SEVN - Earnings call transcript Q3 2024 | Seven Hills Realty Trust

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Operator

Good morning, and welcome to Seven Hills Realty Trust Third Quarter 2024 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the call over to Melissa McCarthy, Manager of Investor Relations. Please go ahead.

Melissa McCarthy

Thank you. morning. Good

call the today's Diaz, Lorenzini, Treasurer; Chief Lewis, analysts. the The with meaning the that President. expectations today's Securities or based Litigation on to conference forward-looking forward-looking Investment of October and and Act on to are company call undertakes company. Also by securities materially differ in today's statements may note no Reform and note transcription the prior of statements recording, Vice publicly Fernando are presentation prohibited as any contains Officer; revision call other that the Financial project. Today's call revise me is laws. results by of the President XXXX, Please statements Tom without the Chief Jared and and of within management, forward-looking written Private Joining followed XXXX of results XX, a today's made a and includes from beliefs Officer today, those Seven session Hill's question-and-answer retransmission conference call. we actual These release consent obligation that of conference and

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

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

Thomas Lorenzini

evening, everyone. On macro performance turning an it for to I and to open we results Melissa, its highlighted before our consensus will loan begin Jared share on by over review impact estimates. today's reported results per call perspective with call, analyst quarter portfolio distributable before you, third our our quarter then the above and discuss and financial Thank earnings the questions. Last good we pipeline. overview of Fernando were will third that morning,

strong result to is disciplined to and With attractive quality our our continuing the underwriting, pursue a direct pipeline, asset and hand forward a that diversify further loan grow robust of ample performance continued to book of management and Our originations our and on is we liquidity an portfolio. increasingly lending opportunities testament look and teams. strength

portfolio furthered credit highlights a distributable of our quarter. We and no from loan with We million, in well-capitalized Turning no our default of loan commitment loan an overall average we X demonstrating X.X of the weighted sponsors profile payoffs new consistent current ability our third in to environment remained delivered received loans share. X nonaccrual with earnings and per the to rating stable closing a The few $X.XX production, for $XX totaling totaling million. refinanced be loans. risk $XX.X

to third activity. Turning quarter portfolio our

property portfolio underwritten experience continues across types. of conservatively a range Our repayments to

our Auburn During our repayment loan student $XX.X multifamily million. in University Oregon totaling of quarter, Portland, the loans the million housing received $XX.X for X we

with Greater in a hotel constructed Orlando. ours, X a by closed repeat loan secured also recently of We million $XX located new totaling borrower

our to Turning loan book.

remain million an million, consistent in remained decrease of which XX, mortgages approximately September average Seven and Future of Hills consisted fundings a total invested of of commitments of or loans, million is As from with size $XXX last portfolio total loan at XXX% X% X% first floating rate commitments. approximately XX quarter. $XX $XX which of

and an In maturity our investments overall average a a options of the profile years X.X aggregate, yield loans weighted are average credit rated and None a and a loan-to-value average stable XX%. all-in Our X. maximum has X.X% average at of close extension when weighted of have weighted an coupon X.X with X.X%. of of including risk portfolio rating of

diversifying book. make We our loan progress continue to

office As greatly yet loan office portfolio. our high the year our office was a received focused of reduced further last third quarter quarter to payoffs remains due our and end, remained we XX%, in from exposure XX% on from decreasing exposure quarter, slight a we exposure of the last X grow uptick our as

at our to be to More and sponsors. be of office largest continues one comprised property importantly, continue quarter, all current the of portfolio is and balance Multifamily retail, by and hotel of their types of loans. loans XX% supported this our our remain industrial

extended properties very in supportive by geographic a lending with business, extended of of X West. From and facilities. capital years to diversified Fargo Jared. Citi South region until perspective, recently that, repurchase located XXXX Wells and our September March X and our over of for also are turn of We X the XXXX. With loans now our the until facility facility the remain most I'll Our partners our call we

Jared Lewis

perspective update. macro quick a provide will I Tom. Thanks,

to complete we Reserve enhance muted catalyst flexibility lower greater beginning environment to financing Since quarters. activity. August, several the of service in activity, refinance rates, stress, and the debt performance to past improving which had the anticipate over As an increased lead will and the or rates short-term the for has to clarity properties optimism on borrowers we to be on path are begun will more operate of asset business the which interest a to acceleration decisions that reduce plans, an has interest sell of and future assets. Further, refinancing market, whether will their borrowers rates buy, that leading Federal expect allowing rate we have interest greater see conviction of reduction additional been

financing, have utilize that like interest rates overall lower spreads increase to will and lenders an up amongst of increased and viable benefit floating opportunities rates, financing latest lead lower both spreads us. combination addition leading tightening liquidity competition credit for which to to borrowers base credit Federal been in cut. This due the Reserve's In short-term will to rate lenders

earlier growing average for rate of less our weekly In to potential loans increased Fed about debt. fact, to fixed following rate notably, floating increase over billion million a refinance we to many expensive rate with well borrowers $XXX or More see months today. September whereas prior several this finance cut, specifically, the financings have year, the from appetite $X pipeline elected over continued of

capacity several could transactions and X.XX% is in that as XX% week. is by We we on expect SOFR loan $XX have approximately at as process This one Boston loan plus could and priced that close next early acquisition million hotel including productive year-end, a close opportunities expect period, the this quarter, momentum fourth we loan-to-value. are our we a profile capitalize well to is conservative continue traditionally and we into will most XXXX. head With ample as market into available leverage on well and positioned which

over like I'd the Now turn call to Fernando. to

Fernando Diaz

over, on declared $X.XX basis, XX. approximately loan DE dividend our fee In earnings from distributable share early Thank we reported closing yesterday's repayment of you, the be amortization November $X.XX our is On price. housing which per Jared. stock the to of above to our $X.XX to per of on quarter an on or we in million Alabama. third XX.X% dividend annualized our paid resulting due $X.X student Yesterday, October, share increased regular based guidance, quarterly shareholders was XXXX or primarily the yield

as Our September loan CECL of our points compared reserve commitments to basis total XX remains modest of XXX points June as basis XXX at XX. of

increased pricing the quarter, all no used and seasonal have forecast under office loans. loans. for and that from nonaccrual slightly, note million primarily while the debt increased $X.X CRE increased by CECL unfavorable provision reserve remain we second current driven model in our our provisions We CECL loans service, Our

million such protect due against help not have to its mitigation interest leverage ample mechanisms with Seven structure us basis X liquidity. to quarter equity reminder, metrics from in easing and loans forward Total as Hills specific of reserves environment. of the rate third debt a As believe an cash the the ended conservative at borrowing company SOFR borrowing with and benefit to our capacity maintained on losses, dependent We sweeps, investment $XX previous a of all quarter. or will provide repayments any primarily quarter, and accretive borrowing that of strong requirements. and decreased our We we enter conservative to we have average weighted XXX continues points. cash going rebalancing end plus loan to as the flow of X.Xx the the X.Xx loans with and a collateral loans hand And originate million the risk quarter, leverage we available reserves. In opportunity to do that $XXX rate capacity loans

our guidance. Turning outlook to and

pipeline. distributable quarter the amount timing to the currently payoffs in of $X.XX per closing fourth earnings range third We of the as a $X.XX of originations and the our result quarter in share be new of of expect to

stages. advanced an Tom Jared growing have we As several in actively with and pipeline loans discussed,

they However, loans until with our closed, That or operator, prepared level these the Once remarks. And next the year. loans concludes comfortable will today. not this feel should contribute quarter later that, questions. going open lines for our earnings close these dividend to early please with forward. We have

Operator

[Operator from Jason JonesTrading. Weaver question Instructions] with And first our is

Jason Weaver

well that expected on there? the initial be all, as But upcoming supposed any Boston regarding the works as maturities. the of maturities extensions with comment of to I hotel did that's permanent first are if discussions shifting to curious pipeline in either So you bit pending XQ, XQ or little a and to was in is closing the week. And next are

Thomas Lorenzini

looking longer-term you're office extensions on be in that anticipating Sure, have other Carlsbad we're a transaction, days of term schedule in would the couple the X while And will transaction, that that extension. at which have Carlsbad, one there, pending been that one the Bellevue we extended maturities Bellevue for tell in loans, near will Jason. And in extension. the we on you and X-year the XX a a finalize be the I then X-year both

$XX.X a credit have the working at is also that a in position. that of outstanding is property of borrower Illinois maturing Grove, a refinance currently It's on the million this Downers We month. end where

back Grove, matures million balance another indicated about we're the end year, to Illinois, us office extension the So that come will month. for will end and transaction have and extend. it's Downers they transaction us also qualify in the we that, their of then to at of I hopeful here by And they've that the $XX.X outstanding they think

refinance loan right then will So other the us we pending under the and be office to the be coming one could X end work extended. now the their of month, -- at have back

Jason Weaver

the Got given million-some-odd I that consideration any more a you it. That's helpful. lot a wonder, you becomes as the robust. securities using placeholder possibly million sorts environment in $XX until regarding of liquidity cash. $XXX origination have comments have And and of

Thomas Lorenzini

securities? far As as purchasing

Jason Weaver

Correct.

Just an interest-earning as asset?

Thomas Lorenzini

is had business if plan, discussions we Look, will. our in traditional generally Yes. certainly that those you

significant his Jared in the is as pipeline to remarks, alluded currently, are We now. pretty right

work. in We a transactions works put can quite this to few we have that capital

have we powder with new certainly fund that loans cash the the on holding and the the comfortable providers to we're pipeline. So in the capital dry

Operator

Next question comes from Jason Stewart with Scott. Montgomery Janney

Jason Stewart

I'm the the I changed last, and color the in if business transaction comments X desire people's on volatility realized rate activity. And appreciate and interest that borrow market. the has just has plans in the And been confidence say, curious to weeks, in

Thomas Lorenzini

Jason, seen, meaning at a we properties we've of of lot what fundings, these the more value significant that more we're much much immediate transactions had Well, today, or a less add. are fundings, is not they look need so doing stabilized we've lot future

certainly competing multifamily think with and out, pointed right the we're up the as And of We'll fixed the as some with loans. you on makes that to of as has at lenders that go I decision commercial [ compete some that in increased, that we'll XX-year companies end easy. we certain with the X.XX% on fixed agencies not rate compete treasury now and ] life credits. product. So rate volatility,

kind interest when rates environment really the us because in seeing take borrowers a to I fix we're road. better that to back are saying, that decreasing. I'll rate see just bridge it X can come So near-term X, floating X, And of down loan I'll we years this rate

the but in impacts It more win borrowers we fixed certainly that also to of it rate makes business opportunities some more So higher little too. treasury, for it a way the in and some market, us us deals. refinance our difficult helps us win our

Jason Stewart

cycle performing are of it's you're in will that makes we color. of then And most risk just that that No, sits portfolio, X of mean, for I are they this what at into ratings, picture, ratings of That's Yes. they changes as office sense here these the are refied good which just and I from best, a given you big mean, stabilized. makes guess a picture look performs, helpful I X risk kind of it an step issue have the But order loans change we still it being a mean, stable. refinance size. there. if big originate performing just sense, needs an stable look, to office going but back, I'm sure go with take this I and to terms well, right? people what loans, the and -- get out question. sits

Thomas Lorenzini

Yes.

this bottomed broader has bottomed. a discussed things I office experienced office, RMR feels we hockey group I we But it bit. lease stick that maybe office begun up we they've are we quite certainly well, this all to and expect in the here read and space -- now. that like see and maybe at we that trajectory So everything the don't mean, we least to think stabilize. right as

all that They time we have have cash some decent it's they're really office just flow. wealth They the well them. think to that pretty all need. of these leased. So have, loans properties we All

sponsors We them. have behind standing that are

we us if sponsors be trend, market, come a to There'll time. rates really continue rates bit. And steal institutional back see equity of cheaply. only will help. they that downward a office position the buyers take office little because back rate certainly they some good down kind deal, to market are to their trades need see if Cap will, in kind a looking really you need come They the we're be if come need really very might liquidity see compression and that of cap begin just buy to just then could opportunistic And and seeing out. liquidity. into that really So into to on

Jason Stewart

do appreciate increasing me? your to the and then could of you for that. Fernando, Yes, last sorry reserve. that's jump I repeat I'll rationale I'm -- CECL just One you from color. miss good one me that out. Could make you part for that. I

Fernando Diaz

Yes, Yes. at no all. problem

our -- happened our it's with in That by and basically answer your there. was CECL that driven loans. office driver CECL question? pricing CRE is increased the our forecasts model So we what also in reserve, that we favorable use main the provisions Does

Jason Stewart

Yes.

Operator

question JMP. next comes our And Muller from Citizens with Chris

Christopher Muller

Congrats on nice quarter. a

a couple I it about guess, So came but thinking you size guys is the this over pipeline in little quarters? know like repayments sounds very portfolio of I are how heavier strong. next the quarter,

support size other So I of portfolio capital guess, then side a portfolio on as near today? trough that, the we are can the size? existing And what base it sits

Jared Lewis

million pipeline is looking got this in probably answer ability and of we now sheets or guess the right of in question Chris, and $XXX to where your we term transactions I sort bona $XXX to have so. on future, the what the Jared. the to of we're have fide those quarter we've at about fund million $XXX out, next million

run a the In to the $XXX shy room million rollover we're the we've and billion pending early terms feel that of in in But we maximum to, when fully XXXX. the could just here, term leveraged another efficiently good portfolio at future like portfolio leveraged. get got probably we're talking of of now, probably short moment, we side $X right most do

Christopher Muller

Got it.

of there. And yield side So the for of things. guess I capacity some plenty then growth on

seeing So out X Is a one-off it like of is the what there? on loan guys guess, of even I down. looks see quarter nice coming new this opportunity? above rates yields you to is the that with more your, portfolio are the short-term average, just were typical which Or type in

Jared Lewis

we're Well, rates. seeing

rates more definitely can the rates. with over among But time, question So more mind? with you don't repeat -- if competition we're funds respect among some one seeing the you -- to

Christopher Muller

yields and you've guess what so, the or compared over to year like looking your spreads market I last portfolio and the in seen I Yes. existing today are guess. how just

Jared Lewis

transactions where in the we're that's chasing see are are of I what the increase portfolio. interested we've level starting noticed, that really in have the pursuing. our -- we little CLO would apologize. we've going that really But of Yes. the execution ultimately to we have for us the bid bit seen because in off we deals an not and now garner that volume a that's to up would going transactions to financing them seen generate drive might lot just we're of the that allowing chasing we're though, seen that multifamily yield We've you. more the We've not ability expect we end No, tighten. to that in transaction be sector, we have rates Xs if a is to in not more or Effectively, the competition. quote low spreads sort to pricing the But portfolio the that patient, of what and to returns we're to mid-Xs,

of think here in the of the activity, financing increase able we're our X months, because and pick next So X going to transaction activity months. to spot I be

Christopher Muller

I Do updates in. That's around Got could it. helpful. And if any that? one expectations have of on timing office Yardley then last sale, the you squeeze guys any one

Thomas Lorenzini

going that the LOIs XXs, They've XX% expectation greatly that which with But term. the of we'll the to later. They're a that of to Right is potentially now, leasing It's up could we're it something in hold there currently property asset. a quite there's economic the the XX% bit changes activity there's bring just bringing the of Board outstanding profile low leased. -- on up front. occupancy into the be couple on that near

I of those as of wholesome mean have our the obviously over they're flow we that accretive to we'll that the is that's the property do. plenty it next, And more playing flow. is a Board to the what call generating want cash DE. But think end we're I Yes out to year. So very it, cash then through generating with discussion

Christopher Muller

a lot That rush sense. to no makes get of So through that.

Thomas Lorenzini

Correct.

Operator

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

Thomas Lorenzini

your thank Thanks, Hills Seven Realty for Trust. you, Wyatt, everyone, interest and today. We appreciate in joining continued

Operator

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

You now disconnect. may

Seven Hills Realty Trust (SEVN) 29 Oct 242024 Q3 Earnings call transcript