Seven Hills Realty Trust (SEVN) 25 Apr 232023 Q1 Earnings call transcript

Good morning and welcome to Seven Hills Realty Trusts First Quarter 2023 Financial Results Conference Call. All participants will be in listen only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. is call this note being recorded. Please

now Kevin Berry, would like Please to to over call the Director ahead. turn go I of Relations. Investor

us moment, the our first and With and Lorenzini; business Treasurer, you good and In everyone. performance provide Officer for Thank quarter just details Sy. a our morning, Chief Financial the me will of are call joining on Tiffany President, they XXXX. Tom for Thanks today. about

with call the analysts. to open sell then session side question-and-answer will We a

First, forward prohibited securities I expectations looking Act are of note forward the obligation and those any and to other today's undertakes The to litigation Reform forward Seven as XX, the written results that the securities today's revision Hills results conference company in that of that may recording of looking beliefs XXXX, private contains would like Hills statements based made publicly prior release and April within call. materially call revise without Trust's note or statements conference differ and call retransmission is XXXX project. actual These Realty Tuesday, the Also statements today's strictly meaning of consent. conference on we to laws. the looking Seven of today, no

are cause reliance Investors Additional SEC, website. statements. which or Commission, differences upon information accessed filings is the any factors Securities that SEC's and Exchange those to with within can concerning not can contained the place folder in our from cautioned be undue

financial earnings of that this and discussing earnings found will including we during per GAAP measures distributable A we in be distributable be presentation our addition, share. In can release reconciliation call helpful We and to be non-GAAP about analysts numbers our earnings can company for our information information which believe and our be will found sevnreit.com.com. results. on night, combined to investors digest presentation last efficiently of this as website non-GAAP issued

over turn to the will Tom. call now I

resilient you thank interest of today. market our morning, announced floating a on Thank portfolio. quarter night, everyone. we first you, for model rising And strong volatility benefit Last our call period joining Kevin. of rates Good business from during the the resulting and rate increased earnings

loans intensified, Even as all our on real to perform. commercial estate of continued pressure

well the overall value XX%. share. last of points per we The year. an XX portfolio percentage loan remained to earnings returns $X.XX insulated our capital to industry profile continue more was by Our of with to beginning stable. benchmark than shareholder have of deliver loan outperformed credit the book that total increased Distributable since And

a did projected currently totaling on loan approach maintained selective diligence any although activities, to the we quarter in several over two close our weeks. highly in origination on are next and approximately $XX new opportunities have during We not loans close the million

with of pipeline have an In to attractive opportunities. take today's along active advantage addition, we pricing liquidity ample

Federal was The quarter continued result, during path a Reserve market monetary the subdued. its new first the and activity on across of lending policy tightening as

Silicon addition driven banking sidelines. that Valley the recent concerns and the and sector. the the lenders contributed many to interest in continued in of higher Bank to lending in slowdown liquidity the has failures CLO In raised And Signature slowdown have rates, to market

to have pricing. competitive capitalizing themselves a securitized new on opportunities backdrop liquidity alternative The on as lenders selective quality with investments, and to market. the accretive high for Hills Seven or are favorable This continue is CLO while such overall result sponsors that in financing us be not and those allows

XXXX of a our and believe the challenging balance are We with asset in indicator received positive our experienced underwriting on active further environment. testament where plans a and sponsors market beginning since loan their sponsors than business serves disciplined liquidity they this on enhancing continue dialogue activity as be all to execute of our more as We their achieving is million business our proactive We plans. $XX to capitalized and well and repayment this sheet. management strengthening capabilities repayments

to quarter Turning now loan ended. at our book

Seven mortgage XX, million than consisted loans million, portfolio March commitments account of commitment for of future approximately $XXX XX total first of with loan is total our and fundings Hills our As of X% $XX less average commitments.

weighted of a aggregate In extension weighted options. to of X.X%, maturity average all coupon and loan average a when Our of have an investments X.X average of years portfolio XX% X.X%. has weighted and the in a value including maximum yield

which the credit weighted and prior collateral quality average are five. unchanged portfolio the borrowers and strength rating with quarter is speaks of the our compared with and of Our strong overall remains the X.X for due loans at risk rated our loans, stability none to non-accrual underlying The or past no portfolio assets.

well Our geographically loans and are diversified asset classes. across

is As loans our transitional value a strategies. lender estate, growth, and to collateral as real their well-positioned for and managers rent execute on the capture

in in believe helpful moment space headwind I a presentation this out color publicized investors. included may want point earnings details give more our which well and take to to loans you to our quarter we have office additional on office sector, the the be that Given we

from none includes portfolio Seven or CBD work from headwinds are these are that home facing located are All office XX% making sharpest loans trend. Our principal performing XX of loans, markets in Hills up post-COVID balance. the the and urban

We rent plans are investment and strong sponsors. collections our continued financial commitments advance, capital seeing from

no rated of up five the two four office loans. loans just our have And X% We make portfolio. overall rated

office contributions. is seeing where of additional loan an are One in ongoing we sponsor our our commitment from equity Dallas, significant these with

a woods our is property and not recently are to building by The the XX% we other four ago. occupancy yet office secured approximately XX% year increased of from out loan the a A Pennsylvania loan class rated

our estate executing of properties With platform approximately strength ongoing $XX scarce we today's on ahead, RMR As assets rates, the properties look nearly manages business is expect the interest Considering XXX sustain to group recessionary concerns supported and environment face in is operating XXXX it to experience sectors. the that professionals higher access country. and estate real challenges to plans we real nationwide, commercial we offices over financing. XX will by noting volatility market plus continue who worth related substantial and and across billion in across hands have the

Our operations to resources our necessary and the national depth commercial ability across Capital provides shareholder Realty to collective Trimont real of knowledge and property with interest. the platform a Omar's unique a Hills of step Seven into if and protect management estate

we believe our company returns capital shareholders. At opportunistically well positioned for the to drive current the our is time, attractive same continue to reinvest landscape, navigate our and

with we in have balance our in capacity recent our And financing more $XXX Our continue underwriting relationships to returns. partners our months. pricing secured investments remain with favorable with an targeted criteria, of additional are line sheet meet support disciplined and that to strong million

protect As rebalancing of interest all help requirements sweeps, to are investment reserves flow against a our losses. structured loans with reminder, cash and mitigation possible as risk such us provisions,

originations, While and returns of seeing our we transaction remain dislocation. selective will through pipeline plan us by volume to and allow to that to we market current mindful enhanced the are the approach advantage our afforded increased new in take

sheets either and of application under amount an an over and negotiated reflect hospitality million. refinancing currently XX acquisition term $XXX with balance are a or million $XX multifamily with of primarily aggregate being seven of mix outstanding evaluating industrial, on aggregate properties. opportunities approximately that loan two balanced This loans loan approximately includes financings prospective We and

the represent corresponding markets, asset interest In and quarters Seven volatility summary, despite today's higher prices attractive opportunity the rates for and in coming an Hills.

shareholder to profile, Our we deliver is positioned are growing, term. well [indiscernible] portfolio pipeline value as our the long a over

with the And call I'll that, to turn Tiffany. over

to Yesterday, reported the the in DE $X.XX timing the due the everyone. of approximately Tom. distributable of $X.X repayments of which of DE or $X.XX X.X% On previous we share guidance end range, our you, $X.XX above loan Good to morning, per million, increased quarter. DE share, per earnings, quarter a or basis, primarily sequential during quarter. Thank was high compared

Seven generate Earlier regularly we this dividend the Hills of for $X.XX continues shareholders. announced attractive share. very month, per quarterly to returns our

basis, approximately a dividend on Our XXXX our our yield yesterday's first DE by closing to on equates of XX% the of for price. dividend and an quarter based XXX% annualized stock covered approximately

XXXX, substantial new of mortgage negative Seven shareholders the the rate Hills delivered has our total representing for for of relative return index. XX% financing a return Since commercial to XX% outperformance beginning a

growth weighted average earnings our XXXX rising by points rate driven coupon quarter-over-quarter. primarily is rates Our interest from to with quarter of in X.X% X.X% first XX increasing the basis approximately or

the well an that benefit as We Based X%. peak annual expect as $X.XX XXX the we one was ahead the mid SOFR portfolio of result the interest month to Seven higher approximately rate basis estimate may rate to XX, occur. any approximately Hills to points to as In above an from levels, quarter of further is of points, end increases benefit in in continue interest would that of sensitivity and DE at earnings projected in term our XX basis March on XXXX increase per share. incremental quarters

ended capitalization we drawn Turning financing and to the our quarter million facilities. on with liquidity, secured $XXX

the and marginally that execute mainly loan We strength underwriting X.X plans. X.X reflect repayments on our the the from end decrease believe to margin due to repayments business of times to the Our of sponsors leveraged XXXX, at our these ability of earlier. Tom two their mentioned

increased our and While spread investments increased leverage our our term our our levels facilities in has income. has rise short of our net interest interest capital rates cost interest the lower financing and between net

Looking after capacity cash million originate earlier. borrowing the available loans forward, currently Tom allow loans approximately mentioned us consideration to $XXX of of and that our for two

DE quarter the Turning and in we non-cash share. forecasted originations to second that during by interest repayments. quarter, reflects and current the G&A QX loan $X.XX flat timing driven a first the our quarter. that expect quarter. DE expected share occurred next per decrease be basis $X.XX repayments on outlook and are The originations for expectations for and rates, between sequential expense, loan grant is loan of repayments in new to with expenses Guidance our and excluding

shareholders redeploy In attractive look risk our to market. summary, on capital in we deliver as most opportunities returns focused we the strong adjusted investment today's types into for continuing forward property to

open prepared please questions. Operator, line the That for remarks. concludes our

the and We Erdner question answer question And ahead. will comes now first Trading. from Matthew [Operator session. Instructions] our please Jones Matt go begin from

the taking for either expectations have going any the for question. guys, guys for you Hey, Do or repayments thanks this quarter year? forward

do. We

now, now. repayments as that another should have in their the they refinance of positions are well in some for or the they we've of Matt, we're balance on two have current office Seattle repayment million. the And For a another one we've quarter the received XX in then loan year And choose and QX loans already for refinance, to process $XX.X trying that scheduled we this accept options also mature we about could multifamily so in three that the of have quarter to then extension those.

Those about $XX total million.

Total million. about XX

And helpful. more a Have That's little of happened that you with Awesome. what's built seen, I bit. you guess, guess are or a trouble? the guys volume pipeline has banks, said kind the have transactions kind going through in up then given banks the I that now of little

was approaching that currently is of time refinance a of such because pricing is and competing part dollars, little that last the because bit of say often that we that were pipeline is them, that the of quite with of a Seven back. It's also of And same about The would regional at lenders stepped not have sword a QX bit bit I positions. where banks believe a good billion and But QX as our inside Yes. true. from those which that year. double a edged have, quite they banks transacted. some do we're

that's guys. Thank Awesome, you helpful.

you. Thank

JMP [Operator from is Muller Chris following Chris Instructions] Securities. question go Our everyone. ahead, please from

a with early the two any just questions. on for congrats fees Thanks repayments that year. touch associated challenging repayment I repayments the in quarter. taking to meaningful to Were $X.XX? in Hi strong on everyone. the And a start wanted there those

did any repayment fees not of We No. on them. have meaningful any

[indiscernible] there about Good Got guys you Are Would a get approach can talk five that any that And all on that hear. reserves any loans the how that that quarter would is disclose? $X.X rating? it's would then general? it. number? specific then you something like Or that went being end in the And reserves? reserve to in up million. looks about just into And is specific place those

that one. I'll take Sure,

commitments. also point balance $X.X outstanding our just point the on So to one million I'll you out, is the can I X, I to on in can CECL that which there's unfunded related XX-Q, you see sheet see reserve our an our of want believe Page additional on million out, $X.X principal. there thing

reserve. So million is the total total $X.X

out. that point So wanted just to

believe reserve. specific that point, it If on, have on would into at differently. Moving I than more we a had rated were were the your to Currently, any We we reserves. to collateral value a dependent a situation that that at the end loan I was having would value there a question no we we any there look specific next loan where may move reserves? likely are collateral five, fair was, are think a up likely And funds of would the based available. additional that we loan, have and specific if

what in situation. are would had We a that's not occur. we that that's process But and

clarity Got of rates? any path I Fed guess up work fibery out just type one, what, what I it And more Is again? would on loans. you end comfortable in looking gas I don't Tom. a giving guess are Hopefully, don't to Or for the you out it. we the you there? last situation. on Yes. stepping what start of that guys guess interest little make more of the to the things have

to Certainly seeing quoting there's We're wants times can clarity, generally we're number we're we unless are that where deal kind more reduction. and they're a just trades and often of that because The today, a bit have a many this But the sellers transactions, if transaction. quite will, have right. a you a there's for And of little back buyers of buyer looking is between in buyer just I bit. I one ultimately, of few just transact is to the down the the seems going the And remember not. the transact. you to price cases seeing evaporate, mean, disconnect seller.

come we and begin do they And will to the rate, or trades. the more that So May terminal beneficial maybe to for from going Fed be that they clarity if have perspective, adjust some stop that capital. we're that But we provide the believe peak that will we're reached see markets everyone.

We're lending. actively are We actively underwriting.

transactions We process couple of have a now. right in

So to back optimistic active. year, going the that we're of half we're the quite be

for the helpful. Thanks questions. Got taking Very it.

you. Thank

And this remarks. the for concludes Tom over like turn Lorenzini to our now question-and-answer session. back I any would to closing conference

Thank Conference for many joining us Nareit’s forward of at today. seeing to look June. everyone We you in you the

This the you concludes Thank today's attending presentation. conference. for

You may now disconnect.