Earnings call transcript Q4 2022

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Operator

Good morning, and welcome to Seven Hills Realty Trust's Fourth Quarter 2022 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded.

Now I'd like to turn the call over to Kevin Barry, Director of Investor Relations. Please go ahead.

Kevin Barry

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

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

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

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

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

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

to call I'll now turn Tom. over the

Thomas Lorenzini

earning our made generating loan growing off year and thank Hills' higher Thank fourth night, joining announced the capping you, for portfolio returns call a you quarter Last and we we Seven excellent for everyone which morning, today. shareholders. strong in progress Kevin. Good results,

or to and operating highlight to our share, in increase a our XX% to $X.XX the pleased long a direct our our announce would particular. for strong annually, performance term I of are result $X.XX was a quarterly few per dividend a outlook which January, in in we In items like confidence business.

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

book weighted loan remaining average our of all current and rating our service below Our with on three. remained debt healthy risk loans

Looking back approximately year, shareholders estate Nareit a XX% rapidly by $XXX XX%, since more despite our outperforming of Mortgage over volume. return markets generated the commercial total for past REIT real million, the seven Hills XXXX. originated of slowing and the Seven for loans Index on changing capital than We transaction beginning

further capacity more per more allow the We diversified and year for grew borrowing we to earnings than doubled to a distributable our for and $XXX $X.XX million than share.

While with the to us. we we in progress thrilled evolve, the economic are continues making landscape opportunity and are front of the

have market we liquidity to overall stabilize. is on we on there our selective and in As we call are until discussed been activities building origination which conditions, focused quarter, loan on clarity more believe our last beginning

saw ago, Federal to we over year. implemented the weeks aggressive from rate policy, past the hikes two although tighten they As transitions monetary have interest Reserve continued

peak rates further It this is markets summer that stabilize. that should will and anticipated

earnings increases solid increased results additional and higher many benefit for and generate income We to rating from expect rates. to continue interest the continued that

meet our have to and our we underwriting remain and capacity and support targeted in Our relationships our sheet with opportunities additional financing returns. line with secured balance attractive strong investments criteria that partners are disciplined

a of a with two and actively during loan November, one book market the new strong at the of Turning activity property new to moderate Empire. an and a portfolio balance In by our decline closed new sponsor declined now secured end; as loan a $XX which repeat to prior fourth Inland quarter, repayments, our compared recent realized led in -- lending quarter industrial lending the submarket investment loan quarter. as we ours activity to loan and the closed million we across

loan in retail office of on first of early a originated repayment which brought $XXX loan outstanding approximately of was Los Angeles a nearly in the to our $XX Springs million. loan loan majority quarters in of an year repayment full the for two our production principle year. and the million, balance our This We received Colorado combined

For the repayments. more year, repayments approximately than $XXX office with million representing totaled loan XX%

achieving testament repayment We plans this market as in of believe experienced underwriting positive this capitalized indicator their a capabilities a asset and disciplined and challenging wealth environment. activity is to serves our sponsors our management business

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

Hills consisted XX, total a portfolio year loans XX representing $XXX of compared of December to commitments increase of with a XX% mortgage first Seven As ago. million

is million than Our less account our for X% commitments. average future loan fundings commitment approximately $XX and total of

perform market quarter, pleased our our their quality loans of adjusted and the we during fourth with remain risk returns. to Despite volatility the portfolio continues and the

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

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

in our monitoring rating property We loan X. Marley, office of with million on Pennsylvania risk a an $XX.X are

their XX% need past from time XX% While the approximately to sponsor additional fully the collateral business current loan and may increased execute plan. remains the year, the has property over occupancy to

has our a XX% our US. consistent portfolio. property-type geographic our across at perspective, reduced XXXX, from diversification; of remained portfolio Looking during XX% retail. of XX% XX% we to to assets. the At portfolio multifamily office, the This exposure multifamily, From year, industrial and relatively end loan increase shift of XX% the XX% exposure percentage loans enabled our us total in our and of industrial our consisted office

we past are we in off XXXX, some us opportunities pipeline beginning rapid spreads increased will widening rise of to our take see in leveling in quarters, and given the accretive few deploy to which SOFR While transaction over to capital. allow volume of credit experienced advantage the

we sheets Current financings activity aggregate balance where $XXX with an outstanding includes in eight term loan have prospective excess of million.

In addition, in have of various million potential of $XXX transactions we approximately review. stages

continue current XXXX, for attractive environment, navigate As we into we our drive capital market returns move shareholders. to to our well reinvest positioned is believe company opportunistically and our the

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

Tiffany Sy

Thank you, morning, Tom. everyone. Good

the or was quarter. Hills XX% this of sequential Seven per quarter per another DE As earnings earnings, $X.X growth. On a previous basis, $X.XX an share. increase to compared exceptional million Tom of share meaningful Distributable represents quarter mentioned, $X.XX or reported DE, of in approximately

Our rising rates the earnings interest of growth driven by quarter XXXX. in fourth was

basis Our approximately weighted increased average quarter-over-quarter. X.X% to coupon XXX points rate or from X.X%

ahead occur. should in the quarters rate continued and that to Seven interest continue interest Hills benefit levels earnings additional from any increases higher may rate

term of an DE year-end terms peak per basis X%. XXX projected sensitivity, in share. In approximately an to approximately is that would annual to points at was $X.XX result in one-month increase such incremental and SOFR benefit above We of estimate mid-XXXX

quarter, share fourth approximately due General for September. XX%, and that the annual quarter were administrative primarily grants expenses a in decline reflecting to $XXX,XXX were sequential awarded of

interest Based range share share. forward-looking $XXX,XXX our grant forward, and between $XXX,XXX, expect of our next excluding and Going on we to noncash expense G&A expense. per loan DE expectations, anticipated to and expect pipeline including rates, be between repayments, current quarterly $X.XX we quarter's originations $X.XX

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

mainly Our million year to X.X due hand. of in leverage cash X.X $XX September, not November the the levered, times the ended We from on of but future. originated loan decreased to the end that maybe was with in times at

available Our to us cash for of borrowing capacity and approximately million $XXX originate allow currently loans.

levels which expectations basis, XX% benefit will of attractive growth result in later by quality week. from of interest will of increased approximately $X.XX to yield to our shareholders our January portfolio, quarterly loan dividend an be earnings to the we XXXX, earnings translates an as a $X.XX rate higher record price. paid on As dividend stock per our annualized of our of that our to XX our and current this On continue share,

pleased are a the growth growth meaningful in ahead. earnings prospect further with to quarter another we summarize, To of year for report

of of XXXX, As beginning our since of shares focused and shares Seven -- Hills Tom mentioned, industry continuing we the benchmarks Seven our are on have the outperformed momentum. positive

are floating lending to platform disciplined solid We strength meet to believe in continuing will our communicating and earnings invest in value shareholder that dividends generate the reflected loans rate by and improve. commercial investment to our that underwriting community, continue of real the estate standards our by

portfolio, January upfront an as to Since that out I Hills standard XX our loan no we Before to have we services accounting year. we assist in and is of would of record open this lenders to us on point are for estimating line like performance, effective the loans, that loss questions, losses for of an lifetime with losses requires default track subscribed CECL, to reserve third-party Seven that estimates. our data history database loan

to a changes statements unless January will no in will quarter flow through to our DE on have be income which $X any incurred. will the We are the estimate our currently reflected million, first on of be losses net initial XX. as CECL equity reduction financial to in a reserve reserve range actual to million $X Afterwards, but impact

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

Operator

[Operator from Stewart Jason Instructions] First will ahead. with Jones go Please question be Trading.

Matthew Erdner

That's dividend points the structure to Congrats loans? points for environment. on the back spread on this raise. front, overall in deal on up know and Matthew has the awesome Jason. how on changed, curious I'm

Thomas Lorenzini

interest rates, given loan looking Sure. to right? impact a we're of bit putting so trade different way and one higher is we're thing for not I thanks the environment are things sponsorship there, So we end on service could is about right, higher horse our a rate we transaction, that debt the the a with when in. and can that That's brought that -- one fully coupons, take overall couple we're debt at an that so back at the looking the -- borne that. service. that direct talk at. fee of looking exit a when increased these current in increasing A can by Matthew, result of we're calling up little

yields or and both when Other at the in comes of things in potential and really, refinance today, that a the for going we're on at methodology sure it the make transaction a that looking debt we're exit sale good on how we're time a to our we're adjusting position looking asset.

debt used be there. yields to increased, a at exit, year. to X.X% X.X%, over to obviously, closer additional maybe today the have multifamily, room the X% those that's maybe in What last So building

loans the transactions and is looking properly requirements interest we're and sure at get rebalancing that where cap. we're capitalized interest closing with things rate interest to when and rate Other at the that to to underwrite sizing are reserves really cap -- making is appropriately

Matthew Erdner

fee That's was helpful. payout, there there? the And on exit then generated that was an early

Thomas Lorenzini

that paid On all off earlier the this loan year?

Matthew Erdner

Yes.

Thomas Lorenzini

I had recall to that it. don't know. don't if an exit loan fee particular I

Tiffany Sy

recall. don't I

Thomas Lorenzini

Yes.

Tiffany Sy

was that I to enough would would wasn't material material. impact one-timer It what our... say of that not here. It That's consider kind

Thomas Lorenzini

there then XX two loan fees, whereas the a repayment paying they're right? income, of months than in And loan. have in amortized different mind, -- And the getting that differential exit pay the interest that when Right. have months and the to they X.XX keep might us of early somebody It's we has minimum have penalty. we're a [ph], might are we off over prepayment over

fee it's exit or to -- in really fees. it's So just the spread whether is us, a yield

Tiffany Sy

true. That's

Operator

next Our go will Chris ahead. Securities. Muller, JMP be Please from instructions] question [Operator

Chris Muller

and Hey the guys. Thanks to out finish questions for a on congrats year. taking my nice

you the I like in expecting to XXXX. So full pace It to ask Fed sounds continuing tighten. originations maybe of guys year wanted with restart to a on the the are

wrap be the think then slower into back year? the half will So do and of you a start it up things will back

Thomas Lorenzini

Yes.

Chris, the slow. quite first quite half of than is will robust last expectation, was was be Our slow. the half. of certainly that January the year second December more year end --

to double what starting things pick see that pipeline was you four today our five would it are weeks is I ago. We up. tell to

in clarity transactions sheet curve of right more. term Fed, are is the We like XX from anticipating I -- as points numerous baked anticipating the us. basis much to mentioned, looks which think do that for probably the forward encouraging market It now, in And the simply right? the into not waiting I have, kind stage, just

to they're starting might is understand I think people be rules the what that their now market ground adjust, for looking new of cost transactions. capital and at the when

So second more we're in expecting much the half. activity

loan. unlevered million there's million loans. that of got As And coming new on have we to If lever number -- also Tiffany repayments $XXX that we up then that we about repayments, closer in, grow capacity pushes there. to $XXX planning of we're capacity mentioned, and probably that, were we've an any additional of choose from not could to could if early

So $XXX million $XXX through we of expect to year. do the to production another million overall

Chris Muller

That's not is helpful. guys And it. a like Got said, constraint right now. you capacity for you financing

towards up maybe So year? is it did quickly of slowly portfolio originations look reasonable net like the leverage end growth the just or then to half the weighted And the back think you in accept in what ramp XXXX Will ]? that year? it'll ramp up back like throughout does [

Thomas Lorenzini

our that -- leverage talk our you from repo When our -- providers? from leverage

Christopher Muller

right. that's Yes,

Tiffany Sy

Yes.

Thomas Lorenzini

correspondingly to with certainly expect increase would that's the the originations. I going in half wrap second in the year up Yes. of

just and of position we hand, this we to in the new necessarily that leverage the have leverage where we and do because to what right we've so the end year, -- don't that year, on We the modestly to have put hand ample increase loans. the of is additional positions. can get assumed, the have now, the at luxury And loans. cash on we'll for we towards then our end we as cash did work leverage need And and the continue

Christopher Muller

the right. Thanks taking for questions. All

Operator

question-and-answer to the our the turn I Tom This now session. concludes Mr. over like to call. conference would to back close Lorenzini

Thomas Lorenzini

forward today. for speaking again Max, on you everyone, and us We you, you, soon. look the Thank thank with joining call to

Operator

you Thank presentation. concluded. today's has attending now for Conference

now may disconnect. You

Seven Hills Realty Trust (SEVN) 14 Feb 232022 Q4 Earnings call transcript