SEVN - Earnings call 3 2023 | Seven Hills Realty Trust

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Operator

Good morning, and welcome to the Seven Hills Realty Trust's Third quarter 2023 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kevin Barry, Senior Director of Investor Relations. Please go ahead.

Kevin Barry

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

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

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

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

over will our in call turn found we be found share. reconciliation be can of A release will during we website, to this non-GAAP and per earnings Tom. measures last sevnreit.com. I now call, earnings be can issued numbers addition, discussing non-GAAP which presentation earnings GAAP In distributable including on adjusted the night, adjusted distributable our financial that to

Thomas Lorenzini

oversees Officer welcoming years joining start Treasurer everyone, our the third Manager on X XX and and Hills public today. earnings of brings manager Diaz. Senior and Chief within a Hills joined as and portfolio October of analytics securities company Thanks, Trust business Kevin. Seven its by Fernando in I'd Financial Group. an risk quarter than deregistration RMR experience our and Seven as as like morning, more you prior He served and call and President thank investment as for to Fernando credit Good also company the to Portfolio analyst XXXX.

third to further reported quality and quarter the we in the strong estate our our of despite pressures industry. Last results, loan now of demonstrating the facing performance. night, strength the our real business commercial Turning macroeconomic portfolio

more quarter office after begin of our me share, production, highlights. We generated totaling end, distributable quarter received $X.XX just Let X repayments Shortly dividend. accelerated adjusted including closing after secured million, by the approximately $XX and for than another earnings end, loans total properties. covering we the quarter during with loans of We million. loan commitments fully per X $XX

with and have to relationships, sponsors lending their of assets well-capitalized banks regional liquidity to near benefit we from competitive position With middle and In opportunities credit-challenged the to addition, market term and turned positioned the in strong addressing our sheets. traditional to industry to up capital CRE a the remain superior by conservative market high-quality shoring approach in insulated a sponsorship X.X banking dislocation remain lenders well focus with year. taken balance to substantial and supported continue investment deep nonaccrual well this favorable have no Hills the and attract conditions issues assets. aftermath portfolio loans. Seven our risk and rating other of equity continues Any earlier regional continues to and

our overall percentage capital weighted to a ranging total industrial, loans more the spreads profiles allowing million our properties. basis Consistent of with our put secured aggregate fundings the office XXX new quarter, also to with inception continue return and loan we total work to book carry initial average closed the end was exposure. Since loan XX%, self-storage of $XX points commitments to reducing portfolio, make hospitality We have The us commitments and with progress X from with approximately by the points at of second diversifying basis XX%. loans attractive of XXX loan. of to loan-to-value each

we Additionally, in of million positive that recent have earlier retail loans. half million received reduced to for sponsors our compared repayments, office October, as activity, can up and closed XX% recently while in our just $XX disciplined accounts X repayment now challenging office environment. to of we is of XX% more make testament refinanced production This Taking loan XX% year. asset and our exposure management multifamily X have commitments to capabilities be into our well-capitalized experienced our on hospitality serves than we indicator account this over this $XX repayment including Industrial activity and and a a loan. underwriting

of of Turning commitments to book loans average September rate approximately mortgages and million in floating of XX. and first Seven XXX% loan invested portfolio size $XXX our with an as total of $XX Hills remains XX million. loan consisted

recent our commitments and of loans you office give that average quarter, and strength including performing. our the is includes with risk average have investments weighted weighted the the are average benefit more risk detail with portfolio X weighted the X.X portfolio underwriting book all office has stability of recent of X all-in and the decreased our extension average these Our added of X.X%. our during from noting coupon options, underwritten a of X.X% and of maturity rating portfolio X.X the relatively just of reflecting maximum the years. To exposure, after weighted aggregate, collateral of on sponsors X worth our under an In assets. loans the XX% yield a rating X repayments, to and underlying overall years past last It for total when a had

our and borrowing million has of sponsor's interest a California, lease a a coverage We secured very In from commitment and our a portfolio lending X.X partners XX% leased years; leased that all A loans, quarter, business business capital [ ] remain rate of benefited have our of sponsors sponsor nearly Class provide had and regular X.X loans asset in loans. and one continue The Carlsbad, attractively on of the X in progress remaining which X two from maintain office ratio. in with of our borrowing secured facility of term X-rated closely to financing with supportive end loans. and At two consist weighted the by our strong us weighted three a loans WALE monitoring healthy Dallas, and property X.X% facilities X-rated we provide dialogue the average is X-rated a the with years. one with their XX% continued average our of with $XXX with plus SOFR perspective, executing capacity. the priced originate plans. From capital new managing ample aggregate, to We us

Turning to our active deal pipeline.

and estate execute multifamily, currently for We approximately loan $XX and have acquisition The wide including have in property the industrial, real diligence and period prospective the continue We on during unsettled we transactions. of are one reflect a million. In distribution deals self-storage. million commercial of an covering our opportunities to range broadly student over total of the types, conditions, $XXX objectives. loan country refinancing summary, commitment of even hospitality, housing of across distributed

we for of we shareholders. With generate and market and property call leverage, Fernando. again that, quarter capital highlight and to to With the modest on favorite we advantage in the continuing the quality our management progress to making and portfolio, ample forward our position, the competitive to look our are capabilities of seeing returns results attractive our the opportunities asset strength our liquidity loan capitalizing are taking third reallocating now investment Our the the underwriting I'll turn types. once in today's over of

Fernando Diaz

to I with our here, you great investors and Thank engaging analysts. to forward you, welcome. Tom, partnering look the for and It's be and with

expand Seven or basis, We have quarter. continue we and previous opportunity million earnings $X.X to tremendous that, DE our $X.XX On or to adjusted success turn quarter afternoon, on remains the let's per compared build us to share. our a DE of portfolio. flat adjusted results. Yesterday in With adjusted sequential to reported distributable of Hills a further front

income approximately net in per compared originated adjusted offset to loans higher second partially the share generated we per $X.XX by we for DE driven quarter $X.XX While was quarter. by share interest of fees the third year-to-date, have incentive

previous such protect cash reserve originations. as rebalancing in We do million with XX. represented with to reserves loan balance XX help the liquidity total quarter modestly of cash XX the or compared conservative our loans facilities. points of our mechanisms of September million $XX sweeps, -- collateral capacity have loans with debt secured interest as of losses, and Total commitments X.Xx X.Xx CECL excess of to specific $XXX leverage at from reserves. support requirements. Seven and equity of shape and help any to us hand on loans borrowing is of against June flow To structure X basis quarter. points with loan not dependent mitigation risk all sheet our We increased across as to the financial ended we unused great Our continued Hills' XX us to investment end basis

in price. platform types to payable XX, dividend to momentum NAREIT negative to have a We we as of declared believe community. by an opportunity is the accretive November to positive XXX%. XX% In Seven stock quarterly we per Financing achieved Mortgage basis, XXXX, shareholders which the Since a shares a further of compared XX% our XX% lending of closing tremendous have and on return $X.XX the to reduce believe upon share approximately We strength yield continue Hills our regular of approximately demonstrate our our that our compelling yesterday's on of DE beginning adjusted dividend loans, on continue stock to total a our Commercial that On to to invest mid-October, shareholder investment Seven annualized exposure Index. based Hills a over of riskier quarter asset our return build third equates covered opportunity. we investment the

for to Turning guidance fourth quarter. the

our originations. loan new We expect our to outlook continue loan production recent financial benefit to for and from our results

fourth the remain of $X.XX per originations levels. That the lower rates G&A our questions. prepared share. $X.XX with adjusted expenses, considers consistent open recent fees for will and This DE concludes remarks. current expect for the of assumes We repayment be flat within please quarter activity and XXXX our lines to Operator, guidance that and range interest incentive

Operator

from comes question first with JonesTrading. Our Erdner Matthew Instructions] [Operator

Matthew Erdner

Welcome team, the Fernando. to

like chatting question the reversal generic to you the Dublin, CECL. Ohio, forward due is The around specific? revolves it CECL Looking that that to we a Was go Or of as had with kind that the reserve? was of on.

Fernando Diaz

Sure.

some that give happened there. color during We couple had quarter. the me a you of Let things

to due CECL we then we First economic had drove second was quarter. the to model a compared as about in the that favorable all, forward change. reversal that of other -- well. use one going the mostly And That $XXX,XXX for outlooks a had

driving had [indiscernible] that recorded a mostly that the to of [indiscernible] reclassification quarter was [ ] related costs second reversal That's we there. kind about of So the closing were in and the asset change of

Thomas Lorenzini

reserve [indiscernible] Matt, specific was Dublin, And on there Ohio no transaction the

Matthew Erdner

believe then I that? that you quarter-over-quarter. could Okay. just due office about owned, walk at Perfect. markdown? that that's a estate That's And the Was Yardley through Or looking million helpful. real $X and to declined me

Thomas Lorenzini

markdown to had investment reversal, There intent but this sell on and no originally remains held we as on is still was -- it's was stage. and at for There for reclassify held asset, the a for investments was books it it the sale, to there. the

last that is costs the So on but reversal sales was the the simply that itself. were taken markdown for asset there in just a no quarter of $XXX,XXX,

Matthew Erdner

last the looking That's ahead people was XXXX, than less that Okay. adjusted or going that I do just to an it. active then, getting you to of more than be year, you you seeing, And terms to are in opportunities more now at guess, do helpful. market quarter? it's are then were think this you Got looking of And it's think it that rates. guys

Thomas Lorenzini

period just realize market or your everything think elevated to years that going several remain then I what And -- compared going to correct, interest right? elevated is last to the think I in adjust. anyway. the we're -- an at the absolutely you said Well, rate begin to to is starting We're end is

more realistic we're think become starting transactions sellers the to that. I We're at. that we're to looking see starting in see some

realize of to are kind I which little trades. think important. new the are see And but a the sellers, people disconnect there's as is buyers the narrowing a and the more I of capital, starting the still we of of gap, think to we'll what bit game rules that begin between far as see cost of once

active. fairly better XX pipeline has to think XX going 'XX. last days, the the be I think And to been is Over I 'XX than

activity, to will I think I it sales start but However, increase. dramatic don't expect

Operator

next Muller JMP. with question comes Chris Our from

Christopher Muller

a on strong Congrats quarter.

of one you lending the today. ago seeing mortgage commercial are versus guys see year how are actively months And more attractive are the terms X you in expect I So to REITs few we very that maybe ago? or quarters? are a coming guess, today guys portfolio growth should

Thomas Lorenzini

that, better given but what's is of also last just we're no for the we have we sponsorship, attractive And really transactions closed scope. Thanks in transactions noticing right better what's we think, very pricing, have more X more and closed, X active Chris, maintaining our -- we're And sponsorship size. seeing of future that well capitalized. last assets. seeing the funding attractive, now is we're been is our opinion I

stabilized. So they're effectively almost

I without the XXX basis funding the those, well the sponsorship X last And capitalized. all points on component pricing, transactions average. we're to probably work attractive put future So opportunities at averaged to capital XXX, think more extremely seeing

in what that hope of a marketplace, So those that's and continue we're seeing to few we'll the we off. pick

think that range dependent repayments, on I but part think probably a million, production of XXXX, in the for goal, to this million from to lending $XXX standpoint. going somewhere is be $XXX I

Christopher Muller

you Got it. And can you relationships some That's these hopefully, very new borrowers are guys repeat coming building. from helpful. get

banks pulling I the they've guess, seems stance guess to the from the other have the rates? direct offer has more one so what been lines commercial It credit like lending UBS to to the facility. I and back it's line nice willing credit mortgage generally extended been So on maturity here, see I on their on the side.

So guess from you are where what I seeing guys you sit?

Thomas Lorenzini

I Well, can our relationships. to speak

were would different been providers have the taken also and year X the of loans I us capital beginning the where we capital. of new up the -- they've writing that business a providing And earlier on second tighten tell year supportive spreads here, the relationships, you in than extremely of approach more certain that they positive actually in we've seen half plan. our instances Our year. And the in

me not that really more there's kind but the are business we of us how been are mean business -- market, becoming also hamstrung tells our comfortable, general. -- the adjusting but only that plenty So with our competitors still underwrite, with and the with plan. still hasn't CLO not plenty in are lenders still of them I of that's --

our So partners lending we active, and fully remain business. of supportive our remain

Operator

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

Thomas Lorenzini

thank call interest you, Thank Trust. Realty Great. and and continued our Dave, everyone, for your Hills today Seven you, joining in

Operator

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

now disconnect. may You

Seven Hills Realty Trust (SEVN) 1 Nov 232023 Q3 Earnings call transcript