanding principal balance of $250,000 or less, 64.9% had an outstanding principal balance of $500,000 or less and 77.9% had an outstanding principal balance of $1 million or less.
At December 31, 2023, our outstanding loan portfolio included loans ranging in size up to $37.4 million. Approximately 29.6% of the loans had an outstanding principal balance of $250,000 or less, 47.6% had an outstanding principal balance of $500,000 or less and 63.7% had an outstanding principal balance of $1 million or less.
Our employees are multi-skilled professionals who have a strong “team” orientation, a “continuous process improvement” mentality, and an authentic desire to learn all aspects of our business and contribute wherever and however they are needed. Other than the retirement of three employees, we have had zero employee turnover in over 24 months. ● Knowledge of the market.
Our employees are multi-skilled professionals who have a strong “team” orientation, a “continuous process improvement” mentality, and an authentic desire to learn all aspects of our business and contribute wherever and however they are needed.
We are also targeting larger-value commercial loans with strong, experienced sponsors. To drive operational excellence, we have embarked on a broad change management initiative to review, assess, and upgrade — or transform if necessary — our existing operational processes, from workflows and employee roles/responsibilities to decision trees and data collection forms.
We also target larger-value commercial loans with strong, experienced sponsors. To drive operational excellence, we review, assess, and upgrade — or transform if necessary — our existing operational processes, from workflows and employee roles/responsibilities to decision trees and data collection forms. To that end, in 2023 we further automated our underwriting process.
Competition The real estate finance markets in Connecticut and other geographic areas in which we operate are highly competitive.
Sylvester are seasoned development and asset management professionals. 18 Table of Contents Competition The real estate finance markets in Connecticut and other geographic areas in which we operate are highly competitive.
The following table highlights certain information regarding our real estate lending activities for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ ​ 2021 2022 Loans originated ​ $ 251,832,318 ​ $ 300,277,303 ​ Loans repaid ​ $ 115,147,409 ​ $ 131,840,244 ​ Mortgage lending revenues ​ $ 28,707,694 ​ $ 51,932,209 ​ Mortgage lending expenses ​ $ 14,753,950 ​ $ 28,639,262 ​ Number of loans outstanding ​ 520 ​ 444 ​ Principal amount of loans earning interest ​ $ 292,301,209 ​ $ 460,633,268 ​ Average outstanding loan balance ​ $ 562,118 ​ $ 1,037,462 ​ Weighted average contractual interest rate (1) ​ 10.99 % 10.72 % Weighted average term to maturity (in months) (2) ​ 8 ​ 6 ​ (1) Does not include origination fees.
The following table highlights certain information regarding our real estate lending activities for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ ​ ​ 2023 2022 Loans originated ​ $ 204,884,592 ​ $ 300,277,303 ​ Loans repaid ​ $ 167,036,071 ​ $ 131,840,244 ​ Mortgage lending revenues ​ $ 60,018,062 ​ $ 51,932,209 ​ Mortgage lending expenses ​ $ 42,447,235 ​ $ 28,639,262 ​ Number of loans outstanding ​ 311 ​ 444 ​ Principal amount of loans earning interest ​ $ 499,235,371 ​ $ 460,738,268 ​ Average outstanding loan balance ​ $ 1,605,258 ​ $ 1,037,462 ​ Weighted average contractual interest rate (1) ​ 11.42 % 10.72 % Weighted average term to maturity (in months) (2) ​ 6 ​ 6 ​ (1) Does not include origination fees.
This has been particularly true with respect to larger loans. Security. Each loan is evidenced by a promissory note, which is secured by a first mortgage lien on real property owned by the borrower.
Each loan is evidenced by a promissory note, which is secured by a first mortgage lien on real property owned by the borrower.
Our loan commitments are generally issued subject to receipt by us of title documentation and title report, in a form satisfactory to us, for the underlying property.
Our loan commitments are generally issued subject to receipt by us of title documentation and title report, in a form satisfactory to us, for the underlying property. Additionally, any loan with an original principal amount exceeding $5 million must be approved by the Board.
However, we will consider loans with a higher loan to value ratio if there are other factors that we believe mitigate the risk.
Generally, we limit the amount of a loan to 70% of the value of the property securing the loan and 85% of the total cost of the project. However, we will consider loans with a higher loan to value ratio or higher loan to cost if there are other factors that we believe mitigate the risk.
In comparison, at the end of 2021, approximately 72.7% of the loans in our portfolio (representing approximately 55.1% of the aggregate outstanding principal balance of our loan portfolio) were secured by properties located in Connecticut. Most of the properties we finance are 10 Table of Contents residential investment or commercial.
In comparison, at the end of 2022, approximately 61.3% of the loans in our portfolio (representing approximately 43.5% of the aggregate outstanding principal balance of our loan portfolio) were secured by properties located in Connecticut. Most of the properties we finance are residential investment or commercial and have a construction component.
In the case of each of these loans, we believe the value of the collateral exceeds the outstanding balance on the loan and, accordingly, we have not reserved for any losses.
As of December 31, 2022, in the case of each of these loans, we believed the value of the collateral exceeded the outstanding balance on the loan and, accordingly, we did not reserve for any losses.
The aggregate outstanding principal balance and the accrued but unpaid interest and borrower charges on these loans as of December 31, 2021 was approximately $4.4 million, or approximately 1.5% of our mortgage loan portfolio.
The aggregate outstanding principal balance and the accrued but unpaid interest and borrower charges on these loans as of December 31, 2023 was approximately $68.1 million, or approximately 13.6% of our mortgage loan portfolio. We have taken reserves against 18 of the loans subject to foreclosure of approximately $6.2 million as of December 31, 2023.
These loans are in the process of modification and will be extended if the borrower can satisfy our underwriting criteria, including the proper loan-to-value ratio, at the time of renewal. We treat renewals and extensions of existing loans as new loans. We monitor our loans on a day-to-day basis.
These loans are in the process of modification and will be extended if the borrower can satisfy our underwriting criteria, including the proper loan-to-value ratio, at the time of renewal. If the loan does not meet our underwriting criteria, we will treat the loan as in default and take the necessary steps to collect the balance due.
We also adopted a policy that limits the maximum amount of any loan we fund to a single borrower or a group of affiliated borrowers to 10% of the aggregate amount of our loan portfolio after accounting for the loan 4 Table of Contents under consideration.
We have also adopted a policy that limits the maximum amount of our exposure to a single borrower or a group of affiliated 4 Table of Contents borrowers to 10% of the aggregate amount of our loan portfolio, unless otherwise approved by the Board of Directors (the “Board”).
We also granted Churchill a first priority security interest on the mortgage loans sold to Churchill to secure our repurchase obligation.
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.
We seek to maximize our risk-adjusted returns, and preserve and protect capital, through our disciplined and credit-based approach. We utilize rigorous underwriting and loan closing procedures that include multiple checks and balances to evaluate the risks and merits of each potential transaction.
We utilize rigorous underwriting and loan closing procedures that include multiple checks and balances to evaluate the risks and merits of each potential transaction.
Include: (i) failure to make payment when due; or (ii) breach of a covenant. Payment terms. Interest only is payable monthly in arrears. Principal is due in a “balloon” payment at the maturity date. Escrow. Generally, none required. Reserves. Depending on the circumstances, we may require the borrower to establish reserves for interest, taxes and/or insurance.
Payment terms. Interest only is payable monthly in arrears. Principal is due in a “balloon” payment at the maturity date. Escrow. Generally, none required. Reserves. Depending on the particular cash flow of a property, we may require the borrower to establish reserves for interest, taxes and/or insurance. This has been particularly true with respect to larger loans. Security.
We seek to protect and preserve capital by carefully evaluating the condition of the property, the location of the property, the value of the property and, where available, other forms of collateral. 9 Table of Contents ● Vertically integrated loan origination and asset management platform.
We seek to protect and preserve capital by carefully evaluating the condition of the property, the location of the property, the value of the property and, where available, other forms of collateral. ● Vertically integrated loan origination and asset management platform. As a general rule, our strategy is to service and manage the loans we originate until they are paid.
In addition, to our capital raises through the public markets, we have three other sources of liquidity: (i) a $200 million master repurchase financing facility (the “Churchill Facility”) with Churchill MRA Funding I LLC (“Churchill”), a subsidiary of Churchill Real Estate, a vertically integrated real estate finance company based in New York, New York; (ii) a margin loan account with Wells Fargo that allows us to borrow against our investment securities portfolio (the “Wells Fargo Loan”); and (iii) a $1.4 million mortgage loan with New Haven Bank (the “NHB Mortgage”) that we used to finance the purchase and renovation of what will be our new corporate headquarters.
In addition, to our capital raises through the public markets, we have other sources of liquidity: (i) a $200 million master repurchase financing facility (the “Churchill Facility”) with Churchill MRA Funding I LLC (“Churchill”), a subsidiary of Churchill Real Estate, a vertically integrated real estate finance company based in New York, New York; (ii) a margin loan account with Wells Fargo that allows us to borrow against our investment securities portfolio (the “Wells Fargo Loan”), the net value of which at December 31, 2023 was approximately $36.3 million; and (iii) a $65 million revolving credit facility with Needham Bank, a Massachusetts co-operative bank, which can be increased up to $75 million under certain circumstances (the “Needham Credit Facility”).
Lastly, we are looking to partner with other small hard money lenders that are undercapitalized in an effort to participate in their loans or to provide them with enterprise capital growing their business, with Sachem having upside economics in the Manager entity.
Lastly, we are looking to partner with other small well run, opportunistic hard money lenders in growing Metropolitan Statistical Area’s that are looking for growth capital. Our effort will include a participation in their loans or enterprise capital to grow their business, with Sachem having upside economics in the Manager entity.
We plan to continue these discussions and scout other locations as well. However, we have not yet entered into any definitive agreements and we cannot assure you that we will be able to consummate any such partnerships or joint ventures on terms that will be acceptable to all parties.
We have not yet entered into any definitive agreements, and we cannot assure you that we will be able to consummate any such partnerships or joint ventures on terms that will be acceptable to all parties. Our Competitive Strengths We believe our competitive strengths include: ● History of successful operations.
We also receive leads for new business from banks, brokers, attorneys and web-based advertising. When underwriting a loan, the primary focus of our analysis is the value of a property securing the loan. Prior to making a final decision on a loan application we conduct extensive due diligence of the property as well as the borrower and its principals.
We also receive leads for new business from banks, brokers, attorneys, and web-based advertising. 14 Table of Contents When underwriting a loan, the primary focus of our analysis is the value of a property securing the loan.
Villano is required to devote 100% of his time and efforts to our business and has discontinued all other business activities in which he might be engaged even if it does not conflict with our business. In January 2022, we promoted Nicholas M.
Villano is our chairman, chief executive officer and, since May 2023, interim chief financial officer. Pursuant to his employment agreement with us, John L. Villano is required to devote 100% of his time and efforts to our business and has discontinued all other business activities in which he might be engaged even if it does not conflict with our business.
Our Competitive Strengths We believe our competitive strengths include: ● History of successful operations. We commenced operations as a limited liability company in December 2010 with three investors and limited equity capital. Since our inception through December 31, 2022, we have funded approximately 1,900 mortgage loans having an aggregate principal amount of approximately $939.7 million.
We commenced operations as a limited liability company in December 2010 with three investors and limited equity capital. Since our inception through December 31, 2023, we have funded approximately 1,950 mortgage loans having an aggregate gross principal amount of approximately $1.1 billion. Immediately prior to the IPO, we had approximately 155 investors and approximately $27.0 million of members’ equity.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn general, real estate assets are subject to various risks, including: ● acts of God, including earthquakes, floods and other natural disasters, which may result in uninsured losses; ● acts of war or terrorism, including the consequences of terrorist attacks, such as those that occurred on September 11, 2001, social unrest and civil disturbances; ● adverse changes in national and local economic and market conditions; and ● changes in governmental laws and regulations, fiscal policies, zoning ordinances and environmental legislation and the related costs of compliance with laws and regulations, fiscal policies and ordinances. 23 Table of Contents In addition, whether the real estate is held for sale or for rental, if it is income producing property, the net operating income can be adversely affected by, among other things: ● tenant mix; ● success of tenant businesses; ● the performance, actions and decisions of operating partners and the property managers they engage in the day-to-day management and maintenance of the property; ● property location, condition and design; ● new construction of competitive properties; ● a surge in homeownership rates; ● changes in laws that increase operating expenses or limit rents that may be charged; ● changes in specific industry segments, including the labor, credit and securitization markets; ● declines in regional or local real estate values; ● declines in regional or local rental or occupancy rates; ● increases in interest rates, real estate taxes, energy costs and other operating expenses; ● costs of remediation and liabilities associated with environmental conditions; ● the potential for uninsured or underinsured property losses; and ● the risks particular to real property.
Biggest changeIn addition, whether the real estate is held for sale or for rental, if it is income producing property, the net operating income can be adversely affected by, among other things: ● tenant mix; ● success of tenant businesses; ● the performance, actions and decisions of operating partners and the property managers they engage in the day-to-day management and maintenance of the property; ● property location, condition and design; ● new construction of competitive properties; ● a surge in homeownership rates; ● changes in laws that increase operating expenses or limit rents that may be charged; ● changes in specific industry segments, including the labor, credit and securitization markets; ● declines in regional or local real estate values; ● declines in regional or local rental or occupancy rates; ● increases in interest rates, real estate taxes, energy costs and other operating expenses; ● costs of remediation and liabilities associated with environmental conditions; ● the potential for uninsured or underinsured property losses; and ● the risks particular to real property.
These risks include, without limitation: ● declining real estate values; ● overbuilding; ● extended vacancies of properties; ● increases in competition; ● increases in operating expenses such as property taxes and energy costs; 24 Table of Contents ● changes in zoning laws; ● unemployment rates; ● environmental issues; ● public health issues (such as COVID-19); ● casualty or condemnation losses; ● uninsured damages from floods, hurricanes, earthquakes or other natural disasters; and ● changes in interest rates.
These risks include, without limitation: ● declining real estate values; ● overbuilding; ● extended vacancies of properties; ● increases in competition; 24 Table of Contents ● increases in operating expenses such as property taxes and energy costs; ● changes in zoning laws; ● unemployment rates; ● environmental issues; ● public health issues (such as COVID-19); ● casualty or condemnation losses; ● uninsured damages from floods, hurricanes, earthquakes or other natural disasters; and ● changes in interest rates.
If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness, we could be in default under the terms of the agreements governing such indebtedness, including the Notes.
If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness, we could be in default under the terms of the agreements governing such indebtedness, including the Notes.
In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest.
In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest.
If we are unable to repay indebtedness, lenders having secured obligations could proceed against the collateral securing the debt.
If we are unable to repay indebtedness, lenders having secured obligations could proceed against the collateral securing the debt.
The conditions, and the responses thereto, such as sanctions imposed by the United States and other western democracies, and any expansion thereof is likely to have unpredictable and wide-ranging effects on the domestic and global economy and financial markets, which could have an adverse effect on our business and results of operations.
The conditions, and the responses thereto, such as sanctions imposed by the United States and other western democracies, and any expansion thereof is likely to have unpredictable and wide-ranging effects on the domestic and global financial markets, which could have an adverse effect on our business and results of operations.
Because the Churchill Facility and the NHB Mortgage have, and any future credit facilities will likely have, customary cross-default provisions, if repayment of any outstanding indebtedness, such as the Notes, the Churchill Facility, the Wells Fargo Loan, the NHB Mortgage or any future credit facility, is accelerated, we may be unable to repay or finance the amounts due.
Because the Churchill Facility and the NHB Mortgage have, and any future credit facilities will likely have, customary cross-default provisions, if repayment of any outstanding indebtedness, such as the Notes, the Churchill Facility, the Wells Fargo Loan, the NHB Mortgage, the Needham Credit Facility or any future credit facility, is accelerated, we may be unable to repay or finance the amounts due.
Our substantial outstanding indebtedness, and the limitations imposed on us by our debt agreements, could have other significant adverse consequences, including the following: ● our cash flow may be insufficient to meet our required principal and interest payments; ● we may use a substantial portion of our cash flows to make principal and interest payments and we may be unable to obtain additional financing as needed or on favorable terms, which could, among other things, have a material adverse effect on our ability to capitalize upon acquisition opportunities, fund working capital, make capital expenditures, make cash distributions to our shareholders, or meet our other business needs; ● we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness; ● we may be forced to dispose of assets, possibly on unfavorable terms or in violation of certain covenants to which we may be subject; ● our financial flexibility may be diminished as a result of various covenants including debt and coverage and other financial ratios; ● our vulnerability to general adverse economic and industry conditions may be increased; ● we may be at a competitive disadvantage relative to our competitors that have less indebtedness; ● our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate may be limited and we may default on our indebtedness by failure to make required payments or violation of covenants, which would entitle holders of such indebtedness, and possibly other indebtedness, to accelerate the maturity of their indebtedness and to foreclose on our mortgages receivable that secure their loans.
Our substantial outstanding indebtedness, and the limitations imposed on us by our debt agreements, could have other significant adverse consequences, including the following: ● our cash flow may be insufficient to meet our required principal and interest payments; ● we may use a substantial portion of our cash flows to make principal and interest payments and we may be unable to obtain additional financing as needed or on favorable terms, which could, among other things, have a material adverse effect on our ability to capitalize upon acquisition opportunities, fund working capital, make capital expenditures, make cash distributions to our shareholders, or meet our other business needs; 31 Table of Contents ● we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness; ● we may be forced to dispose of assets, possibly on unfavorable terms or in violation of certain covenants to which we may be subject; ● our financial flexibility may be diminished as a result of various covenants including debt and coverage and other financial ratios; ● our vulnerability to general adverse economic and industry conditions may be increased; ● we may be at a competitive disadvantage relative to our competitors that have less indebtedness; ● our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate may be limited and we may default on our indebtedness by failure to make required payments or violation of covenants, which would entitle holders of such indebtedness, and possibly other indebtedness, to accelerate the maturity of their indebtedness and to foreclose on our mortgages receivable that secure their loans.
A key element of our growth strategy is to use leverage to increase the size of our loan portfolio to enhance our returns. If we are unable to leverage our assets to the extent we currently anticipate, the returns on our loan portfolio could be diminished, which may limit or eliminate our ability to make distributions to our shareholders.
If we are unable to leverage our assets to the extent we currently anticipate, the returns on certain of our assets could be diminished, which may limit or eliminate our ability to make distributions to our shareholders. A key element of our growth strategy is to use leverage to increase the size of our loan portfolio to enhance our returns.
Some of the factors that could negatively affect our stock price or result in fluctuations in the price or trading volume of our Common Shares are the following: ● our actual or projected operating results, financial condition, cash flows and liquidity, or changes in business strategy or prospects; ● equity issuances by us, or share resales by our shareholders, or the perception that such issuances or resales may occur; ● publication of research reports about us or the real estate industry; ● changes in market valuations of similar companies; ● adverse market reaction to the level of leverage we employ; ● additions to or departures of our key personnel; ● accounting issues; 38 Table of Contents ● speculation in the press or investment community; ● our failure to meet, or the lowering of, our earnings’ estimates or those of any securities analysts; ● increases in market interest rates, which may lead investors to demand a higher distribution yield for our Common Shares and would result in increased interest expenses on our debt; ● failure to qualify or to remain qualified as a REIT; ● price and volume fluctuations in the stock market generally; and ● general market and economic conditions, including the current state of the credit and capital markets and current level of inflation.
Some of the factors that could negatively affect our stock price or result in fluctuations in the price or trading volume of our Common Shares are the following: ● our actual or projected operating results, financial condition, cash flows and liquidity, or changes in business strategy or prospects; ● equity issuances by us, or share resales by our shareholders, or the perception that such issuances or resales may occur; ● publication of research reports about us or the real estate industry; ● changes in market valuations of similar companies; ● adverse market reaction to the level of leverage we employ; ● additions to or departures of our key personnel; ● accounting issues; ● speculation in the press or investment community; ● our failure to meet, or the lowering of, our earnings’ estimates or those of any securities analysts; ● increases in market interest rates, which may lead investors to demand a higher distribution yield for our Common Shares and would result in increased interest expenses on our debt; ● failure to qualify or to remain qualified as a REIT; ● price and volume fluctuations in the stock market generally; and ● general market and economic conditions, including the current state of the credit and capital markets and current level of inflation.
Except in limited circumstances, the terms of the indenture and the Notes do not restrict our ability to: ● issue securities or otherwise incur additional indebtedness or other obligations, including (i) any indebtedness or other obligations that would be equal in right of payment to the Notes, (ii) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Notes to the extent of the values of the assets securing such debt, (iii) indebtedness that we incur that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the Notes and (iv) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in those entities and therefore rank structurally senior to the Notes with respect to the assets of these entities; ● pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the Notes, including subordinated indebtedness; 32 Table of Contents ● sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); ● enter into transactions with affiliates; ● create liens or enter into sale and leaseback transactions; ● make investments; or ● create restrictions on the payment of dividends or other amounts to us from our subsidiaries.
Except in limited circumstances, the terms of the indenture and the Notes do not restrict our ability to: ● issue securities or otherwise incur additional indebtedness or other obligations, including (i) any indebtedness or other obligations that would be equal in right of payment to the Notes, (ii) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Notes to the extent of the values of the assets securing such debt, (iii) indebtedness that we incur that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the Notes and (iv) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in those entities and therefore rank structurally senior to the Notes with respect to the assets of these entities; ● pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the Notes, including subordinated indebtedness; ● sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); ● enter into transactions with affiliates; ● create liens or enter into sale and leaseback transactions; ● make investments; or ● create restrictions on the payment of dividends or other amounts to us from our subsidiaries.
Therefore, the value of the underlying property, the creditworthiness and financial position of the borrower and the priority and enforceability of the lien will significantly impact the value of such mortgage. In the event of a foreclosure, we may assume direct ownership of the underlying real estate.
Therefore, the value of the underlying property, the creditworthiness and financial position of the borrower and the priority and enforceability of the lien will significantly impact the value of such mortgage. In the event of foreclosure, we may assume direct ownership of the underlying real estate.
The trading price of the Series A Preferred Stock will depend on many factors, which may change from time to time, including the following: ● prevailing interest rates, increases in which may have an adverse effect on the market price of the Series A Preferred Stock; ● market prices of common and preferred equity securities issued by REITs and other real estate companies; ● the annual yield from distributions on the Series A Preferred Stock as compared to yields on other financial instruments; ● general economic and financial market conditions; ● government action or regulation; ● the financial condition, performance and prospects of us and our competitors; ● changes in financial estimates or recommendations by securities analysts with respect to us, our competitors or our industry; ● our issuance of additional common equity or debt securities; ● our issuance of additional series or classes of preferred securities; and ● actual or anticipated variations in quarterly operating results of us and our competitors.
The trading price of the Series A Preferred Stock will depend on many factors, which may change from time to time, including the following: ● prevailing interest rates, increases in which may have an adverse effect on the market price of the Series A Preferred Stock; ● market prices of common and preferred equity securities issued by REITs and other real estate companies; ● the annual yield from distributions on the Series A Preferred Stock as compared to yields on other financial instruments; ● general economic and financial market conditions; ● government action or regulation; ● the financial condition, performance and prospects of us and our competitors; 42 Table of Contents ● changes in financial estimates or recommendations by securities analysts with respect to us, our competitors or our industry; ● our issuance of additional common equity or debt securities; ● our issuance of additional series or classes of preferred securities; and ● actual or anticipated variations in quarterly operating results of us and our competitors.
Any default under the agreements governing our existing indebtedness, including a default under the Churchill Facility or the Wells Fargo Loan or the NHB Mortgage or other indebtedness to which we may be a party that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness could make us unable to pay principal and interest on the Notes and substantially decrease the market value of the Notes.
Any default under the agreements governing our existing indebtedness, including a default under the Churchill Facility, the Wells Fargo Loan, the NHB Mortgage or Needham Credit Facility or other indebtedness to which we may be a party that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness could make us unable to pay principal and interest on the Notes and substantially decrease the market value of the Notes.
Indicators of impairment include, but are not limited to, a sustained significant decrease in the value of the collateral securing the loan, including the value of the real estate and other assets pledged to secure the loan as well as personal guarantees by the principals of the borrower, or a borrower’s inability to stay current with respect to its obligations under the terms of the loan.
Indicators of loss include, but are not limited to, a sustained significant decrease in the value of the collateral securing the loan, including the value of the real estate and other assets pledged to secure the loan as well as personal guarantees by the principals of the borrower, or a borrower’s inability to stay current with respect to its obligations under the terms of the loan.
Acquisitions, in general, involve a high degree of risk including the following: ● we could incur significant expenses for due diligence, document preparation and other pre-closing activities and then fail to consummate the acquisition; 27 Table of Contents ● we could overpay for the business or assets acquired; ● there may be hidden liabilities that we failed to uncover prior to the consummation of the acquisition; ● the demands on management’s time related to the acquisition will detract from their ability to focus on the operation of our business; and ● challenges or difficulties in integrating the acquired business or assets into our existing platform.
Acquisitions, in general, involve a high degree of risk including the following: ● we could incur significant expenses for due diligence, document preparation and other pre-closing activities and then fail to consummate the acquisition; ● we could overpay for the business or assets acquired; ● there may be hidden liabilities that we failed to uncover prior to the consummation of the acquisition; ● the demands on management’s time related to the acquisition will detract from their ability to focus on the operation of our business; and ● challenges or difficulties in integrating the acquired business or assets into our existing platform.
Accordingly, we may not make a distribution on the Series A Preferred Stock if, after giving effect to the distribution, we would not be able to pay our debts as they become due in the usual course of business or, except in limited circumstances, our total assets would be less than the sum of our total liabilities plus, unless the charter provides otherwise, the amount that would be needed to satisfy the preferential rights upon dissolution of the holders of shares of any class or series of preferred shares then outstanding, if any, with preferences senior to those of the Series A Preferred Stock.
Accordingly, we may not make a distribution on the Series A Preferred Stock if, after giving effect to the distribution, we would not be able to pay our debts as they become due in the usual course of business or, except in limited circumstances, our total assets would be less than the sum of our 41 Table of Contents total liabilities plus, unless the charter provides otherwise, the amount that would be needed to satisfy the preferential rights upon dissolution of the holders of shares of any class or series of preferred shares then outstanding, if any, with preferences senior to those of the Series A Preferred Stock.
In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.
In addition, we are subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.
(Jeffrey Villano is no longer affiliated with us 29 Table of Contents and, as far as we know, no longer owns any of our Common Shares.) The ownership limits contained in our charter could delay or prevent a transaction or a change in control of our company under circumstances that otherwise could provide our shareholders with the opportunity to realize a premium over the then current market price for our Common Shares or would otherwise be in the best interests of our shareholders.
(Jeffrey Villano is no longer affiliated with us and, as far as we know, no longer owns any of our Common Shares.) The ownership limits contained in our charter could delay or prevent a transaction or a change in control of our company under circumstances that otherwise could provide our shareholders with the opportunity to realize a premium over the then current market price for our Common Shares or would otherwise be in the best interests of our shareholders.
We may adopt new strategies, policies and/or procedures or change any of our existing strategies, policies and /or procedures regarding financing, hedging, asset allocation, lending, operations and management at any time without the consent of shareholders, which could result in us originating and funding mortgage loans or entering into financing or hedging transactions with which we have no or limited experience or that are different from, and possibly riskier than our existing strategies and policies.
We may adopt new strategies, policies and/or procedures or change any 26 Table of Contents of our existing strategies, policies and /or procedures regarding financing, hedging, asset allocation, lending, operations and management at any time without the consent of shareholders, which could result in us originating and funding mortgage loans or entering into financing or hedging transactions with which we have no or limited experience or that are different from, and possibly riskier than our existing strategies and policies.
Many of our loans are not funded with interest reserves and our borrowers may be unable to pay the interest accruing on the loans when due, which could have a material adverse impact on our financial condition. Our loans are not always funded with an interest reserve.
Many of our loans are not funded with interest reserves and our borrowers may be unable to pay the interest accruing on the loans when due, which could have a material adverse impact on our financial condition. Many of our loans do not have an interest reserve.
For example, COVID-19 has contributed significantly to the supply chain issues in the real estate sector that have affected our borrowers, ultimately slowing construction and driving up cost. In addition, we cannot assure that similar or a completely different set of adverse conditions will not arise in the future.
For example, COVID-19 contributed significantly to the supply chain issues in the real estate sector that have affected our borrowers, ultimately slowing construction and driving up costs. In addition, we cannot assure that similar or a completely different set of adverse conditions will not arise in the future.
Foreclosure of a mortgage loan can be an expensive and lengthy process, which could have a substantial negative effect on our anticipated return on the foreclosed mortgage loan. 22 Table of Contents Our due diligence may not reveal all the risks associated with a mortgage loan or the property that will be mortgaged to secure the loan, which could lead to losses.
Foreclosure of a mortgage loan can be an expensive and lengthy process, which could have a substantial negative effect on our anticipated return on the foreclosed mortgage loan. Our due diligence may not reveal all the risks associated with a mortgage loan or the property that will be mortgaged to secure the loan, which could lead to losses.
This could have a material and adverse impact on our business reputation, our operations as well as our financial condition. Risks Related to Debt Financing If we cannot access external sources of capital on favorable terms or at all, our ability to execute our business and growth strategies will be impaired .
This could have a material and adverse impact on our business reputation, our operations as well as our financial condition. 30 Table of Contents Risks Related to Debt Financing If we cannot access external sources of capital on favorable terms or at all, our ability to execute our business and growth strategies will be impaired .
In addition, such a taxable share dividend could be viewed as equivalent to a reduction in our cash distributions, and that factor, as well as the possibility that a significant number of our shareholders could determine to sell Common Shares to pay taxes owed on dividends, may put downward pressure on the market price of Common Shares.
In addition, such a taxable share dividend could be viewed as equivalent to a reduction in our cash distributions, and that factor, as well as the possibility that a 37 Table of Contents significant number of our shareholders could determine to sell Common Shares to pay taxes owed on dividends, may put downward pressure on the market price of Common Shares.
In the event of the bankruptcy of a mortgage loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.
In the event of the bankruptcy of a mortgage loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent 22 Table of Contents the lien is unenforceable under state law.
Moreover, if we have net income from “prohibited transactions,” that income will be subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business.
Moreover, if we have net income from “prohibited transactions,” that income will be subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property held primarily for sale to 36 Table of Contents customers in the ordinary course of business.
We and our subsidiaries have incurred and may in the future incur substantial amounts of debt and other obligations that will rank senior to the Series A Preferred Stock. Certain of our existing or future debt instruments may restrict the authorization, payment or setting apart of dividends on the Series A Preferred Stock.
We and our subsidiaries have 40 Table of Contents incurred and may in the future incur substantial amounts of debt and other obligations that will rank senior to the Series A Preferred Stock. Certain of our existing or future debt instruments may restrict the authorization, payment or setting apart of dividends on the Series A Preferred Stock.
In addition, these restrictions could have takeover defense effects and could reduce the possibility that a third party will attempt to acquire control of us, which could adversely affect the market price of the Series A Preferred Stock. 42 Table of Contents The Series A Preferred Stock shareholders will have extremely limited voting rights.
In addition, these restrictions could have takeover defense effects and could reduce the possibility that a third party will attempt to acquire control of us, which could adversely affect the market price of the Series A Preferred Stock. The Series A Preferred Stock shareholders will have extremely limited voting rights.
The issuance or incurrence of any indebtedness with incremental protections could affect the market for, trading volume and prices of the Notes. An increase in market interest rates could result in a decrease in the value of the Notes. In general, as market interest rates rise, notes bearing interest at a fixed rate decline in value.
The issuance or incurrence of any indebtedness with incremental protections could affect the market for, trading volume and prices of the Notes. 33 Table of Contents An increase in market interest rates could result in a decrease in the value of the Notes. In general, as market interest rates rise, notes bearing interest at a fixed rate decline in value.
Other than the limited circumstances described in our certificate of incorporaton, as amended, holders of shares of Series A Preferred Stock will not have any voting rights.
Other than the limited circumstances described in our certificate of incorporation, as amended, holders of shares of Series A Preferred Stock will not have any voting rights.
Even if we are recognized as a creditor of one or more of these entities, our claims would still be effectively subordinated to any security interests in the assets of any such entity and to any indebtedness or other liabilities of any such entity senior to our claims.
Even if we are recognized as a creditor of one or more of these entities, our 32 Table of Contents claims would still be effectively subordinated to any security interests in the assets of any such entity and to any indebtedness or other liabilities of any such entity senior to our claims.
Sales of substantial amounts of our Common Shares, including by any selling shareholders, adoption and 39 Table of Contents utilization of an at the market issuance program, or the availability of such Common Shares for sale, whether or not actually sold, could adversely affect the prevailing market prices for our Common Shares.
Sales of substantial amounts of our Common Shares, including by any selling shareholders, adoption and utilization of an at the market issuance program, or the availability of such Common Shares for sale, whether or not actually sold, could adversely affect the prevailing market prices for our Common Shares.
As interest rates increase, the aforementioned factors could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our shareholders. 21 Table of Contents Prepayment rates can change, adversely affecting the performance of our assets.
As interest rates increase, the aforementioned factors could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to our shareholders . Prepayment rates can change, adversely affecting the performance of our assets.
Therefore, we may not be able to vary our portfolio in response to economic, financial, investment or other conditions promptly or on favorable terms, which could have a material adverse effect on us. Declining real estate valuations could result in impairment charges, the determination of which involves a significant amount of judgment on our part.
Therefore, we may not be able to vary our portfolio in response to economic, financial, investment or other conditions promptly or on favorable terms, which could have a material adverse effect on us. Declining real estate valuations could result in impairment charges or provisions for credit losses, the determination of which involves a significant amount of judgment on our part.
Accordingly, our failure or inability to 28 Table of Contents provide products and services to our customers in a timely and efficient manner may result in significant liability, a loss of customers and damage to our reputation, which could have a material adverse effect on us.
Accordingly, our failure or inability to provide products and services to our customers in a timely and efficient manner may result in significant liability, a loss of customers and damage to our reputation, which could have a material adverse effect on us.
In this respect, we note that at December 31, 2022 approximately 105 mortgage loans in our portfolio have matured and have not been repaid in full or extended. Short-term loans are also subject to risks of borrower defaults, bankruptcies, fraud, losses and special hazard losses that are not covered by standard hazard insurance.
In this respect, we note that at December 31, 2023 approximately 89 mortgage loans in our portfolio have matured and have not been repaid in full or extended. Short-term loans are also subject to risks of borrower defaults, bankruptcies, fraud, losses and special hazard losses that are not covered by standard hazard insurance.
Thus, we cannot assure you that our business, operations and financial condition will not be adversely impacted. Risks Related to Our Operations, Structure and Change in Control Provisions Interruptions in our ability to provide our products and our service to our customers could damage our reputation, which could have a material adverse effect on us.
Thus, we cannot assure you that our business, operations and financial condition will not be adversely impacted. 28 Table of Contents Risks Related to Our Operations, Structure and Change in Control Provisions Interruptions in our ability to provide our products and our service to our customers could damage our reputation, which could have a material adverse effect on us.
If we breach any loan covenants, we may not be able to obtain such a waiver from the lenders in which case we would be in default under the credit arrangement and the lender could exercise its rights as described above, and we may be forced into bankruptcy or liquidation.
If we breach any loan covenants, we may not be able to obtain such a waiver from the lenders in which case we would be in default under the credit arrangement and the lender could exercise its rights as described above, and we may be forced into bankruptcy or 35 Table of Contents liquidation.
In addition, we will be subject to income tax at regular corporate rates to the extent that we distribute less than 100% of our “REIT taxable income,” including any net capital gains.
In addition, we are subject to income tax at regular corporate rates to the extent that we distribute less than 100% of our “REIT taxable income,” including any net capital gains.
In 2022, we added 14 employees, nine of which we hired when we acquired the assets of Urbane New Haven, LLC in October 2022, reflecting the increase in the size and volume of operations. Each of these new employees had to be trained to follow our policies and procedures.
Over the last two years we added 14 employees, nine of which we hired when we acquired the assets of Urbane New Haven, LLC in October 2022, reflecting the increase in the size and volume of operations. Each of these new employees had to be trained to follow our policies and procedures.
We may be adversely affected by the economies and other conditions of the markets in which we operate, particularly in Connecticut, where we have a high concentration of our loans.
We may be adversely affected by the economies and other conditions of the markets in which we operate, particularly in Connecticut, Florida and New York, where we have a high concentration of our loans.
The occurrence of either or both of the foregoing events could have a material adverse effect on our business, financial condition and results of operations, cash flows, our ability to make distributions to shareholders and make the interest payment on the Notes.
The occurrence of any of the foregoing events could have a material adverse effect on our business, financial condition and results of operations, cash flows, our ability to make distributions to shareholders and make the interest payment on the Notes.
The downgrade of the credit ratings of the U.S., any future downgrades of the credit ratings of the U.S. and the failure to resolve issues related to U.S. fiscal and debt policies may materially adversely affect our business, liquidity, financial condition and results of operations. In response to the COVID-19 pandemic, the U.S.
The downgrade of the credit ratings of the U.S., any future downgrades of the credit ratings of the U.S. and the failure to resolve issues related to U.S. fiscal and debt policies may materially adversely affect our business, liquidity, financial condition and results of operations.
The Notes are generally redeemable any time beginning on the second anniversary of their issuance date. Notes having an aggregate principal amount of approximately $114.6 million are currently redeemable.
The Notes are generally redeemable any time beginning on the second anniversary of their issuance date. Notes having an aggregate principal amount of approximately $218.2 million are currently redeemable.
Any impairment charge could have a material adverse effect on us. We review our loan portfolio for impairment on a quarterly basis and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Any impairment or provision could have a material adverse effect on us. We review our loan portfolio for impairments and provisions for credit losses on a quarterly basis and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
To satisfy these requirements, we might have to forego investments 35 Table of Contents we might otherwise make. Thus, compliance with the REIT requirements may hinder our operational performance.
To satisfy these requirements, we might have to forego investments we might otherwise make. Thus, compliance with the REIT requirements may hinder our operational performance.
As a consequence, our ability to access the public markets to raise capital has been adversely impacted. If these trends continue, they could result in decreased demand for our products and a decrease in property valuations, which could have an adverse impact on the ability of our borrowers to repay their loans.
Our ability to access the public markets to raise reasonably priced capital has been adversely impacted. Additionally, if these trends continue, they could result in decreased demand for our products given our increased pricing and a decrease in property valuations, which could have an adverse impact on the ability of our borrowers to repay their loans.
At December 31, 2022, our total outstanding indebtedness was approximately $335.3 million, including approximately $58.2 million original principal amount of unsecured unsubordinated fixed rate term notes that mature in 2024, approximately $56.4 million original principal amount of unsecured unsubordinated fixed rate term notes that mature in 2025, approximately $51.8 million original principal amount of unsecured unsubordinated fixed rate term notes that mature in 2026, approximately $122.1 million original principal amount of unsecured unsubordinated fixed rate term notes that mature in 2027, a line of credit secured by our investment portfolio of approximately $3.6 million, approximately $42.5 million under the Churchill Facility that is secured by a first priority security interest on the mortgage loans pledged as collateral, and $750,000 mortgage loan secured by our corporate office buildings.
At December 31, 2023, our total outstanding indebtedness was approximately $377.7 million, including approximately $58.2 million original principal amount of unsecured unsubordinated fixed rate term notes that mature in 2024, approximately $56.4 million original principal amount of unsecured unsubordinated fixed rate term notes that mature in 2025, approximately $51.8 million original principal amount of unsecured unsubordinated fixed rate term notes that mature in 2026, approximately $122.1 million original principal amount of unsecured unsubordinated fixed rate term notes that mature in 2027, a line of credit secured by our investment portfolio of approximately $26.8 million, approximately $26.5 million under the Churchill Facility that is secured by a first priority security interest on the mortgage loans pledged as collateral, approximately $1.1 million mortgage loan secured by our corporate office buildings and approximately $35 million under the Needham Credit Facility.
Residential mortgage loans are subject to increased risks. At December 31, 2022, approximately 66.7% of the loans in our loan portfolio (representing approximately 49.9% of our outstanding mortgage loans receivable) are secured by residential real property. None of these loans are guaranteed by the U.S. government or any government sponsored entity.
Residential mortgage loans are subject to increased risks. At December 31, 2023, approximately 67.5% of the loans in our loan portfolio (representing approximately 49.4% of our outstanding mortgage loans receivable) are secured by residential real property. None of these loans are guaranteed by the U.S. government or any government sponsored entity.
We try to maintain a reasonable amount of working capital at all times, although not in amounts sufficient to cover all our deferred funding obligations. In addition, we can also borrow funds against our portfolio of marketable securities, although the value of these securities in our account fluctuate regularly based on our liquidity and demand for our loans.
We try to maintain a reasonable amount of working capital at all times, although not in amounts sufficient to cover all our deferred funding obligations. In addition, we can also borrow funds against our portfolio of marketable securities, although the value of these securities in our account fluctuate, which can reduce our liquidity.
Our outstanding fixed rate term notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have incurred or may incur in the future. As of December 31, 2022, we have approximately $288.4 million aggregate principal amount of fixed rate term notes (the “Notes”) outstanding, taking into account the deferred financing costs. The Notes are unsecured.
Our outstanding fixed rate term notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have incurred or may incur in the future. As of December 31, 2023, we had approximately $288.4 million aggregate principal amount of fixed rate term notes (the “Notes”) outstanding. The Notes are unsecured.
The trading price of the Series A Preferred Stock could be substantially affected by various factors. During the year ended December 31, 2022, the price for our Series A Preferred Stock on the NYSE American has ranged from a high of $25.82 to a low of $18.38.
The trading price of the Series A Preferred Stock could be substantially affected by various factors. During the year ended December 31, 2023, the price for our Series A Preferred Stock on the NYSE American has ranged from a high of $23.00 to a low of $18.73.
The illiquidity of our loan portfolio could significantly impede our ability to respond to adverse changes in economic, financial, investment and other conditions. Due to the relative illiquidity of our loan portfolio, our ability to promptly sell all or a portion of the portfolio in response to changing economic, financial, investment or other conditions is limited.
Due to the relative illiquidity of our loan portfolio, our ability to promptly sell all or a portion of the portfolio in response to changing economic, financial, investment or other conditions is limited.
Villano, our chairman, chief executive officer and president. Our reputation among and our relationships with our key customers are the direct result of a significant investment of time and effort by him to build our credibility in a highly specialized industry. The loss of Mr.
We believe that our continued success depends on the continued services of John L. Villano, our chairman, chief executive officer and president. Our reputation among and our relationships with our key customers are the direct result of a significant investment of time and effort by him to build our credibility in a highly specialized industry. The loss of Mr.
If we cannot obtain capital when needed, we may not be able to execute our business and growth strategies, satisfy our debt service obligations, make the cash distributions to our shareholders necessary to qualify and maintain our qualification as a REIT (which would expose us to significant penalties and corporate level taxation), or fund our other business needs, any of which could have a material adverse effect on us. 30 Table of Contents If we are unable to leverage our assets to the extent we currently anticipate, the returns on certain of our assets could be diminished, which may limit or eliminate our ability to make distributions to our shareholders.
If we cannot obtain capital when needed, we may not be able to execute our business and growth strategies, satisfy our debt service obligations, make the cash distributions to our shareholders necessary to qualify and maintain our qualification as a REIT (which would expose us to significant penalties and corporate level taxation), or fund our other business needs, any of which could have a material adverse effect on us.
As a result, they are effectively subordinated to all our existing and future secured indebtedness, such as the Wells Fargo Loan, approximately $3.6 million at December 31, 2022, the approximately $42.5 million of outstanding borrowings as of December 31, 2022 and any future borrowing under the Churchill Facility, the $750,000 outstanding under the NHB Mortgage at December 31, 2022, as well as any secured indebtedness that we may incur in the future, or any indebtedness that is initially unsecured to which we subsequently grant a security interest, to the extent of the value of the assets securing such indebtedness.
As a result, they are effectively subordinated to all our existing and future secured indebtedness, such as the Wells Fargo Loan, approximately $26.8 million at December 31, 2023, the Churchill Facility, approximately $26.5 million as of December 31, 2023, the Needham Facility, $35.0 million as of December 31, 2023, and the NHB Mortgage, approximately $1.1 million at December 31, 2023, as well as any secured indebtedness that we may incur in the future, or any indebtedness that is initially unsecured to which we subsequently grant a security interest, to the extent of the value of the assets securing such indebtedness.
At December 31, 2022, our total outstanding indebtedness, including the aggregate outstanding principal amount of unsecured, unsubordinated notes (net of deferred financing costs), amounts due under the Churchill Facility, the Wells Fargo Loan and the NHB Mortgage, totaled $326.9 million, and total liabilities were $348.0 million.
At December 31, 2023, our total outstanding indebtedness, including the aggregate outstanding principal amount of unsecured, unsubordinated notes (net of deferred financing costs), amounts due under the Churchill Facility, the Wells Fargo Loan, the NHB Mortgage and the Needham Credit Facility, totaled $371.7 million, and total liabilities were $395.5 million.
We also can raise capital through the Churchill Facility. Nevertheless, there is a possibility that demands for funding under existing loans could exceed our available working capital and if we fail to meet our funding obligations, we may be subject to legal claims by the borrowers.
Nevertheless, there is a risk that borrower demand for funding under existing loans could exceed our available working capital and if we fail to meet our funding obligations, we may be subject to legal claims by the borrowers.
At December 31, 2022, we had unfunded commitments under existing loans of approximately $114.6 million. We do not record these unfunded commitments as liabilities on our balance sheets as the unfunded portion of the loans are not included in the outstanding mortgage loan balances. We also have not created a reserve for these unfunded commitments.
At December 31, 2023, we had unfunded commitments under existing loans of approximately $97.9 million. We do not record these unfunded commitments as liabilities on our balance sheets as the unfunded portion of the loans are not included in the outstanding mortgage loan balances.
An explanation of the significance of ratings may be obtained from the rating agency. Generally, rating agencies base their ratings on such material and information, and such of their own investigations, studies and assumptions, as they deem appropriate.
The Series A Preferred Stock has a private credit rating of BBB from Egan-Jones Ratings Company. An explanation of the significance of ratings may be obtained from the rating agency. Generally, rating agencies base their ratings on such material and information, and such of their own investigations, studies and assumptions, as they deem appropriate.
To qualify and maintain our qualification as a REIT, we are required under the Code to distribute at least 90% of our “REIT taxable income” (determined before the deduction for dividends paid and excluding net capital gains) annually.
In addition to our normal operating expenses, we have significant cash requirements, notably dividend payments and loan repayments. To qualify and maintain our qualification as a REIT, we are required under the Code to distribute at least 90% of our “REIT taxable income” (determined before the deduction for dividends paid and excluding net capital gains) annually.
A significant amount of judgment is involved in determining the presence of an indicator of impairment.
A significant amount of judgment is involved in determining the presence of 25 Table of Contents an indicator of impairment or credit loss.
If we do not elect to redeem the Series A Preferred Stock prior to the Change of Control Conversion Date, then upon an exercise of their conversion rights, the holders of Series A Preferred Stock will be limited to a maximum number of our Common Shares (or, if applicable, the Alternative Conversion Consideration (as defined in our certificate of incorporation, as amended)) equal to the lesser of (a) the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference per share of Series A Preferred Stock plus the amount of any accumulated and unpaid dividends thereon to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a dividend record date and prior to the corresponding dividend payment date for the Series A Preferred Stock, in which case no additional amount for such accrued and unpaid dividend will be included in this sum) by (ii) the Common Stock Price (as defined in our certificate of incorporation, as amended); and (b) 25.00, multiplied by the number of shares of Series A Preferred Stock converted. 41 Table of Contents In addition, the Change of Control conversion feature of the Series A Preferred Stock may have the effect of discouraging a third party from making an acquisition proposal for us or of delaying, deferring or preventing certain of our change of control transactions under circumstances that otherwise could provide the holders of our Common Shares and Series A Preferred Stock with the opportunity to realize a premium over the then-current market price of such stock or that shareholders may otherwise believe is in their best interests.
If we do not elect to redeem the Series A Preferred Stock prior to the Change of Control Conversion Date, then upon an exercise of their conversion rights, the holders of Series A Preferred Stock will be limited to a maximum number of our Common Shares (or, if applicable, the Alternative Conversion Consideration (as defined in our certificate of incorporation, as amended)) equal to the lesser of (a) the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference per share of Series A Preferred Stock plus the amount of any accumulated and unpaid dividends thereon to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a dividend record date and prior to the corresponding dividend payment date for the Series A Preferred Stock, in which case no additional amount for such accrued and unpaid dividend will be included in this sum) by (ii) the Common Stock Price (as defined in our certificate of incorporation, as amended); and (b) 25.00, multiplied by the number of shares of Series A Preferred Stock converted.
The Notes are not certificates of deposit or similar obligations of, or guaranteed by, any depositary institution. Further, no private party or governmental entity insures or guarantees payment on the Notes if we do not have enough funds to make principal or interest payments.
Further, no private party or governmental entity insures or guarantees payment on the Notes if we do not have enough funds to make principal or interest payments.
Because the Churchill Facility and the NHB Mortgage have, and any future credit facilities will likely have, customary cross-default provisions, if the indebtedness under the Notes, or under any future credit facility is accelerated, we may be unable to repay or refinance the amounts due.
Because the Churchill Facility and the NHB Mortgage have, and any future credit facilities will likely have, customary cross-default provisions, if the indebtedness under the Notes, or under any future credit facility is accelerated, we may be unable to repay or refinance the amounts due. 34 Table of Contents We are not obligated to contribute to a sinking fund to retire the Notes and the Notes are not guaranteed by a third party.
The occurrence of any one of these events could have a material adverse effect on our business, financial condition and results of operations and our ability to make distributions to shareholders. 31 Table of Contents Despite our current debt levels, we may still incur substantially more debt or take other actions which could have the effect of diminishing our ability to make payments on our indebtedness when due and distributions to our shareholders.
Despite our current debt levels, we may still incur substantially more debt or take other actions which could have the effect of diminishing our ability to make payments on our indebtedness when due and distributions to our shareholders.
Training new employees is a difficult, time consuming and expensive task but is key to our growth and success. We must continue to identify, hire, train, and retain qualified professionals, operations employees, and sales and senior management personnel who maintain relationships with our customers and who can provide the technical, strategic and marketing skills that will help us grow.
We must continue to identify, hire, train, and retain qualified professionals, operations employees, and sales and senior 29 Table of Contents management personnel who maintain relationships with our customers and who can provide the technical, strategic and marketing skills that will help us grow.
Thus, compliance with the REIT requirements may hinder our ability to make certain attractive investments and, thus, reduce our income and amounts available to service our indebtedness. 37 Table of Contents We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our Common Shares. ● At any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended.
We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our Common Shares. ● At any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended.
A change in our lending guidelines could result in us making riskier real estate loans than those we have been making until now. 26 Table of Contents The Board determines our operational policies and may adopt new policies or amend or revise existing policies regarding lending, financing, investment or other operational and management policies relating to growth, operations, indebtedness, capitalization and distributions or approve transactions that deviate from these policies without a vote of, or notice to, shareholders.
The Board determines our operational policies and may adopt new policies or amend or revise existing policies regarding lending, financing, investment or other operational and management policies relating to growth, operations, indebtedness, capitalization and distributions or approve transactions that deviate from these policies without a vote of, or notice to, shareholders.
We are not obligated to contribute to a sinking fund to retire the Notes and the Notes are not guaranteed by a third party. We are not obligated to contribute funds to a sinking fund to repay principal or interest on the Notes upon maturity or default.
We are not obligated to contribute funds to a sinking fund to repay principal or interest on the Notes upon maturity or default. The Notes are not certificates of deposit or similar obligations of, or guaranteed by, any depositary institution.
We may be unable to pursue investment opportunities that would be otherwise advantageous to us in order to satisfy the source-of-income or asset-diversification requirements for us to qualify as a REIT.
We may be unable to pursue investment opportunities that would be otherwise advantageous to us in order to satisfy the source-of-income or asset-diversification requirements for us to qualify as a REIT. Thus, compliance with the REIT requirements may hinder our ability to make certain attractive investments and, thus, reduce our income and amounts available to service our indebtedness.
It also may reduce dividend payments on the Series A Preferred Stock issued in this offering if we do not have sufficient funds to pay dividends on all Series A Preferred Stock outstanding and other classes of stock with equal priority with respect to dividends. 40 Table of Contents In addition, although holders of shares of Series A Preferred Stock are entitled to limited voting rights, the Series A Preferred Stock will vote separately as a class together with all other classes or series of our preferred shares that we may issue upon which like voting rights have been conferred and are exercisable.
In addition, although holders of shares of Series A Preferred Stock are entitled to limited voting rights, the Series A Preferred Stock will vote separately as a class together with all other classes or series of our preferred shares that we may issue upon which like voting rights have been conferred and are exercisable.
The Fed’s rate increases are in response to a sharp increase in the annual rate of inflation in the United States, which was reported to be 6.5% for the 12 months ended December 31, 2022. As a result of these increases, the growth of the U.S. economy has slowed.
The Fed’s rate increases are in response to a sharp increase in the annual rate of inflation in the United States over the last several years, which was reported to be 3.4% and 6.5% for the 12 months ended December 31, 2023 and 2022, respectively.
The Churchill Facility is secured by a first priority security interest on the mortgage loans pledged as collateral under the facility; the Wells Fargo Loan is collateralized by our portfolio of short-term securities held at Wells Fargo; and the NHB Mortgage is secured by a first mortgage lien on properties located at 698 Main Street and 568 East Main Street, Branford, Connecticut.
The Churchill Facility is secured by a first priority security interest on the mortgage loans pledged as collateral under the facility; the Wells Fargo Loan is collateralized by our portfolio of short-term securities held at Wells Fargo; the NHB Mortgage is secured by a first mortgage lien on the property located at 568 East Main Street, Branford, Connecticut; and all amounts borrowed under the Needham Credit Facility are secured by a first priority lien on virtually all our assets, not including real estate owned by us (other than real estate acquired pursuant to foreclosure) and mortgages sold under the Churchill Facility.
Issuances or sales of substantial amounts of our securities, including sales of the Series A Preferred Stock or the perception that such issuances or sales might occur, could negatively impact the market price of the Series A Preferred Stock and the terms upon which we may obtain additional equity financing in the future.
Issuances or sales of substantial amounts of our securities, including sales of the Series A Preferred Stock or the perception that such issuances or sales might occur, could negatively impact the market price of the Series A Preferred Stock and the terms upon which we may obtain additional equity financing in the future. 43 Table of Contents Although the Series A Preferred Stock currently has a private credit rating of BBB from Egan-Jones Ratings Company, the Series A Preferred Stock may be downgraded, suspended or withdrawn as a result of the offering of additional shares of Series A Preferred Stock.
There can be no assurance that our credit rating will remain for any given period of time or that such credit rating will not be lowered or withdrawn entirely by the rating agency if in their judgment future circumstances relating to the basis of the credit rating so warrant. 34 Table of Contents If we default on our obligations under the Churchill Facility, the Wells Fargo Loan or NHB Mortgage, we may suffer adverse consequences and may not be able to make payments on the Notes.
There can be no assurance that our credit rating will remain for any given period of time or that such credit rating will not be lowered or withdrawn entirely by the rating agency if in their judgment future circumstances relating to the basis of the credit rating so warrant.
To the extent any of the foregoing risks arise in Connecticut, New England and the northeastern United states, our business, financial condition and results of operations and ability to make distributions to shareholders could be materially adversely affected.
To the extent any of the foregoing risks arise in Connecticut, New York and Florida, our business, financial condition and results of operations and ability to make distributions to shareholders could be materially adversely affected. The illiquidity of our loan portfolio could significantly impede our ability to respond to adverse changes in economic, financial, investment and other conditions.
In addition, we may be forced to distribute amounts that would otherwise have been invested in future acquisitions to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. 36 Table of Contents Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends, which could depress the market price of our Common Shares if it is perceived as a less attractive investment.
In addition, we may be forced to distribute amounts that would otherwise have been invested in future acquisitions to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year.
We may be unable to identify and complete acquisitions on favorable terms or at all, which may inhibit our growth and have a material adverse effect on us. As part of our growth strategy, we occasionally evaluate acquisition opportunities, including other real estate lenders or loan portfolios. To date, we have never pursued any of these opportunities.
As part of our growth strategy, we occasionally evaluate acquisition opportunities, including other real estate lenders or loan portfolios. To date, we have never pursued any of these opportunities.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe also lease additional office space at 470 James Street #003, New Haven, Connecticut for our construction management oversight and real estate development team, which oversees our construction finance business. 43 Table of Contents Item 3. Legal Proceedings We are not currently a party to any material legal proceedings not in the ordinary course of business. ​ Item 4.
Biggest changeWe also lease additional office space at 470 James Street #003, New Haven, Connecticut for our construction servicing oversight and real estate development team, which oversees our construction finance business. Item 3. Legal Proceedings We are not currently a party to any material legal proceedings not in the ordinary course of business. ​ Item 4.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+1 added−2 removed4 unchanged
Biggest changeOur ability to pay dividends, the amount of the dividend and the frequency at which we will pay dividends is subject to numerous factors, many of which are discussed elsewhere herein including under the caption “Risk Factors.” These factors include the following: ● how quickly we can deploy the net proceeds from the sale of equity and debt securities to make new loans; 45 Table of Contents ● our ability to increase the interest rate on our loans; ● our ability to manage and control our operating and administrative expenses, particularly those relating to our status as a public reporting REIT; ● defaults by our borrowers; ● the rate of prepayments on our outstanding loans and our ability to reinvest those payments in new loans; ● regional and national economic conditions; ● competition from banks and other financing sources; ● our cash flow from operations; ● unanticipated developments, write-offs or liabilities; ● restrictions and limitations imposed by the BCL; and ● restrictions in our existing and future credit facilities.
Biggest changeAs of January 1, 2017, we had no accumulated earnings and profits. 46 Table of Contents The table below sets forth dividends paid to the holders of our Common Shares since we began operating as a REIT. ​ ​ ​ ​ ​ ​ ​ ​ Amount Payment Date ​ Per Share 2024 ​ ​ ​ ​ January 10≠ ​ ​ $ 0.11 ​ ​ ​ ​ ​ 2023 ​ ​ ​ ​ November 7 ​ ​ $ 0.11 August 11 ​ ​ $ 0.13 April 24 ​ ​ $ 0.13 January 10£ ​ ​ $ 0.13 ​ ​ ​ ​ ​ 2022 ​ ​ ​ ​ November 14 ​ ​ $ 0.13 July 28 ​ ​ $ 0.14 April 18 ​ ​ $ 0.12 January 10Ω ​ ​ $ 0.12 ​ ​ ​ ​ ​ 2021 ​ ​ ​ ​ October 29 ​ ​ $ 0.12 July 30 ​ ​ $ 0.12 April 16 ​ ​ $ 0.12 January 8 ¥ ​ ​ $ 0.12 ​ ​ ​ ​ ​ 2020 ​ ​ ​ ​ November 4 ​ ​ $ 0.12 August 7 ​ ​ $ 0.12 January 27* ​ ​ $ 0.12 ​ ​ ​ ​ ​ 2019 ​ ​ ​ October 22 ​ ​ $ 0.12 July 29 ​ ​ $ 0.12 April 18 ​ ​ $ 0.12 January 10** ​ ​ $ 0.17 ​ ​ ​ ​ ​ 2018 ​ ​ ​ November 6 ​ ​ $ 0.12 July 27 ​ ​ $ 0.11 April 27*** ​ ​ $ 0.105 February 27**** ​ ​ $ 0.105 ​ ​ ​ ​ ​ 2017 ​ ​ ​ November 17 ​ ​ $ 0.105 July 27 ​ ​ $ 0.105 April 27 ​ ​ $ 0.05 ≠ A portion represents a distribution of 2023 income. £ A portion represents a distribution of 2022 income. Ω A portion represents a distribution of 2021 income. ¥ A portion represents a distribution of 2020 income. * A portion represents a distribution of 2019 income. ** Represents a distribution of 2018 income. *** A portion represents a distribution of 2017 income. **** Represents a distribution of 2017 income. 47 Table of Contents Our ability to pay dividends, the amount of the dividend and the frequency at which we will pay dividends is subject to numerous factors, many of which are discussed elsewhere herein including under the caption “Risk Factors.” These factors include the following: ● how quickly we can deploy the net proceeds from the sale of equity and debt securities to make new loans; ● our ability to increase the interest rate on our loans; ● our ability to manage and control our operating and administrative expenses, particularly those relating to our status as a public reporting REIT; ● defaults by our borrowers; ● the rate of prepayments on our outstanding loans and our ability to reinvest those payments in new loans; ● regional and national economic conditions; ● competition from banks and other financing sources; ● our cash flow from operations; ● unanticipated developments, write-offs or liabilities; ● restrictions and limitations imposed by the BCL; and ● restrictions in our existing and future credit facilities.
Under the Repurchase Program, share repurchases will be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market in accordance with applicable federal securities laws, including Rule 10b-18 and 10b5-1 of the Exchange Act.
Under the Repurchase Program, we may repurchase up to an aggregate of $7,500,000 of our Common Shares. Share repurchases will be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market in accordance with applicable federal securities laws, including Rule 10b-18 and 10b5-1 of the Exchange Act.
The number of holders does not include individuals or entities who beneficially own shares but whose shares, which are held of record by a broker or clearing agency but does include each such broker or clearing agency as one record holder. Computershare Trust Company, N.A. serves as transfer agent for our Common Shares.
The number of holders does not include individuals or entities who beneficially own shares but whose shares, which are held of record by a broker or clearing agency but does include each such broker or clearing agency as one record holder.
On March 29, 2023, the last reported sale price of our Common Shares on the NYSE American was $3.67 per share. Holders As of March 29, 2023, we had 77 shareholders of record of our Common Shares.
On March 28, 2024, the last reported sale price of our Common Shares on the NYSE American was $4.43 per share. Holders As of March 28, 2024, we had 73 shareholders of record of our Common Shares.
The Repurchase Program is expected to continue through September 30, 2023, unless extended or shortened by the Board. Ladenburg Thalmann & Co. Inc. will act as our exclusive purchasing agent under the Repurchase Program. No repurchases were made under the Repurchase Program during the fourth quarter of 2022. ​ I tem 6. [Reserved] ​
Ladenburg Thalmann & Co. Inc. is acting as our exclusive purchasing agent under the Repurchase Program. No repurchases were made under the Repurchase Program during 2023 and through the date of this filing. ​ I tem 6. [Reserved] ​
Dividends and Distribution Policy U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its taxable income. To the extent that it annually distributes less than 100% of its taxable income, the undistributed amount is taxed at regular corporate rates.
To the extent that it annually distributes less than 100% of its taxable income, the undistributed amount is taxed at regular corporate rates. We intend to pay regular quarterly dividends in an amount necessary to maintain our qualification as a REIT.
For information regarding securities authorized under the equity compensation plan, see Item 12. Stock Repurchase Plan In October 2022, the Board adopted a stock repurchase plan (the “Repurchase Program”), pursuant to which we may repurchase up to an aggregate of $7,500,000 of our Common Shares.
For information regarding securities authorized under the equity compensation plan, see Item 12. Stock Repurchase Plan In October 2022, the Board adopted a stock repurchase plan (the “Repurchase Program”), which it then extended in October 2023 so that it now continues through October 9, 2024.
Removed
We intend to pay regular quarterly dividends in an amount necessary to maintain our qualification as a REIT.
Added
Computershare Trust Company, N.A. serves as transfer agent for our Common Shares. 45 Table of Contents Dividends and Distribution Policy U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its taxable income.
Removed
As of January 1, 2017, we had no accumulated earnings and profits. 44 Table of Contents The table below sets forth dividends paid to the holders of our Common Shares since we began operating as a REIT. ​ ​ ​ ​ ​ ​ ​ ​ Amount Payment Date ​ Per Share 2023 ​ ​ ​ ​ January 10£ ​ ​ $ 0.13 ​ ​ ​ ​ ​ 2022 ​ ​ ​ ​ November 14 ​ ​ $ 0.13 July 28 ​ ​ $ 0.14 April 18 ​ ​ $ 0.12 January 10Ω ​ ​ $ 0.12 ​ ​ ​ ​ ​ 2021 ​ ​ ​ ​ October 29 ​ ​ $ 0.12 July 30 ​ ​ $ 0.12 April 16 ​ ​ $ 0.12 January 8 ¥ ​ ​ $ 0.12 ​ ​ ​ ​ ​ 2020 ​ ​ ​ ​ November 4 ​ ​ $ 0.12 August 7 ​ ​ $ 0.12 January 27* ​ ​ $ 0.12 ​ ​ ​ ​ ​ 2019 ​ ​ ​ October 22 ​ ​ $ 0.12 July 29 ​ ​ $ 0.12 April 18 ​ ​ $ 0.12 January 10** ​ ​ $ 0.17 ​ ​ ​ ​ ​ 2018 ​ ​ ​ November 6 ​ ​ $ 0.12 July 27 ​ ​ $ 0.11 April 27*** ​ ​ $ 0.105 February 27**** ​ ​ $ 0.105 ​ ​ ​ ​ ​ 2017 ​ ​ ​ November 17 ​ ​ $ 0.105 July 27 ​ ​ $ 0.105 April 27 ​ ​ $ 0.05 £ A portion represents a distribution of 2022 income. Ω A portion represents a distribution of 2021 income. ¥ A portion represents a distribution of 2020 income. * A portion represents a distribution of 2019 income. ** Represents a distribution of 2018 income. *** A portion represents a distribution of 2017 income. **** Represents a distribution of 2017 income.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

87 edited+46 added−18 removed32 unchanged
Biggest changeThe net proceeds, net of the deferred financing costs, was approximately $276.4 million. ● $40,250,000 aggregate original principal amount, issued August 23, 2022, bearing interest at the rate of 8.00% per annum and maturing on September 30, 2027 (the “September 2027 Notes”) and which trade on the NYSE American under the symbol SCCG; ● $30,000,000 aggregate original principal amount, issued May 11, 2022, bearing interest at the rate of 7.125% per annum and maturing on June 30, 2027 (the “June 2027 Notes”) and which trade on the NYSE American under the symbol SCCF; ● $51,875,000 aggregate original principal amount, issued March 9, 2022, bearing interest at the rate of 6.00% per annum and maturing on March 30, 2027 (the “March 2027 Notes”) and which trade on the NYSE American under the symbol SCCE; ● $51,750,000 million original principal amount, issued December 20, 2021, bearing interest at the rate of 6.00% per annum and maturing on December 30, 2026 (the “2026 Notes”) and which trade on the NYSE American under the symbol SCCD; ● $56,363,750 million aggregate original principal amount, of which approximately $14.4 million was issued September 4, 2020, $14.0 million was issued October 23, 2020 and $28.0 million was issued December 22, 2020, bearing interest at the rate of 7.75% per annum and maturing on September 30, 2025 (the “2025 Notes”) and which trade on the NYSE American under the symbol SCCC; ● $34,500,000 million original principal amount, issued November 7, 2019, bearing interest at the rate of 6.875% per annum and maturing on December 30, 2024 (the “December 2024 Notes”) and which trade on the NYSE American under the symbol SACC; and ● $23,663,000 million original principal amount, issued June 25, 2019, bearing interest at the rate of 7.125% per annum and maturing on June 30, 2024 (the “June 2024 Notes”) and which trade on the NYSE American under the symbol SCCB.
Biggest changeDebt Our total outstanding indebtedness at December 31, 2023 was approximately $377.7 million, which included the Wells Fargo Loan balance of $26.8 million, $26.5 million outstanding under the Churchill Facility, approximately $1.1 million outstanding under the NHB Mortgage, $35 million outstanding under the Needham Credit Facility and approximately $288.4 million aggregate outstanding principal amount of five-year, unsecured unsubordinated notes, (the “Notes”) as follows: ● $40,250,000 aggregate original principal amount, issued August 23, 2022, bearing interest at the rate of 8.00% per annum and maturing on September 30, 2027 (the “September 2027 Notes”), which trades on the NYSE American under the symbol SCCG; 52 Table of Contents ● $30,000,000 aggregate original principal amount, issued May 11, 2022, bearing interest at the rate of 7.125% per annum and maturing on June 30, 2027 (the “June 2027 Notes”), which trades on the NYSE American under the symbol SCCF; ● $51,875,000 aggregate original principal amount, issued March 9, 2022, bearing interest at the rate of 6.00% per annum and maturing on March 30, 2027 (the “March 2027 Notes”), which trades on the NYSE American under the symbol SCCE; ● $51,750,000 aggregate original principal amount, issued December 20, 2021, bearing interest at the rate of 6.00% per annum and maturing on December 30, 2026 (the “2026 Notes”), which trades on the NYSE American under the symbol SCCD; ● $56,363,750 aggregate original principal amount, of which approximately $14.4 million was issued September 4, 2020, $14.0 million was issued October 23, 2020 and $28.0 million was issued December 22, 2020, bearing interest at the rate of 7.75% per annum and maturing on September 30, 2025 (the “2025 Notes”), which trades on the NYSE American under the symbol SCCC.
Net cash provided by financing activities for the 2022 consisted primarily of a gross proceeds from the sale of our fixed rate notes of approximately $122.1 million, proceeds from the Churchill Facility of approximately $23.4 million, and proceeds from the issuance of Common Shares of approximately $39.3 million, offset by $29.6 million decrease in the amount of the Wells Fargo Loan, dividends paid on Common Stock of approximately $18.8 million, dividends paid on Preferred Stock of approximately $3.7 million, and financing costs incurred of approximately $4.5 million.
Net cash provided by financing activities for the 2022 consisted primarily of a gross proceeds from the sale of our fixed rate notes of approximately $122.1 million, proceeds from the Churchill Facility of approximately $23.4 million, and proceeds from the issuance of Common Shares of approximately $39.3 million, offset by $29.6 million decrease in the amount of the Wells Fargo Loan, dividends paid on Common Shares of approximately $18.8 million, dividends paid on Preferred Stock of approximately $3.7 million, and financing costs incurred of approximately $4.5 million.
All the 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.
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.
All outstanding revolving loans and accrued but unpaid interest are due and payable on the expiration date. We have the right to terminate the Credit Facility at any time without premium or penalty by delivering written notice to the Administrative Agent at least ten (10) days prior to the proposed date of termination.
All outstanding revolving loans and accrued but unpaid interest are 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 the Administrative Agent at least ten (10) days prior to the proposed date of termination.
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 (the “Administrative Agent”) for the lenders party thereto (the “Lenders”) with respect to a $45 million revolving credit facility (the “Credit Facility”).
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 (the “Administrative Agent”) for the lenders party thereto (the “Lenders”) with respect to a $45 million revolving credit facility (the “Needham Credit Facility”).
Loans under the 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%).
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 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.
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.
Advances under these 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. In order to deal with these obligations, we are compelled to maintain higher cash balances, which could adversely impact our financial performance.
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.
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 arrangements, including a covenant that prohibits us from (A) (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) have unencumbered cash and cash equivalents in an amount equal to or greater than 2.50% of the amount of our repurchase obligations.
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 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 53 Table of Contents 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.
We believe that our ability to react quickly to the needs of borrowers, our flexibility in terms of structuring loans to meet the needs of borrowers, our knowledge of the primary real estate markets we lend in, our expertise in “hard money” lending and our focus on newly originated first mortgage loans, should enable us to achieve our primary 47 Table of Contents objective.
We believe that our ability to react quickly to the needs of borrowers, our flexibility in terms of structuring loans to meet the needs of borrowers, our knowledge of the primary real estate markets we lend in, our expertise in “hard money” lending and our focus on newly originated first mortgage loans, should enable us to achieve our primary objective.
Specifically, we continue to strengthen our geographic footprint beyond Connecticut and the rest of New England with particular emphasis on Florida and New York. In addition, our current mortgage loan portfolio includes loans secured by properties in California, Georgia, Maine, Maryland, Massachusetts, New Jersey, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee and Texas.
Specifically, we continue to strengthen our geographic footprint beyond Connecticut and the rest of New England with particular emphasis on Florida and New York. In addition, our current mortgage loan portfolio includes loans secured by properties in California, Georgia, Maine, Maryland, Massachusetts, New Jersey, North Carolina, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas and Washington D.C.
Based on this analysis, 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. Our long-term cash needs will include principal payments on outstanding indebtedness, preferred stock dividends and funding of new mortgage loans.
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. Our long-term cash needs will include principal and interest payments on outstanding indebtedness, preferred stock dividends and funding of new mortgage loans.
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.
We believe that, since consummation of the IPO, we meet all the requirements to 48 Table of Contents qualify as a REIT for federal income tax purposes and elected to be taxed as a REIT beginning with our 2017 tax year.
The Credit Facility expires March 2, 2026 subject to our right to extend the term for one year upon the consent of the Administrative Agent and the Lenders, which consent cannot be unreasonably withheld, and so long as we are not in 55 Table of Contents default and satisfy certain other conditions.
The Needham Credit Facility expires March 2, 2026 subject to our right to extend the term for one year upon the consent of the Administrative Agent and the Lenders, which consent cannot be unreasonably withheld, and so long as we are not in default and satisfy certain other conditions.
“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. Under the terms of the Indenture, we may, at our option, at any time and from time to time, on or after two years from the date of issuance redeem the Notes.
“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. 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.
As a REIT, we 51 Table of Contents 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.
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.
We are also targeting larger-value commercial loans with strong, experienced sponsors. To drive additional operational excellence, we continuously review, assess, and upgrade our existing operational processes, from workflows and employee roles/responsibilities to decision trees and data collection forms.
We are also targeting larger-value commercial loans with strong, experienced sponsors. To drive additional operational excellence, we continuously review, assess, and 49 Table of Contents upgrade our existing operational processes, from workflows and employee roles/responsibilities to decision trees and data collection forms.
The cost of capital under the Churchill Facility is equal to the sum of (a) the greater of (i) 0.25% and (ii) the 30-day LIBOR plus (b) 3% – 4%, depending on the aggregate principal amount of the mortgage loans held by Churchill at that time.
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.
For 2022, net cash from operating activities was primarily the result of net income of approximately $20.9 million, amortization of deferred financing costs of approximately $2.1 million, unrealized losses on investment securities of approximately $3.0 million, an impairment loss of $905,000, stock based compensation of $495,000 and an increase in accounts payable and accrued liabilities of approximately $767,000, offset by increases in interest and fees receivable of approximately $2.6 million, other assets of approximately $3.6 million, due from borrower of approximately $1.6 million, accrued dividends payable of approximately $1.4 million, and decreases in deferred revenue of approximately $283,000 and advances from borrowers of approximately $5.2 million.
For 2022, net cash from operating activities was primarily the result of net income of approximately $20.9 million, amortization of deferred financing costs of approximately $2.1 million, unrealized losses on investment securities of approximately $3.0 million, an impairment loss of $0.9 million, stock based compensation of $0.5 million and an increase in accounts payable and accrued liabilities of approximately $0.8 million, offset by increases in interest and fees receivable of approximately $2.6 million, other assets of approximately $3.6 million, due from borrowers of approximately $1.6 million, accrued dividends payable of approximately $1.4 million, and decreases in deferred revenue of approximately $0.3 million and advances from borrowers of approximately $5.2 million.
Funding for long-term cash needs will come from unused net proceeds from financing activities, operating cash flows and proceeds from sales of real estate owned.
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.
For the year ended December 31, 2021, we reported an unrealized loss on certain investment securities of approximately $476,000 reflecting the decrease in the market value of such securities since December 31, 2020. Non-GAAP Metrics – Adjusted Earnings We invest our excess cash in marketable securities.
For the year ended December 31, 2022, we reported an unrealized loss on certain investment securities of approximately $85,500 reflecting the decrease in the market value of such securities since December 31, 2021. Non-GAAP Metrics – Adjusted Earnings We invest our excess cash in marketable securities.
In addition, there may be other differences between GAAP and tax accounting that would impact Adjusted Earnings, which are not reflected in the table below. ​ ​ ​ ​ ​ For the Year ​ ​ Ended December 31, ​ ​ 2022 Adjusted Earnings: ​ Net income attributable to common shareholders ​ $ 17,221,589 Add: Unrealized losses on investment securities – debt investments ​ 2,963,760 Adjusted earnings attributable to common shareholders ​ $ 20,185,349 ​ For the year ended December 31, 2022 adjusted earnings per share was $0.54.
In addition, there may be other differences between GAAP and tax accounting that would impact Adjusted Earnings, which are not reflected in the table below. ​ ​ ​ ​ ​ ​ ​ ​ For the Year ​ ​ Ended December 31, ​ ​ 2023 ​ 2022 Adjusted Earnings: ​ ​ ​ ​ Net income attributable to common shareholders ​ $ 12,103,764 ​ $ 17,221,589 (Subtract)/Add: Unrealized (gain)/losses on investment securities – debt investments ​ ​ (835,818) ​ 2,963,760 Adjusted earnings attributable to common shareholders ​ $ 11,267,946 ​ $ 20,185,349 ​ For the years ended December 31, 2023 and 2022 adjusted earnings per share was $0.25 and $0.54, respectively.
We intend to continue to leverage our portfolio for the sole purpose of financing our portfolio and not for speculating on changes in interest rates.
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.
It also gives us the flexibility to seek other sources of funding. At December 31, 2022, the amount outstanding under the Churchill Facility was approximately $42.5 million, which amount was accruing interest of an effective rate of 8.52% per annum.
It also gives us the flexibility to seek other sources of funding. At December 31, 2023, the amount outstanding under the Churchill Facility was approximately $26.5 million, which amount was accruing interest of an effective rate of 9.47% per annum.
At December 31, 2022, debt represented approximately 59.3% of our total capital compared to 56.9% at December 31, 2021. To prudently grow the business and satisfy the tax requirement to distribute 90% of 49 Table of Contents our taxable income, we expect to maintain our current level of debt and look to reduce our cost of capital.
At December 31, 2023, debt represented approximately 60.4% of our total capital compared to 59.3% at December 31, 2022. 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.
In all cases, the 50 Table of Contents redemption price 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.
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.
Net cash used in investing activities for 2022 year was approximately $159.5 million compared to approximately $166.0 million in net cash used in 2021.
Net cash used for investing activities for 2023 year was approximately $72.5 million compared to approximately $159.5 million in net cash used in 2022.
Under the Credit Agreement, we have the right to request an increase in the size of the Credit Facility up to $75 million, subject to certain conditions, including the approval of the Lenders.
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.
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. The repurchase price is calculated by applying an interest factor to the purchase price of the mortgage loan.
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.
The Wells Fargo Loan is secured by our portfolio of short-term securities, had a balance of approximately $3.6 million at December 31, 2022. The outstanding balance on this loan bears interest at a rate equal to 1.75% below the prime rate.
The Wells Fargo Loan is secured by our portfolio of investment securities, which had a value of approximately $36.3 million at December 31, 2023. The outstanding balance on the Wells Fargo Loan of approximately $26.8 million bears interest at a rate equal to 1.75% below the prime rate.
Off-Balance Sheet Arrangements We are not a party to any off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons that are likely to affect liquidity or the availability of our requirements for capital resources.
Based on the evaluation, no adjustments were required in the accompanying consolidated financial statements. Off-Balance Sheet Arrangements We are not a party to any off-balance sheet transactions, arrangements or other relationships with unconsolidated entities or other persons that are likely to affect liquidity or the availability of our requirements for capital resources.
Net cash provided by operating activities in 2022 was approximately $13.1 million compared to approximately $27.8 million in 2021.
Net cash provided by operating activities in 2023 was approximately $21.9 million compared to approximately $13.1 million in 2022.
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.
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.
Beginning on April 1, 2023 and through March 1, 2038, principal and interest will be due and payable monthly, 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.
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.
Income from partnership investments increased to approximately $1.8 million for 2022 compared to approximately $142,000 for 2021, an increase of approximately $1.7 million. Fee and other income was approximately $3.0 million for 2022 compared to approximately $2.3 million for 2021, an increase of approximately $0.7 million, or 29.1%.
Income from partnership investments increased to approximately $3.5 million for 2023 compared to approximately $1.8 million for 2022, an increase of approximately $1.7 million, or 94.6%. Fee and other income was approximately $4.8 million for 2023 compared to approximately $3.0 million for 2022, an increase of approximately $1.8 million, or 62.1%.
These amounts were offset by proceeds from the sale of investment securities of approximately $85.1 million, proceeds from the sale of real estate owned of approximately $2.1 million, and principal collections on mortgages receivable of approximately $131.8 million.
These amounts were offset by proceeds from the sale of investment securities of approximately $18.1 million, proceeds from the sale of real estate owned of approximately $0.5 million, net proceeds from the sale of property and equipment of approximately $0.5 million, and principal collections on mortgages receivable of approximately $167.0 million.
To maintain our status as a REIT, we are required to distribute, on an annual basis, at least 90% of our taxable income. Thus, to give our shareholders a better perspective of our taxable income, we use a metric called Adjusted Earnings.
To maintain our status as a REIT, we are required to distribute, on an annual basis, at least 90% of our taxable income.
As a REIT, we may also be subject to federal excise taxes and state taxes. 2022 Year in Review; Outlook for 2023 2022 Highlights ● Total revenue increased 71.8%; net income attributable to common shareholders increased 50.2%; and earnings per common share increase $0.02 per share. ● We raised an aggregate of approximately $122.1 million of additional capital from the sale of Notes. ● We raised an aggregate of approximately $39.3 million of additional capital from the sale of Common Shares from our at-the-market offerings. ● We funded approximately $300.3 million of mortgage loans including loan modifications and construction draws. ● We reduced our leverage ratio, thereby mitigating the risks should economic conditions deteriorate.
As a REIT, we may also be subject to federal excise taxes and state taxes. 2023 Year in Review; Outlook for 2024 2023 Highlights ● Total revenue increased 25.5%; net income attributable to common shareholders decreased 29.7%; and earnings per common share decreased approximately $0.18 per share. ● We raised an aggregate of approximately $23.0 million of additional capital from the sale of Common Shares and Series A Preferred Stock through our at-the-market offering facility. ● We funded approximately $204.9 million of mortgage loans including loan modifications and construction draws. ● We maintained our leverage ratio, thereby mitigating the risks should economic conditions deteriorate.
These amounts were offset by proceeds from the sales of investments of approximately $180.5 million, proceeds from the sale of real estate owned of approximately $2.4 million, and principal collections on mortgages receivable of approximately $115.1 million. 54 Table of Contents Net cash provided by financing activities for 2022 year was approximately $128.2 million compared to approximately $160.7 million for 2021.
These amounts were offset by proceeds from the sale of investment securities of approximately $85.1 million, proceeds from the sale of real estate owned of approximately $2.1 million, and principal collections on mortgages receivable of approximately $131.8 million. Net cash provided by financing activities for 2023 year was approximately $39.5 million compared to approximately $128.2 million for 2022.
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 maintain or improve our existing underwriting and loan criteria.
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 maintain or improve our existing underwriting and loan criteria. Specifically, we believe that the following factors will impact our performance in 2024. ● Strong balance sheet.
For 2022, revenue was offset by approximately $3.0 million of unrealized losses on investment securities, while revenue included approximately $285,000 of unrealized gains in 2021.
For 2023, revenue was increased by approximately $0.8 million of unrealized gain on investment securities, while revenue was offset by approximately $3.0 million of unrealized losses on equity securities in 2022.
Net income and net income per share Net income for 2022 attributable to common shareholders was approximately $17.2 million compared to approximately $11.5 million for 2021, an increase of approximately $5.8 million or 50.2%. Our net income per weighted average Common Share outstanding for 2022 was $0.46 compared to $0.44 for 2021.
Net income and net income per share Net income for 2023 attributable to common shareholders was approximately $12.1 million compared to approximately $17.2 million for 2022, a decrease of approximately $5.1 million or 29.7%. Our net income per weighted average Common Share outstanding for 2023 was $0.27 compared to $0.46 for 2022.
For 2021, the major contributors to net cash used for investing activities were the purchase of investments of approximately $204.1 million, acquisitions of and improvements to real estate owned of approximately $822,000, purchases of interests in investment partnerships of approximately $6.1 million, and principal disbursements on mortgages receivable of approximately $251.8 million.
For 2023, the major contributors to net cash used for investing activities were the purchase of investments securities of approximately $30.4 million, net purchases of interests in investment partnerships of approximately $12.2 million, net purchases of investment in rental real estate of approximately $10.8 million, and principal disbursements on mortgages receivable of approximately $204.9 million.
Financing Strategy Overview 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 and we are mindful of the need to repay it at the appropriate time.
Financing Strategy Overview On January 10, 2024, we paid a dividend of $0.11 per share, or $5,144,203 in the aggregate 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.
The largest contributor to this increase was interest and amortization of deferred financing costs, which were $21.5 million in 2022 compared to $10.4 million in 2021, an increase of approximately 106.8%. The increase is directly related to interest payments on the Notes.
The largest contributor to this increase was interest and amortization of deferred financing costs, which were approximately $29.2 million in 2023 compared to approximately $21.5 million in 2022, an increase of approximately $7.7 million, or 35.5%.
In addition, our aggregate dividend payments have been higher in 2022 than in 2021 due to an increase in the number of Common Shares outstanding as well as the full year effect of our Series A Preferred Stock, which carries a 7.75% annual dividend rate.
In addition, we expect that our aggregate dividend payments will be higher in 2024 than in 2023 due to an increase in the outstanding number of our common shares (“Common Shares”), and our Series A Preferred Stock (“Series A Preferred Stock”), which carries a 7.75% annual dividend rate.
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%.
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%. Beginning on April 1, 2023 and through March 1, 2038, principal and interest will be due and payable on a monthly basis.
The increases were partially offset by decreases in advances from borrowers of approximately $5.2 million, and in deferred revenue of approximately $0.3 million, Total shareholders’ equity at December 31, 2022 was approximately $217.7 million compared to approximately $180.1 million at December 31, 2021, an increase of approximately $37.6 million.
The increases were partially offset by a decrease in accrued dividends payable of approximately $0.2 million. Total shareholders’ equity at December 31, 2023 was approximately $230.1 million compared to approximately $217.7 million at December 31, 2022, an increase of approximately $12.4 million, or 5.7%.
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 payments on our indebtedness and payments for usual and customary operating and administrative expenses, such as employee compensation and sales and marketing expenses.
Our short-term cash requirements primarily include funding of loans, dividend payments, interest and principal payments on our indebtedness, including repayment/refinancing of our notes payable maturing in 2024, and payments for usual and customary operating and administrative expenses, such as employee compensation and sales and marketing expenses.
(For this purpose, yield only takes into account the stated interest rate on the mortgage note adjusted to the default rate, if applicable.) We believe the interest rate compression will continue to be a factor in 2023, particularly as the Federal Reserve Board has continued to increase interest rates, thereby increasing our cost of capital.
(For this purpose, the yield only takes into account the stated interest rate on the mortgage note adjusted to the default rate, if applicable.) Nevertheless, we believe the interest rate compression will continue to be a factor during the first half of 2024 until the Fed begins to cut interest rates.
Despite the challenges we faced in 2021 and 2022, the changing dynamics of the real estate finance marketplace, supply chain disruptions, we continue to believe in the viability of our business model.
Despite these challenges, the changing dynamics of the real estate finance marketplace, the debt and equity markets, shocks to the financial system and challenging geopolitical developments, we continue to believe in the viability of our business model.
Prior to its refinancing in February 2023, as described below, the NHB Mortgage accrued interest at an initial rate of 3.75% per annum for the first 72 months and was to be due and payable in full on December 1, 2037. During the first 12 months, from December 1, 2021 to November 30, 2022, only interest was due and payable.
The balance of the NHB Mortgage was to be funded when the renovations of that property were completed. The NHB Mortgage accrued interest at an initial rate of 3.75% per annum for the first 72 months and was due and payable in full on December 1, 2037.
The new loan is a non-recourse obligation, secured primarily by a first mortgage lien on the properties located 698 Main Street, Branford, Connecticut and 568 East Main Street, Branford, Connecticut. Finally, from time-to-time we raise capital by selling our Common Shares in various at-the market offerings.
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.
At December 31, 2022, our mortgage loan portfolio included 177 loans with future funding obligations, in the aggregate principal amount of $114.6 million, compared to 177 loans in the aggregate principal amount of $89.2 million at December 31, 2021. The increase is due to an increase in construction loan originations, a large portion of which is in the Florida market.
At December 31, 2023, our mortgage loan portfolio included 112 loans with future funding obligations, in the aggregate principal amount of $97.9 million, compared 177 loans with future funding obligations, in the aggregate principal amount of approximately $114.6 million at December 31, 2022.
At December 31, 2022, our capital structure was 59.3% debt and 40.7% equity compared to 56.9% debt and 43.1% equity at December 31, 2021. ● We hired a new senior vice president and vice president of asset management, which allows us to create a new revenue stream. ● We adjusted and refined our business strategy to address changes in the marketplace and our growth to-date.
At December 31, 2023, our capital structure was 60.4% debt and 39.6% equity compared to 59.3% debt and 40.7% equity at December 31, 2022. ● We adjusted and refined our business strategy to address changes in the marketplace and our growth to-date.
At December 31, 2022 the prime rate was 7.5% and the interest rate on the Wells Fargo Loan was, thus, 5.75%. In 2021, we obtained a $1.4 million adjustable-rate mortgage loan from New Haven Bank (the “NHB Mortgage”) of which $750,000 was funded at closing and remained outstanding as of December 31, 2022.
In 2021, we obtained a $1.4 million adjustable-rate mortgage loan from New Haven Bank (the “NHB Mortgage”) of which $750,000 was funded at closing and remained outstanding at December 31, 2022. The initial proceeds of the NHB Mortgage were used to offset some of the costs we incurred to acquire the property located at 568 East Main Street, Branford, Connecticut.
Adjusted Earnings is calculated as net income attributable to common shareholders, prior to the effect of unrealized gains (losses) on securities available-for-sale – debt investments. Adjusted Earnings should be examined in conjunction with net income (loss) as shown in our statements of comprehensive income.
Thus, to give our shareholders a better perspective of our taxable income, we use a metric called Adjusted Earnings. 56 Table of Contents Adjusted Earnings is calculated as net income attributable to common shareholders, prior to the effect of unrealized gains (losses) on securities available-for-sale – debt investments.
Contractual Obligations As of December 31, 2022, 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 and software licenses. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than ​ 1 – 3 ​ 3 – 5 ​ More than ​ Total 1 year years years 5 years Operating lease obligations ​ $ 718 ​ $ 718 ​ $ — ​ $ — ​ $ — Unfunded portions of outstanding construction loans ​ 114,556,794 ​ 114,556,794 ​ — ​ — ​ — Unfunded commitments ​ 4,037,911 ​ 4,037,911 ​ — ​ — ​ — Total contractual obligations ​ $ 118,595,423 ​ $ 118,595,423 ​ $ — ​ $ — ​ $ — ​ Recent Accounting Pronouncements See ‘‘Note 2 — Significant Accounting Policies’’ to the financial statements for explanation of recent accounting pronouncements impacting us.
Contractual Obligations As of December 31, 2023, our contractual obligations include unfunded amounts of any outstanding construction loans and unfunded commitments for loans and partnership investments. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than ​ 1 – 3 ​ 3 – 5 ​ More than ​ Total 1 year years years 5 years Unfunded portions of outstanding construction loans ​ $ 97,901,849 ​ $ 50,278,089 ​ $ 47,623,760 ​ $ — ​ $ — Unfunded partnership commitments ​ 3,936,022 ​ 3,936,022 ​ — ​ — ​ — Total contractual obligations ​ $ 101,837,871 ​ $ 54,214,111 ​ $ 47,623,760 ​ $ — ​ $ — ​ Recent Accounting Pronouncements See ‘‘Note 2 — Significant Accounting Policies’’ to the financial statements for explanation of recent accounting pronouncements impacting us.
For 2021, net cash from operating activities was primarily the result of net income of approximately $13.3 million, amortization of deferred financing costs of approximately $1.2 million, an impairment loss of $719,000 and increases in deferred revenue of approximately $2.5 million, advances from borrowers of approximately $13.2 million, accrued interest of approximately $161,000 and accounts payable and accrued expenses of approximately $129,000, offset by a gain on sale of marketable securities of approximately $284,000, and increases in interest and fees receivable of approximately $1.9 million, and amounts due from borrowers of approximately $1.6 million.
For 2023, net cash from operating activities was primarily the result of net income of approximately $15.9 million, amortization of deferred financing costs of approximately $2.4 million, provision for credit losses related to loans of approximately 57 Table of Contents $5.6 million, provision for credit losses related to available-for-sale debt securities of approximately $0.8 million, impairment loss of approximately $0.8 million, stock based compensation of approximately $0.8 million, and an increase in advances from borrowers of approximately $1.1 million, offset by increases in interest and fees receivable of approximately $2.3 million, other assets of approximately $3.5 million, due from borrower of approximately $0.3 million, and an unrealized gain on investment securities of approximately $0.8 million.
From January 3, 2023 through March 30, 2023, we sold an aggregate of 2,479,798 Common Shares under our at-the-market offering facility, realizing gross proceeds of approximately $9.4 million. Additionally, since January 3, 2023, we have sold shares of our Series A Preferred Stock having an aggregate liquidation preference of $154,675 under our at-the-market offering facility.
During the year ended December 31, 2023, under our at-the-market offering facility, we sold an aggregate of 5,475,891 Common Shares, realizing gross proceeds of approximately $20.9 million and we sold shares of Series A Preferred Stock having an aggregate liquidation preference of $126,923, realizing gross proceeds of approximately $2.6 million representing a discount of approximately 17.6% from the liquidation preference.
In addition, we borrowed an additional $23.4 million pursuant to the Churchill Facility. 52 Table of Contents Operating costs and expenses Total operating costs and expenses for the year ended December 31, 2022 were approximately $31.4 million compared to approximately $17.1 million for 2021, an increase of approximately $14.3 million, or 83.4%.
Operating costs and expenses Total operating costs and expenses for the year ended December 31, 2023, were approximately $49.7 million compared to approximately $31.4 million for 2022, an increase of approximately $18.3 million, or 58.5%.
The balance of the increase was attributable to increases in accounts payable and accrued liabilities of approximately $0.7 million and accrued dividends payable of approximately $1.4 million.
The balance of the increase was attributable to increases in accounts payable and accrued liabilities of approximately $0.9 million, increase in notes payable of approximately $2.3 million (from the amortization of deferred financing costs), advances from borrowers of approximately $1.1 million, deferred revenue of approximately $0.3 million, and the addition of below market lease intangibles of approximately $0.7 million.
Net cash provided by financing activities for the 2021 consisted primarily of a $5.1 million increase in the amount of the Wells Fargo Loan, gross proceeds from the sale of our fixed rate notes of approximately $51.8 million, proceeds from the Churchill Facility of approximately $19.1 million, proceeds from the issuance of Common Shares of approximately $56.0 million, and proceeds from the issuance of Series A Preferred Stock of approximately $45.5 million, offset by dividends paid on Common Stock of approximately $12.3 million, dividends paid on Preferred Stock of approximately $1.9 million, financing costs incurred of approximately $1.9 million and principal payments on our notes and mortgage payable of approximately $791,000.
Net cash provided by financing activities for the 2023 consisted primarily of net proceeds from our lines of credit with Wells Fargo and Needham Bank of approximately $58.2 million, proceeds from the issuance of Series A Preferred Stock of approximately $2.6 million, and proceeds from the issuance of Common Shares of approximately $20.5 million, offset by repayment of the Churchill Facility of approximately $16.1 million, dividends paid on Common Shares of approximately $21.9 million, and dividends paid on Series A Preferred Stock of approximately $3.8 million.
One-third of such shares vested immediately on the grant date, and an additional one-third will vest on each of the first and second anniversaries of the grant date. On February 28, 2023, we refinanced the NHB Mortgage with a new $1.66 million adjustable-rate mortgage loan from New Haven Bank.
On February 28, 2023, we refinanced the NHB Mortgage with a new $1.66 million adjustable-rate mortgage loan from New Haven Bank. The new loan accrues interest at an initial rate of 5.75% per annum for the first 60 months.
In November 2022, the Churchill Facility was amended to change the “benchmark” rate from 90-day LIBOR to 90-day SOFR. This change had minimal impact on the interest rate. Our obligations under the Churchill Facility are secured by a lien on the mortgage loans sold to Churchill.
Our obligations under the Churchill Facility are secured by a lien on the mortgage loans sold to Churchill.
The increase was due primarily to the growth in our mortgage loan portfolio, which increased approximately $168.3 million, an approximately $1.6 million increase in due from borrowers, an approximately $2.6 million increase in interest and fees receivables, an approximately $1.9 million increase in property and equipment, an approximately $24.8 million increase in investment in partnerships, and an approximately $4.0 million increase in other assets.
The increase was due primarily to the growth in our mortgages receivable, which increased approximately $38.5 million, an approximately $2.2 million increase in interest and fees receivables, an approximately $13.2 million increase in investment securities, an approximately $12.2 million increase in investment in partnerships, an approximately $4.0 million increase in other assets, and the increase relating to the 2023 addition of net investments of rental real estate of approximately $10.6 million.
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. Emerging Growth Company Status As of December 31, 2022, we ceased to be an emerging growth company.
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. Critical Accounting Policies and Use of Estimates The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
The rates on our existing credit facilities, including the Churchill Facility, the Wells Fargo Loan and the NHB Mortgage (refinanced in February 2023), have all increased. In addition, the interest rate on the September 2027 Notes, our last note offering in 2022, was 8%, the highest its ever been.
We expect 2024 to be a challenging year due to the following factors: Rising interest rates and interest rate compression. The rates on our existing credit facilities, including the Churchill Facility, the Wells Fargo Loan and the NHB Mortgage (refinanced in February 2023) (as defined below), have all increased.
In addition, we believe the migration to these types of loans will offset any rate compression and help us maintain a low foreclosure rate. ● To leverage our expertise in real estate finance and our capital resources, on the one hand, and to capitalize on lending opportunities in specific markets, on the other, we have implemented our strategy to partner and invest with local “hard money” real estate lenders creating satellite offices under the “Sachem” influence. ● We continued the enhancement of our underwriting guidelines to strengthen our documentation and collateral position on our loans. 2023 Outlook Our primary business objective for 2023 remains to grow our loan portfolio while protecting and preserving capital in a manner that provides for attractive risk-adjusted returns to our shareholders over the long term principally through dividends.
We believe migration to larger borrowers and better capitalized sponsors will decrease future problem loans. ● To leverage our expertise in real estate finance and our capital resources, on the one hand, and to capitalize on lending opportunities in specific markets, on the other, we have implemented our strategy to partner and invest with local “hard money” real estate lenders creating satellite offices under the “Sachem” influence. ● We continued the enhancement of our underwriting guidelines to strengthen our documentation and collateral position on our loans. ● On June 23, 2023, the Company entered into a purchase and sale contract (the “Westport Purchase Agreement”) for $10,600,000 to acquire a commercial office building in Westport, CT (the “Westport Asset”).
Given recent developments regarding mid-size regional banks, we believe competition from traditional banks will abate in 2023 rather than increase. However, as banks pull back from 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.
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.
In the past, our primary competitors were other non-bank real estate finance companies (like Sachem Capital Corp.) 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.
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.
The true ramifications of this conflict and their impact on the markets and our business are not fully known at this time. Our business is purely domestic, but we are impacted by market volatility and cybersecurity is a concern for all businesses. Increased competition.
Our business is purely domestic, but we are impacted by market volatility and cybersecurity is a concern for all businesses. Increased competition. In the past, our primary competitors were other non-bank real estate finance companies and banks and other financial institutions.
This is particularly true as we focus more on larger loans and borrowers with better credit histories. Property value fluctuations. We remain aware of property value market cycles and utilize a dashboard of indicators to track property value trends.
While we are able to pass along most of the increased cost of capital to the borrowers, increased competition has the potential to hinder spreads. This is particularly true as we focus more on larger loans and borrowers with better credit histories. Property value fluctuations. Property value market cycles could have an adverse impact on our operations and financial condition.
The balance of the increase in operating expenses was attributable to (i) compensation (including stock-based compensation), fees and taxes, which increased approximately $2.2 million; and (ii) general and administrative expenses, which increased approximately $0.9 million. These increases are attributable to our increased level of operations, hiring of additional staff and the implementation of certain of our growth strategies.
The operating costs and expenses increases are primarily attributable to the adoption of ASU 2016-13, our increased level of operations, hiring of additional staff and the implementation of certain of our growth strategies.
This increase was due primarily to our net income of approximately $20.9 million, net proceeds from the sale of Common Shares of $39.3 million, issuance of 300,000 Common Shares totaling approximately $1.0 million for the purchase of Urbane New Haven, LLC’s assets, offset by the aggregate of dividends paid and dividends declared of $20.2 million on our Common Shares with respect to 2022 income and dividends of $3.7 million paid on our Series A Preferred Stock.
This increase was attributable to (i) 2023 net income of approximately $15.9 million, (ii) net proceeds from the sale of Common Shares of $20.5 million and (iii) net proceeds from the sale of Series A Preferred Stock of approximately $2.6 million, offset by (iv) approximately $21.7 million of dividends paid and dividends declared with respect to 2023 operating income to holders of our Common Shares (v) approximately $3.8 million paid of dividends paid to holders of our Series A Preferred Stock, and (vi) approximately $2.5 million from the cumulative effect for the change in accounting principle as a result of the adoption of ASU 2016-13 (CECL).
Results of Operations Years ended December 31, 2022 and 2021 Total revenue Total revenue for the year ended December 31, 2022 was approximately $52.3 million compared to approximately $30.4 million for the year ended December 31, 2021, an increase of approximately $21.9 million, or 71.8%. The increase in revenue was due primarily to an increase in lending operations.
The change in the balances during the reporting period are recorded in the Consolidated Statements of Comprehensive Income under the Provision for credit losses. 55 Table of Contents Results of Operations Years ended December 31, 2023 and 2022 Total revenue Total revenue for the year ended December 31, 2023, was approximately $65.6 million compared to approximately $52.3 million for the year ended December 31, 2022, an increase of approximately $13.3 million, or 25.5%.
Subsequent Events On January 10, 2023, we paid a dividend of $0.13 per share, or $5,342,160 in the aggregate, to shareholders of record as of December 30, 2022. On January 10, 2023, William C. Haydon, resigned from his position as our chief investment officer, chief credit officer and director of investor relations.
Subsequent Events We evaluated subsequent events from January 1, 2024 until the financial statements were issued. 58 Table of Contents On January 10, 2024, we paid a dividend of $0.11 per share, or $5,144,203 in the aggregate, to shareholders of record as of December 29, 2023.
Beginning December 1, 2022 and through December 1, 2037, principal and interest was to be due and payable monthly, based on a 20-year amortization schedule. On February 28, 2023, we refinanced NHB Mortgage with a new $1.66 million adjustable-rate mortgage loan from New Haven Bank.
During the first 12 months, from December 1, 2021 to November 30, 2022, only interest was due and payable. Beginning on December 1, 2022 principal and interest was due and payable on a monthly basis, based on a 20-year amortization schedule.
There were no unrealized gains or losses on investment securities reported in net income for the year ended December 31, 2021. 53 Table of Contents Liquidity and Capital Resources Total assets at December 31, 2022 were approximately $565.7 million compared to approximately $418.0 million at December 31, 2021, an increase of approximately $147.7 million, or 35.3%.
Liquidity and Capital Resources Total assets at December 31, 2023 were approximately $625.5 million compared to approximately $565.7 million at December 31, 2022, an increase of approximately $59.8 million, or 10.6%.
Various geopolitical concerns 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. These concerns include the ongoing war between Russia and Ukraine, heightened tensions between the United States and China, Iran’s pursuit of nuclear weapons and North Korea’s ongoing belligerence.
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.

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