SEVN - Earnings call transcript Q3 2021 | Seven Hills Realty Trust

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Operator

Good morning. And welcome to the Seven Hills Realty Trust Third Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note, this event is being recorded. to Investor conference Relations. like Barry, to now of Director would turn over the Kevin I Please ahead. go

Kevin Barry

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

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

to the that Hills recording retransmission First, SEVN's forward-looking These written and I within note would of Private strictly based we conference Seven are the to conference statements those the today's without consent. today's the XXXX call. is as other statements the Securities those of Realty made and conference company A securities and undertakes call contains that X, to materially that today, Wednesday, in uncertainties could risks results forward-looking like November beliefs on number expectations or of prior forward-looking from obligation Litigation exist laws. from implied. call or differ meaning of and Also Reform prohibited actual SEVN's differ expressed revision cause and note Trust's Act project. today's to The of may any actual revise results materially publicly that statements XXXX, of no results release

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

be including will discussing numbers non-GAAP In call, during distributable earnings. addition, this we

earnings earnings, our now turn determined available of with in reconciliation website. GAAP the With quarterly to net will please distributable which accordance over call Tom. I our on For to is that, income see release a

Thomas Lorenzini

and merger the the I turn pipeline. will call like balance quarter, commercial and Mortgage the But Realty last culmination review Trust on over Trust, the then I results. July of merger welcome I for which quarter the to in morning, expanded before RMR results Kevin. overview [Technical And with have today's quarter between of an greater an as supplemental Trust. excited larger, financial closed reflect if successfully be merger Mortgage SEVN, to our day you, help Doug results We're will base, Thank forma our closing our the an only our business update with the strategy of moving the financial diversified access more third is to consolidated to due forward Good package, combined that on capital a and to the to Difficulty] pro to investment X. this, activities improved results balance SEVN's merger and with as mortgage earnings and would operating the begin release strength. of On everyone. To call, and Tremont begin, to provided sheets REIT and financial I sheet. TRMT Seven we've Hills highlight our closed capital on clarify had deal third

less Seven years. is To believe loan a five originating Seven that recent shareholders. lending with preservation book to meaningful for gap Turning demonstrate that our mortgage generating returns up primary stabilized achieve the manager a platform up by attractive the ramp adjusted investment the investment further to to during Capital, quarter, with with XX% to rate production loan new of our our Today, and investment floating balanced aim LIBOR. capital execute this loans with objective strategy on committed strength Seven six end, we activities, ratios trade approximately million, We record $XX of and community. our remains The capital spreads reduce million XXX third REIT, plan, or on objective points behalf XXX Realty discount of this TRMT to value. million shares to risk Hills' loans Hills return carry at as of a SEVN to terms as attractive basis value position We an to trim, and ranging prior $XXX continue and new generally of $XX to our business Tremont from to over Hills the profiles loans originated attractive for the merger. between

either million, seven their quarter million. including and We aggregate commitment activity principal loans also outstanding in ended $XXX their loans, $XX of XX balance or of business with sponsors of future is achieving fundings. This with an We positive refinancing assets. million of our received combined $XXX third with selling a plans repayments indicator the an

Our weighted In maturity and aggregate, of the X.X%. generate X.X years a coupon maximum exhibit attractive with extension healthy average investments to an a overall credit returns XX% all-in weighted average when weighted options. value average characteristics of and loan including and X.X% of yield of a has portfolio

Our diversified amongst industrial collateral. geographically classes well hotel office estate, across secured investments distributed real retail and loans as multifamily, asset and are as loans well and with by lab,

we've representing continues portfolio portfolio is strong losses. On with point weighted loans not X recorded scale, the the lowest in risk, our business well rating highest average on continued representing are of X credit default and to perform on metrics Our a risk any risk None X. and plans. progress X and credit the

service. our loans are rated and As loans all of our are of XX, in X September debt current none of

teams billion. an $X next originations asset fully volume, fourth We our and quarter volume To aggregate time. We portfolio growth. and our for increase origination the believe to during markets with support our to building Hills' is are adding actively and shareholders total When this over lending into grow management in intensely the transaction underwriting continued Seven accelerating and our effort compelling of will to reward year. momentum invested, opportunity anticipate commitments to and the dividend our expanding a scale, commercial manager end, our growth focused strength gain on us presents

to this be the choose We're reach million debt mid-year allows yield, most of of continue banks, competitive for XXXX. important several hundred of addition continues companies. investments to dollars exhibit environment. The to and amounts from expect us debt market goal quality liquidity robust to lending Competition come life seeking very selective markets reviewing by other our properties which mortgage and portfolio. insurance creating to opportunities, currently lend in and significant a funds We REITs, to

group. leveraging We the portfolio our and value manager, have well expertise a our RMR growth advantage of as to by competitive the as experience relationship with of the drive

across with to a the investment market real opportunities. and intelligence conditions, understand access provides program unique our and Our real platform generate collective Realty depth market national commercial capital ability and Tremont resources knowledge lending of estate time strong RMR's

new are returning with in of for financing this Additionally, many our of execution to competitive investment sales certainty existing needs us market. sponsors

near floating We penalties, which stabilized rate rate great lieu in to flexible assets term. onerous set. We carry are prospects further investment loan seeing and may debt, seeking our opportunity scale increasing continue sponsors a near the capital of with book growing or in stabilize for prepayment our see appetite from fixed diversify more it to

application subject $XXX expect our to $XXX Realty in with more with million. refinancing than remains the million of under the is close momentum totaling we manager a final during well-leased over potential million, announced office closing diligence. X bright. comprised had North Trust continued $XX Diego's high a pipeline loans a the San active Hills totaling transactions We XX In property market which we growth fourth of loan, healthy currently our quarter to for have loan County bridge Our summary, Seven Yesterday, strong outlook quarter and a submarket. across quality we in the portfolio

year of earnings increase to business lending and volume see ongoing with of updating support Following And to look the origination the power a continued our to market our the forward fundamentals path, ample have the the you turn to merger, to an and on on excellent And portfolio ahead. completion growth. we Doug. that, our capitalize of call strength clear over strong but I'll growth. our we our runway, now accelerate platform opportunity in We

Douglas Lanois

the begin, want XX. assets everyone. and Hills' And consolidated to morning, that good in September Seven balance Tom. reiterate liabilities as are in Thank the To TRMT merger sheet you, acquired assumed of from I the included

term results discount. This purchase like historical fair exceeded consolidated be of that for value included statements not discount remaining acquired accounting also of highlight individual operations generated are the because Hills loans of the income loans to of the operations. of loans purchase I'd a of in TRMT's when loans. occurred purchase price However, the Seven the the accretive over into The TRMT's the will acquisition merger. of

recognize this income. will accretion in net We

any this earnings. loan discount this item non-cash in intend calculation be not due is we to $XX deduct of To approximately million of clear, However, to impairment. distributable our

loans. continue We of on all expect and full to interest principal repayment these

shares we is the of common purchase the per $XX.XX After adjusted increase investments. was Additionally, accreted. book our our more represents book share, quarter, common accretion book Hills the share, third will of believe value future value Seven adding as of $X.XX $XX.XX. the share At was common per back Seven end value Hills value the discount clearly per which of

upcoming our Our discount purchase accretion estimate detail further of package quarters. supplemental contains in on financial

Turning now third to in our performance quarter. financial the

had earnings results, timing focus in I occurred July on of the if which on QX X. the the the to the merger to impact As discussion as a release presented of merger forma plan pro results, our overall result and XXXX are

Our related per forma our $X.XX of or share. by was diversified $X.XX benefits the loans. our floors results non-cash the reflect per to $XX.X embedded earnings TRMT continued of LIBOR investment portfolio accretion net income million purchase in by discount supported solid generated including $XX.X and or share, million Pro

distributable income dividends per forma and on of repurchase facilities quarterly related $X.XX incurred from per borrowings more share, $X.XX our was share. was million. approximately investments $X.X expenses than pro accretion, Interest Excluding was our million covering from $X.X earnings

a of the as yield XX XXX investments consists all-in on average average floor weighted weighted our our weighted fees. LIBOR was XXX loan of of points, plus which spread of Our X.X%, basis a September amortization basis points, average of

G&A eliminating public $XXX,XXX expense was forma after pro expenses. duplicative Our company

compensation expect of Going excluding quarterly a expense $XXX,XXX non-cash forward, we G&A expense. approximately

requirements. Now sheet. of cash end our balance million our in $XX fund quarter, liquidity the to we available the third loan turning At and to further meet obligations had

commitments $XXX our incremental the to Our to With is for our from maximize loans SEVN' on plan at during our originate new of acquired earnings quarter. reflect portfolio, the respect million and net a we and grow loans borrowings, funding combined leverage loans to growth. discount with investment our TRMT investments held as assets

the basis of result XXX with facility, the repurchase $XXX facilities, we on The plus our approximately UBS $XXX of capacity with Citibank. a our existing coupon with of As $XXX merger, master points. borrowings ended outstanding and a facility facilities available million million in principal but under rate assumed quarter When unused we on average master repurchase was repo million. our weighted LIBOR combined

match We sources that diversifying are to growth. to support partners provide debt million funded capital funding capacity We with end, continued with facility. discussions anticipate are our Seven along future active on Hills' we investments our To another master repurchase to additional banking return of equity. these financing and a facilities in enhance $XXX non-mark-to-market add earnings will support approximately facility expanding and

excess As to our in we to deploy we continue debt X to equity. to X be leverage our range originate anticipate the total new and of loans liquidity,

of per During shareholders. In fourth third paid share And quarter share. our $X.XX distributions merger $X.XX paid anticipation paid common dividends of dividend the quarter Hills we third we of in our Seven to closing. September, quarter, in per the two August,

Our covered distributable ratio earnings. payout of quarterly than a forma XX% pro is less well of dividend at

expect up remarks. open please lines announce our prepared next for the quarterly regular distribution concludes We That our January. Operator, to questions. in

Operator

[Operator Instructions].

from with is Securities. Delaney Steve Our question JMP first

Steven Delaney

I'd have been start loans TRMT the merger accounting the as least investment or those feel a to still any I'm here acquired guess getting accomplished. is now the guess, at where larger you I acquired from the forward or value same view – for that it of to portfolio. about to covering on managers. your sale? decision on on view Congratulations be mark-to-market, to sure you fair are do, the company of I that way look accounting do as for We and purchase – at any you held portfolio, loans do When look held they you like

Douglas Lanois

GAAP investment throughout these driven combination the cycle. GAAP by expect hold that for hold the not we'll requirements. and And it them was a was where treatment requirements the loans We really business under accounting investment

So, accounting. to we purchase go had to

Steven Delaney

book Okay, Were you any or just value so or intangibles goodwill or also came that reflect? whether figure you those in intangibles your there identifiable have that not out? that are discount. in curious I'm

Douglas Lanois

the expect with… we And accounting. to it's this in accretion because associated occur intangibles mostly No, No. fairly rapidly

Steven Delaney

of There's As some Yeah. the loans pay off, seasoned, them. right? somewhat

Douglas Lanois

Exactly.

Steven Delaney

want certainly figure. now. So, noisy a little to the on adjusted focus We'll

that's going say, the As distributable. And out that we coverage that should reflects for forward. dividend your you basis $X.XX of look

Douglas Lanois

Yeah, absolutely.

Steven Delaney

quarter, at class? to When XX-some-percent and keep you not the weighted, would like XX% going look say I in originations multifamily. but the strong predominantly, And it's somewhere the of you in asset forward portfolio XX% in between multifamily the would heavily very that

Thomas Lorenzini

a We to about we're is, keep XX%. quite of incredibly That on basis, bit There's and is the there. would contributor to a multifamily, probably think compression combined sheet. I a like between Steve, competitive. multifamily know, space certainly as significant balance as you office yield

I might don't on be portfolio our we're multis. think – I XX% believe at quite

balance at opportunistic retail, the less more basis, it seeing seems there. sheet. we before a out bit the by stabilized in with opportunities And was and that have also be COVID well. have more that because might we something additional like impacted it markets that thought student We see off opportunities on on round given industrial, to that we to than than somewhat We'd also multis like currently. to were But to be going shy think put an would come We're I was obviously. pretty and little we housing. to,

or that we're scale with the going we types on well. sheet. have broaden with – that have excited the to to be with the product able we're increased product the So, going that balance to Hopefully, we're as we here, will,

Steven Delaney

maybe will, looking even to about final But facilities. and question, facilities a you out $XXX time in together, execute know think beyond share XXXX, something existing be some But you call aspire farther into like Citi you your over be have point to I portfolio fourth the small about may the or next would two? a some quarter, would you sounds CLO million have have in we next portfolio about year it additional they're million. My possibly ahead a how and before normally your and is get UBS to large your that $XXX comments to feel position transaction? you is at do or that in credit

Thomas Lorenzini

And right right. of That about efficient well think market, you're as robust and capital is We increased as can absolutely there it. aware, leverage the you're as think is you cost extremely that get now more terrific. I the

to at $XXX I about think you need for to efficient the be issuer. that million for be

be we it discuss it. we long-term, So, into And portfolio about consideration. and grows, it that is the something think as taken it will certainly

Operator

our turn [Operator concludes closing Instructions]. any question-and-answer questions. Showing like Lorenzini Tom further I back session. remarks. no conference would the to for This to over

Thomas Lorenzini

We for This our on joining you concludes look Gary. Thanks, forward future presentation today. for you calls. Thank updating all us. on progress our to

Operator

for you The conference today's is now presentation. Thank concluded. attending

disconnect now may You

Seven Hills Realty Trust (SEVN) 8 Nov 212021 Q3 Earnings call transcript