SEVN - Earnings call 3 2022 | Seven Hills Realty Trust

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Operator

Good morning, and welcome to Seven Hills Realty Trust's Third Quarter 2022 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded.

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

Kevin Barry

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

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

today's Hills First, I Realty written of Trust's note is strictly recording and that prior would call the prohibited like retransmission to conference without Seven consent.

Reform Thursday, the Act call The the any revision contains October materially project. XXXX company forward-looking within Private differ undertakes made that Securities laws. note may of Litigation Hills to beliefs securities the are no today's conference results of other forward-looking revise of actual and Also today's XX, release XXXX, statements expectations statements based conference obligation call. results of publicly Seven the and we statements forward-looking from those as in that to meaning These today, and or on

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

will distributable share. share be numbers In addition, earnings call, and including non-GAAP we this earnings, adjusted during book discussing per per distributable value

non-GAAP For sevnreit.com. website, our measures, a earnings please of is GAAP available on financial release, reconciliation to see which our quarterly

will I that, now With over turn call Tom. the to

Thomas Lorenzini

to more XX our experience, years begin build in business the introducing Chief and in as Group XX Treasurer, public to and I you as everyone, Thank well Good accounting your third future earnings be since helping us as to you, has to has you, Thank Doug, years Realty significant RMR leaving of including Tiffany the accounting Tiffany Doug October morning, wish X. and who Officer Lanois, within our joined public and corporate Tiffany roles endeavors. Seven by welcome companies. who best Trust. other played other accounting a pursue opportunities. role brings effective call we quarter Kevin. precedes than would Financial finance and The leadership Doug will like Sy, SEVN various for inception. Hills all

another Last investment supported with rising solid interest growth, by growing reported on rate of continued benefit we the activity, loan quarter earnings rates along our floating night, portfolio. of

increased the share XX% quarter on sequential During basis. distributable earnings quarter, a per

to quarterly $X.XX Our distribution share more $XXX total was of million. covered, increased committed well per and capital than

risk service, remains quality of weighted our with all average below X. strong and current of The rating our at credit portfolio remains debt our loans

monitor short-term driven the continue rates in the We aggressive to closely capital ongoing interest increases Fed's the in volatility, year. macroeconomic this landscape by market

debt lenders While the put rates rate across and mortgage ratios on these real securitizations estate provide Southern debt CRE of as favorable covenant floating such tailwinds pressure standards cost capital rising the rising weighing underwriting and markets, Hills, for commercial values. on

And while pipeline our position our We the us partners credits new continue partners scarcity to for to balance our remained rate relationships fund capacity. our take our Hills to widened the lending in due with secured of to strong. loans, rising current of opportunities deploy to sheet in capital. attractive environment, have advantage loans Even financing continue Southern for

criteria a that taking underwriting result, more returns. As disciplined our targeted to and a we are investments approach identifying meet measured

against unlevered enhance with temporarily cash To to income, maximize make deterioration of We conditions are any to and flexibility add balance available also may maintaining on an protect net we as loans market capital. we invest market plan the our to leverage the interest sheet elevated as level improve.

loan-to-value $XX of to September, is a more average spread million of a this our closed property by bringing carries year-to-date loan closing strong of sixth New at quarter loan million. a The XX%. basis book loan $XXX we In and and year, production Northern activity submarket an Jersey. investment recent our secured to a This loan Turning weighted end. than XXX and our points industrial

During retail in proceeds Texas. our the loan received million $XX.X from Coppell, of quarter, repayment we

last an retail unlevered of received late we on a Los $XX.X week, in million addition, property In repayment a Angeles. loan

quality As September Hills ago. backdrop, a first consisted their increase portfolio of loans total risk-adjusted we very with well, of XX our of Seven feel the commitments and XX% compared performing million, representing and to about market is mortgage of $XXX good portfolio XX, returns. year loans a the our Despite

Our and average X.X% the weighted portfolio weighted investments weighted X.X an aggregate, when weighted risk remains of average of In maximum increasing last average of to rating coupon X.X for of a since The average below including the have from years XX% X.X slightly a loan-to-value X.X%. a extension has portfolio and X, all-in maturity yield quarter. options.

continue and X. All rated loans are of of our our loans to perform, none

as continue We risk to our and capital. our focus in portfolio we concentration deploy are diversifying originations mindful on of

this of to sectors types our mainly improved year, our industrial our have property exposure reducing increasing and exposure. We mix office multifamily while by

portfolio our office, the third total end the of XX% consisted XX% multifamily, XX% At industrial. XX% of loan quarter, retail and

and of have our of year the potential overall transactions, pipeline we the of $XXX lending largely on will the rest depend million capital market While activity a over availability environment.

to favoring these risk-adjusted middle returns attractive currently We the represent which to recent remains consistent and our production, institutionally We sectors our an industrial believe with market a we million for close under market. most the backed sponsors. due focus month, subject acquisition final next have industrial general loans diligence. for Our application multifamily today's in property, of $XX our to expect loan shareholders

Additionally, additional loan financing respective $XX.X of an industrial sheet balance we of acquisition million. a accepted with for have property term an

now the I over Tiffany. call will And with turn to that,

Tiffany Sy

Good Tom. everyone. morning, Thank you,

DE the momentum. to of or compared to pleased an sequential or quarter. approximately represents reflect $X.X On Hills are per that share We per share. quarter third results $X.XX for a in quarter DE, report basis, distributable of generated of earnings, million the $X.XX continued Seven increase this XX% earnings previous

investment higher continued portfolio. and of our the reflect activity rates interest results within strong Our benefit

by advances book financing interest of a additional we strategy, reduce accretive in adjusted continued our from our income platform also the tremendous opportunity and result believe is $XX.X Despite of that we stock XX% We secured invest our to Interest business $XX.XX to grew million. have and and discount a September XX at to demonstrate X/X to further value of community. lending expenses our growth, trading approximately rates our the as related sequentially per Interest increased as our higher this strength of share. continue execute investment facilities. loans

liquidity. to and Turning capitalization

financing unused of but the facilities drawn $XXX secured and available base ended our X financing borrowing remains $XXX million. quarter million capacity across diversified sources. We Our with on approximately

quarter Tom to We $XX from support debt-to-equity cash that currently to we had to in $XXX sufficient liquidity loan X.X, continue of $XX have ratio our We the million increase diligence of moment hand million loans addition to ago. at million mentioned on approximately X.Xx in a end. and

in As increases ahead short-term it anticipated interest rates, in rates. relates future to Seven to the Hills quarters continue should from benefit earnings

third While And rates raised our of cost capital, as floors. the had interest our floating assets loans rate end higher of of active interest rate. the our none XXX% of quarter, of are

points end sensitivity, terms XXX be basis to term of We at was XXX and the the end year. of over is quarter the In basis points the at projected X of month's recognize approximately DE $X.XX of this challenges incremental interest benefit valuations. uncertainty per an We economic that increase to future on rates result will that the annually. can real estimate share in have estate rising and third

and interest our that such As reserves the cash We occur purchase from mitigation our risk interest term. rebalancing loans protect against requirements protect and losses. to us require rates all during might borrowers sharp provisions long a reminder, flow rate as possible of to are interest them in sweeps, caps help with to structured us rises investment

weighted As was points, portfolio of XXX which service loans. provides approximately for average debt quarter basis end, our support our substantial cap

a with impact also and rates We interest service and future view value. of rates on underwrite their conservative cap forward-looking loans coverage, debt collateral our

approximately per we this dividend XX% dividend of our of $X.XX to XX.X% quarter. quarterly closing payout This ratio the a for a Earlier price equates as and yield announced yesterday's share. DE third month, of regular

year Looking plan available and risk-adjusted from make We rate to to expect positioned we generate in capital. this will interest benefit increases term. that over well shareholders end continue further the strong earnings ahead, into returns our from of remain to investments to DE market our additional rates in and we our and with long the for run through XXXX grow the

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

Operator

comes [Operator with Instructions] JMP Today's Chris question first Securities. from Muller

Christopher Muller

Tiffany, on new role. the Congrats,

office. on start to wanted I So

larger seeing So most in than offices been don't lend in to you has -- guys hoped, office some but in those cities as you cities. aren't a we're larger slower little stress return

York is Or Tier you're seeing Is we're to like than dynamic seeing wanted some geographies. I there? better suburban cities? similar your get So there of in and office the on in New what what a your performing perspective X

Thomas Lorenzini

that tell we're for our from perspective, product, will we correct gateway Chris. that. Thanks, and I you're of have lot office don't a thankful city CBD you that

Our portfolio generally suburban. is

up several as performing then have cetera. fully the As transactions, value-add them, et We've many well. had most leasing whole, -- portfolio a plans not and the of space, their is of if the components quite far executed as

we're come leases they're given recession, seeing upon, see type tenants generally you it's if and we at are of necessarily do very get I due, on new and dynamic a concerned into we're the expand not tell -- another transactions space we kind an has as of compounding for looking effect will looking What transactions product certainly top offices reducing are office. bar, to high where we work-from-home about ongoing that -- a that where they're that a that's in

portfolio what But very on have. bullish we're feeling performance, from our we

-- of is regardless given sales, are as overall list is new is they which really that. for at the of you're market, have as think exit moment, assets, and not market dynamics there particular couple our now on high for us which the in. But office is just for to our transactions, strong of far which loans a have office the looking looking through demand that I sponsors telling We the

Christopher Muller

you environment Got quarters? net it. go possible given And any portfolio seeing? couple just thoughts we're macro of And recessionary the next of over weakness, given leverage growth broader some may of are around expecting the the strain where still and some

Thomas Lorenzini

new far loans, be sponsors may there of from current kind We I on things that the growth. X.X% will our Tiffany opt current capital. going do we as to sales the increasing rather leverage can anticipate but qualify those more And leverage, into then our that, deploy capacity we as to anticipate 'XX measured we which are speak from continue to to market. as we in to to extend some have And loans still -- portfolio than 'XX going write Two portfolio said, happen basis. we for slow will because growth. a going payoffs, do, do will think as

Tiffany Sy

Yes. for Chris, the thanks question.

looking are have our to range probably target we So be between X.X%.

loans. Given looking where we feel are but are spot conservative lever we our what that's sweet right that's in to now. we further is market, like feel us for up the But the things a range, still

Operator

comes Trading. [Operator Jones Jason Instructions] with The question from next Stewart

Matthew Erdner

a and Jason. to for on Matthew Tiffany. you, is Congrats This welcome, on good Doug, quarter

when share I originating repurchase you how new guys order program in share you would versus a are loans, have guys believe originations but So don't you now, repurchases? value right

Thomas Lorenzini

the and Well, And to from work firm, letter really, to our capital right, prefer the out grow put base we returns our discuss we of that asset to do loan perspective, book. this. would generating from work put our

REIT. best it's traded, to Share use really thinly write position course is and our continue repurchases, and something and the given stay float probably we accretive the our of discuss been our we're loans that like capital our the we is It to from at for perspective. that

Matthew Erdner

about where then seeing rates and talk Got could compared cap they a what were X guys now months you. And to you about you are little right ago?

Thomas Lorenzini

rate there's probably of question rates seeing some value-add what also right, long-term about, moving movement. has -- there cap no transactions. it than those of right? The depends we're of type that So single-tenant are more we're on property on cap talking been Sure. the transactions, Part lease

out. be will to been what has rates, is cap rates clarity long there as and going we there the going that's pressure cap However, shake pressure where term more and really on continued Fed until to there's do to on continued think

loan. bps? that more. rates Keep their IRR the important, tell cases, cap hold it's exit on initial general will of the and over potentially you at the of that -- the add our rule, in mean borrowers, mind I spot looking looking transaction. a Probably they along our them line, they're really of are at But up but not I somewhere some for value-add in cap on are rate certainly, the value a lot XX

Matthew Erdner

to multifamily then side, guys targeting of cap if for And where industrial the you exit you out are you're that you. looking Got mentioned on the exit rates, diversify office?

Thomas Lorenzini

at XX But again, debt where on depends, bps cap going typically really is suppose. a Really, one to that's I really somewhat look versus major XX focuses in. rate the our to we're -- going we're yields. We're exceeding probably of exit

So of to make probably sure we we're in north want that thereabouts. X.X or that

Operator

in queue, more turn Tom any the the questions conference over no for back would to Seeing like Lorenzini closing I remarks. to

Thomas Lorenzini

Thank shortly. M.J. you, look We you, thank joining today. again to [ speaking and for everyone, ], forward with us you

Operator

now has conference The concluded.

may disconnect. You

Seven Hills Realty Trust (SEVN) 27 Oct 222022 Q3 Earnings call transcript