SEVEN HILLS REAL(SEVN)

Search documents
Philippine Seven (SEVN) Conference Transcript
2025-08-19 07:00
Summary of Philippine Seven Corporation Investor Day Company Overview - Philippine Seven Corporation operates the largest convenience store chain in the Philippines, Seven Eleven, with 4,268 stores as of June 30, 2025, and ranks as the sixth largest operator globally among 20 countries [1][2] Key Financial Highlights - System-wide sales reached 25.41 billion pesos, a 6.3% increase, while operating revenue grew by 9.3% to 24.79 billion pesos [10] - Operating income rose by 8.2% to 2.77 billion pesos, with net income slightly up by 0.7% to 1.78 billion pesos [12] - Merchandise sales increased by 7.1% to 41.1 billion pesos, driven by strong demand for nonalcoholic beverages [11] - Cash reserves increased by 27.74% year-on-year to 9.97 billion pesos, and total assets grew by 22.13% to 43.59 billion pesos [12] - Equity surged by over 53% to 10.85 billion pesos, with a book value per share of 7.2 pesos [13] Expansion Plans - The company plans to open at least 500 new stores by the end of 2025, with 70% of these in the Visayas and Mindanao regions [18] - As of now, 218 stores have been opened, with a pipeline of over 200 stores in various stages of construction [6] Market Position and Competition - The company faces competition from mini-marts and hard discounters, but maintains advantages such as 24-hour operations, fast food offerings, and dining spaces [23] - The company aims to secure prime locations to prevent competition from establishing nearby [25] Product and Service Innovations - New product offerings include City Cafe blind cups collectibles and enhanced flavored syrup options [7] - The company is focusing on improving its assortment in non-core categories like grocery and health and beauty items [19] - The ready-to-eat offerings contribute significantly to sales, with a focus on maintaining product quality through satellite kitchens [44] Challenges and Market Trends - Same-store sales growth was impacted by a shift in consumer behavior towards essentials, with a slight negative growth of 0.5% in Q2 due to specific challenges [10][19] - Recent weather events, including typhoons, affected sales performance in July, but recovery was noted in August [20] Leadership Changes - A leadership transition occurred with Victor Paterno becoming chairman and Richard Lee appointed as president [5][34] - The transition is expected to have minimal impact on operations as established processes remain in place [33] Financial Strategy - The company announced a capital expenditure of 5.5 billion pesos for 2025, primarily for growth initiatives [45] - A focus on internal funding for capital expenditures, with minimal debt levels [46] - Plans to maintain a regular cash dividend payout corresponding to 40% of net income [62] Customer Engagement and Technology - The company is enhancing customer convenience through the rollout of 3,620 ATMs, covering 85% of stores [13] - A new payment switch has been implemented to improve transaction reliability and expand payment options [27][49] Conclusion - Philippine Seven Corporation is positioned for growth with a strong financial foundation, strategic expansion plans, and a focus on customer engagement and product innovation, despite facing competitive pressures and market challenges.
SEVEN HILLS REAL(SEVN) - 2025 Q2 - Earnings Call Transcript
2025-07-29 16:00
Financial Data and Key Metrics Changes - Distributable earnings for Q2 2025 were reported at $0.31 per share, at the high end of the guidance range [5][18] - Total commitments across first mortgage loans stood at $665 million, with a weighted average coupon of SOFR plus 3.64% and an all-in yield of 8.37% [6][15] - The quarterly dividend was reduced to $0.28 per share, reflecting a 20% decrease from the previous level [7][17] Business Line Data and Key Metrics Changes - The company originated two new first mortgage loans totaling $46 million during the quarter [6] - All loans in the portfolio remained current on debt service, with a weighted average risk rating of 2.9, unchanged from the previous quarter [6][17] - The company anticipates positive year-over-year portfolio growth, expecting to end 2025 with approximately $700 million in outstanding commitments [9][18] Market Data and Key Metrics Changes - Transaction activity slowed due to tariff announcements and global trade negotiations, causing uncertainty in the market [11] - Despite macro headwinds, the company averaged over $1 billion in monthly loan registrations, indicating strong demand for flexible, floating-rate debt solutions [11][12] - Competition among lenders remains elevated, particularly in the multifamily sector, with demand for securitized products supporting the debt markets [12][13] Company Strategy and Development Direction - The company is focused on smaller, middle-market transactions to earn more attractive yields by providing creative financing terms [13] - The strategy includes being selective in capital deployment, particularly in sectors where the company has a competitive advantage, such as industrial and medical office sectors [13] - The company is currently in diligence on a $34 million loan for a mixed-use retail and medical office property, indicating ongoing investment activity [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current environment, emphasizing strong sponsor relationships and liquidity [10][15] - The company expects to see two to three additional loans totaling approximately $100 million repaid in the latter half of the year [9] - Management anticipates that if the Fed cuts interest rates, there will be a meaningful increase in acquisition activity [13][39] Other Important Information - The CECL reserve increased to 150 basis points of total loan commitments, reflecting macroeconomic factors and loan extensions [15] - The company has no collateral-dependent loans or loans with specific reserves, indicating a strong credit performance [15][17] Q&A Session Summary Question: Expected year-end portfolio size and originations - Management indicated an expected year-end portfolio size of around $700 million, with originations for the second half potentially exceeding $200 million, dependent on repayments [20][21] Question: Stability of the new dividend level - Management expressed confidence that the new dividend level of $0.28 per share is sustainable for at least the next twelve months, contingent on loan repayments [24][25] Question: Attractive opportunities and competitive environment - Management noted significant activity in the multifamily and industrial sectors, with many borrowers needing additional time to optimize properties before refinancing or selling [27][28] Question: Leverage expectations for the second half of the year - Management expects leverage to remain consistent at 1.6 times debt to equity until office loans recycle out of the system [33] Question: NIM compression factors - Management explained that NIM compression is primarily driven by aggressive pricing in the multifamily sector, influenced by the CRE CLO market [34][35] Question: Impact of potential Fed cuts on NIM - Management indicated that Fed cuts would likely lower overall borrowing costs and stimulate transaction activity in the market [38][39]
SEVEN HILLS REAL(SEVN) - 2025 Q2 - Earnings Call Presentation
2025-07-29 15:00
Financial Performance - SEVN generated distributable earnings of $0.31 per diluted share, which was at the high end of their guidance[2,9] - Net income for the quarter was $2.7 million, or $0.18 per diluted share[9] - A quarterly distribution of $0.28 per common share, totaling approximately $4.2 million, was declared[5] - The quarterly distributable earnings payout ratio was 90%[11] Loan Portfolio - The fully performing loan portfolio totaled $665 million[2] - Two new loans were closed during the quarter, totaling $46 million[2,9] - $70.6 million of repayment proceeds were received during the quarter[9] - In July 2025, $53.8 million of repayment proceeds were received[9] - The company has $46 million in cash on hand and $322.8 million in unused financing capacity[8,9] Loan Portfolio Details - The weighted average coupon rate for the loan portfolio is S + 3.64%, with an All In Yield of 3.98%[9] - The weighted average LTV (loan-to-value) is 68%[8,18] - The weighted average risk rating of the loan portfolio is 2.9, with an allowance for credit losses representing 1.5% of total loan commitments[9]
SEVEN HILLS REAL(SEVN) - 2025 Q2 - Quarterly Report
2025-07-28 21:20
PART I Financial Information [Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) The company's unaudited financial statements show total assets of $687.4 million and a net income of $2.7 million for the quarter ended June 30, 2025 Condensed Consolidated Balance Sheets (unaudited) | (in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$687,383** | **$692,808** | | Loans held for investment, net | $621,943 | $601,842 | | Cash and cash equivalents | $45,951 | $70,750 | | **Total Liabilities** | **$420,363** | **$423,530** | | Secured financing facilities, net | $415,999 | $417,796 | | **Total Shareholders' Equity** | **$267,020** | **$269,278** | Condensed Consolidated Statements of Operations (unaudited) | (in thousands, except per share) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $7,393 | $9,380 | $14,987 | $18,742 | | **Net income** | **$2,678** | **$4,229** | **$7,210** | **$9,462** | | **Net income per common share - basic and diluted** | **$0.18** | **$0.28** | **$0.48** | **$0.64** | Condensed Consolidated Statements of Cash Flows (unaudited) | (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $8,663 | $8,969 | | Net cash (used in) provided by investing activities | ($20,421) | $20,415 | | Net cash used in financing activities | ($13,041) | ($47,636) | | **Decrease in cash and cash equivalents** | **($24,799)** | **($18,252)** | | Cash and cash equivalents at end of period | $45,951 | $69,603 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes support the financial statements, covering the loan portfolio, credit loss allowance, and financing facilities Loan Portfolio Statistics | | As of June 30, 2025 | As of December 31, 2024 | | :--- | :--- | :--- | | Number of loans | 23 | 21 | | Total loan commitments | $665,421 | $641,213 | | Principal balance | $632,826 | $610,811 | | Carrying value | $621,943 | $601,842 | | Weighted average coupon rate | 8.03% | 8.24% | | Weighted average risk rating | 2.9 | 3.1 | Allowance for Credit Losses Activity (Six Months Ended June 30, 2025) | (in thousands) | Loans Held for Investment, net | Unfunded Loan Commitments | Total | | :--- | :--- | :--- | :--- | | **Balance at Dec 31, 2024** | **$8,074** | **$834** | **$8,908** | | Provision for (reversal of) credit losses | $1,301 | ($542) | $759 | | **Balance at June 30, 2025** | **$9,375** | **$292** | **$9,667** | - The increase in the allowance for credit losses during the first six months of 2025 was primarily due to **unfavorable CRE pricing forecasts and loan extensions**, partially offset by loan repayments[36](index=36&type=chunk) Secured Financing Facilities Summary (as of June 30, 2025) | (in thousands) | Maximum Facility Size | Principal Balance | Carrying Value | | :--- | :--- | :--- | :--- | | UBS Master Repurchase Facility | $250,000 | $156,929 | $156,663 | | Citibank Master Repurchase Facility | $215,000 | $108,113 | $107,642 | | BMO Facility | $150,000 | $72,205 | $72,065 | | Wells Fargo Master Repurchase Facility | $125,000 | $79,968 | $79,629 | | **Total** | **$740,000** | **$417,215** | **$415,999** | - For the six months ended June 30, 2025, the company declared and paid distributions of **$0.70 per common share**, totaling $10.4 million[60](index=60&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses its transitional CRE lending strategy, performance drivers, and financial results, including non-GAAP reconciliations [Overview and Factors Affecting Operating Results](index=17&type=section&id=Overview%20and%20Factors%20Affecting%20Operating%20Results) The company operates as a REIT focused on floating-rate first mortgage loans for transitional CRE, influenced by credit and interest rate risks - The business strategy is focused on originating and investing in **floating rate first mortgage loans** ranging from $15,000 to $75,000, secured by middle market transitional CRE properties[74](index=74&type=chunk) - Key factors affecting operating results include **credit risk, availability of leverage, market conditions, changes in interest rates, portfolio size, and prepayment risk**[77](index=77&type=chunk)[78](index=78&type=chunk)[80](index=80&type=chunk) - As of June 30, 2025, SOFR was 4.32%, resulting in one loan investment having an active interest rate floor, and the company's **net interest income generally increases as benchmark rates rise**[85](index=85&type=chunk) [Our Loan Portfolio](index=19&type=section&id=Our%20Loan%20Portfolio) The loan portfolio grew to 23 first mortgage loans totaling $632.8 million, with all borrowers current on debt service payments Loan Portfolio Overview | | As of June 30, 2025 | As of December 31, 2024 | | :--- | :--- | :--- | | Number of loans | 23 | 21 | | Principal balance | $632,826 | $610,811 | | Weighted average all in yield | 8.37% | 8.62% | | Weighted average risk rating | 2.9 | 3.1 | | Weighted average LTV | 68% | 67% | - As of June 30, 2025, the company had five loans with a risk rating of '4' or 'higher risk', representing approximately **22% of the amortized cost** of the loan portfolio, with **no '5' or 'loss likely' rated loans**[92](index=92&type=chunk) - All borrowers had paid their debt service obligations owed and due as of June 30, 2025, and July 24, 2025, and the company had **no outstanding past due or nonaccrual loans**[98](index=98&type=chunk)[99](index=99&type=chunk) [Financing Activities](index=21&type=section&id=Financing%20Activities) The company utilizes four secured financing facilities totaling $740 million, with $417.2 million outstanding as of June 30, 2025 Secured Financing Facilities Overview (as of June 30, 2025) | (in thousands) | Principal Balance | Unused Capacity | Maximum Facility Size | | :--- | :--- | :--- | :--- | | **Total** | **$417,215** | **$322,785** | **$740,000** | Secured Financing Facilities Activity (Q2 2025) | (in thousands) | Amount | | :--- | :--- | | Balance at March 31, 2025 | $440,474 | | Borrowings | $31,900 | | Repayments | ($56,711) | | **Balance at June 30, 2025** | **$415,999** | [Results of Operations](index=23&type=section&id=Results%20of%20Operations) Net income decreased to $2.7 million in Q2 2025 and $7.2 million for H1 2025, driven by lower interest income and credit loss provisions Q2 2025 vs. Q1 2025 Performance | (in thousands, except per share) | Q2 2025 | Q1 2025 | Change | | :--- | :--- | :--- | :--- | | Net income | $2,678 | $4,532 | ($1,854) | | Net income per share | $0.18 | $0.30 | ($0.12) | - The decrease in net income from Q1 to Q2 2025 was mainly driven by a **$1.1 million negative swing in the provision for credit losses** and a $0.4 million increase in G&A expenses[104](index=104&type=chunk)[109](index=109&type=chunk)[108](index=108&type=chunk) H1 2025 vs. H1 2024 Performance | (in thousands, except per share) | H1 2025 | H1 2024 | Change | | :--- | :--- | :--- | :--- | | Net income | $7,210 | $9,462 | ($2,252) | | Net income per share | $0.48 | $0.64 | ($0.16) | - The YoY decrease in H1 2025 net income was primarily due to a **$4.0 million decrease in interest and related income** and the absence of a $1.9 million purchase discount accretion[113](index=113&type=chunk)[114](index=114&type=chunk)[120](index=120&type=chunk) [Non-GAAP Financial Measures](index=26&type=section&id=Non-GAAP%20Financial%20Measures) The company reports non-GAAP measures, including an Adjusted Book Value of $18.51 per share and Distributable Earnings of $0.31 per share Adjusted Book Value per Common Share | | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Book value per common share | $17.87 | $18.07 | | Allowance for credit losses per common share | $0.64 | $0.60 | | **Adjusted Book Value per common share** | **$18.51** | **$18.67** | Reconciliation of Net Income to Distributable Earnings (Q2 2025) | (in thousands, except per share) | Amount | | :--- | :--- | | Net income | $2,678 | | Non-cash equity compensation expense | $677 | | Provision for credit losses | $912 | | Depreciation and amortization of REO | $269 | | **Distributable Earnings** | **$4,536** | | Net income per share | $0.18 | | **Distributable Earnings per share** | **$0.31** | [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains sufficient liquidity through cash and financing facilities to meet obligations for the next 12 months - The company believes its sources of funds will be **sufficient to meet operating expenses, debt service, and distributions for the next 12 months**[130](index=130&type=chunk) - On July 10, 2025, the company declared a **reduced regular quarterly distribution of $0.28 per common share**, down from $0.35, reflecting expectations of lower future net interest margins[137](index=137&type=chunk) Contractual Obligations and Commitments (as of June 30, 2025) | (in thousands) | Total | Less than 1 Year | 1 - 3 Years | | :--- | :--- | :--- | :--- | | Unfunded loan commitments | $32,595 | $9,638 | $22,957 | | Principal payments on Secured Financing Facilities | $417,215 | $293,013 | $124,202 | | Interest payments on Secured Financing Facilities | $19,105 | $16,562 | $2,543 | | **Total** | **$469,057** | **$319,355** | **$149,702** | [Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable for the current reporting period - Not applicable[152](index=152&type=chunk) [Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes to internal controls during the quarter - Management, including the Managing Trustees, President, and CFO, concluded that the company's **disclosure controls and procedures are effective** as of the end of the period covered by the report[153](index=153&type=chunk) - There were **no changes in internal control over financial reporting** during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls[154](index=154&type=chunk) PART II Other Information [Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the 2024 Annual Report - There have been **no material changes** to the risk factors previously disclosed in our 2024 Annual Report[163](index=163&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 5,234 common shares during the quarter to satisfy employee tax withholding obligations Issuer Purchases of Equity Securities (Quarter Ended June 30, 2025) | Calendar Month | Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 1,376 | $13.00 | | May 2025 | 3,858 | $11.73 | | **Total/weighted average** | **5,234** | **$12.06** | - The share purchases were made to **satisfy tax withholding and payment obligations** of certain current and former officers and employees of Tremont and/or RMR related to the vesting of share awards[165](index=165&type=chunk) [Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the report, including governance documents and required certifications - The report includes a list of filed exhibits, such as corporate governance documents, equity compensation plans, and **required CEO/CFO certifications**[166](index=166&type=chunk)
SEVEN HILLS REAL(SEVN) - 2025 Q2 - Quarterly Results
2025-07-28 21:16
[Financial Results and Company Overview](index=2&type=section&id=Financial%20Results%20and%20Company%20Overview) [Second Quarter 2025 Highlights and Financial Summary](index=2&type=section&id=Second%20Quarter%202025%20Highlights%20and%20Financial%20Summary) In Q2 2025, Seven Hills Realty Trust reported a net income of $2.7 million, or $0.18 per share, and Distributable Earnings of $4.5 million, or $0.31 per share, which was at the high end of guidance. The company closed two new loans totaling $46.0 million while receiving $70.6 million in repayment proceeds. A quarterly dividend of $0.28 per share was declared Q2 2025 Financial Performance | Metric | Value | Per Share | | :--- | :--- | :--- | | Net Income | $2.7 million | $0.18 | | Distributable Earnings | $4.5 million | $0.31 | | Quarterly Distribution | $4.2 million | $0.28 | - Investment activity for the quarter included originating two new loans and receiving significant repayments, resulting in a net decrease in loan principal[11](index=11&type=chunk) Q2 2025 Investment Activity (in millions) | Activity | Amount | Details | | :--- | :--- | :--- | | New Loans Closed | $46.0 | Two loans (Industrial & Multifamily) with a weighted average All In Yield of S + 4.04% (calculated) | | Repayment Proceeds | $70.6 | From two loans (Retail & Multifamily) and one paydown (Office) | - As of June 30, 2025, the company's book value per common share was **$17.87**, and the adjusted book value per common share was **$18.51**[15](index=15&type=chunk) [Company Snapshot and Earnings Trend](index=3&type=section&id=Company%20Snapshot%20and%20Earnings%20Trend) As of June 30, 2025, SEVN maintains a $665 million floating-rate first mortgage loan portfolio with a conservative debt-to-equity ratio of 1.6x. The company has significant liquidity with $46 million in cash and over $322 million in unused financing capacity. However, recent earnings face headwinds from prior declines in the SOFR index and compression of net interest margins Company Snapshot as of June 30, 2025 | Category | Metric | Value | | :--- | :--- | :--- | | **Loan Portfolio** | Total Commitments | $665 million | | | Weighted Average LTV | 68% | | | Weighted Average All-In Yield | 8.4% | | **Leverage & Liquidity** | Debt to Equity Ratio | 1.6x | | | Unused Financing Capacity | $323 million | | | Cash on Hand | $46 million | - SEVN is managed by Tremont Realty Capital, an affiliate of The RMR Group, which has approximately **$40 billion** in assets under management, providing extensive market knowledge and network access[8](index=8&type=chunk) - Despite a well-performing portfolio, earnings are under pressure due to declining SOFR, compressed margins on new loans, and lower overall portfolio leverage. Annualized Distributable Earnings per share have trended downward from 2023 to the first half of 2025[17](index=17&type=chunk)[18](index=18&type=chunk) [Loan Portfolio Analysis](index=7&type=section&id=Loan%20Portfolio%20Analysis) [Portfolio Summary and Quarterly Activity](index=7&type=section&id=Portfolio%20Summary%20and%20Quarterly%20Activity) As of June 30, 2025, the loan portfolio consisted of 23 first mortgage loans with total commitments of $665.4 million and a principal balance of $632.8 million. The portfolio has a weighted average All-In Yield of 8.37% and a risk rating of 2.9. During Q2, loan originations and fundings were outpaced by repayments, leading to a net decrease in the portfolio's principal balance Loan Portfolio Characteristics (as of June 30, 2025) | Metric | Value | | :--- | :--- | | Number of Loans | 23 | | Total Loan Commitments | $665.4 million | | Principal Balance | $632.8 million | | Weighted Average LTV | 68% | | Weighted Average All-In Yield | 8.37% | | Weighted Average Risk Rating | 2.9 | - In Q2 2025, the total loan commitments decreased from **$690.9 million** to **$665.4 million**, and the principal balance decreased from **$661.4 million** to **$632.8 million**, primarily due to **$70.6 million** in repayments exceeding the **$40.8 million** in new originations[22](index=22&type=chunk) [Portfolio Composition and Origination Trends](index=8&type=section&id=Portfolio%20Composition%20and%20Origination%20Trends) The loan portfolio is geographically diversified, with the largest concentration in the South (41%). By property type, the portfolio is led by Multifamily (33%), followed by Industrial (26%) and Office (26%). Loan originations have been inconsistent over the past year, with $46.0 million in new commitments during Q2 2025, following a stronger Q1 2025 - Based on principal balance, the portfolio's primary concentrations are: - **Geography:** South (**41%**), West (**22%**), Midwest (**21%**), East (**16%**) - **Property Type:** Multifamily (**33%**), Industrial (**26%**), Office (**26%**), Hotel (**13%**), Retail (**2%**)[26](index=26&type=chunk)[27](index=27&type=chunk) Loan Originations by Quarter (Total Commitments) | Quarter | Amount (millions) | | :--- | :--- | | Q3 2023 | $49.7 | | Q4 2023 | $0.0 | | Q1 2024 | $54.3 | | Q2 2024 | $87.0 | | Q1 2025 | $41.6 | | Q2 2025 | $46.0 | [Credit Quality and Office Loan Exposure](index=9&type=section&id=Credit%20Quality%20and%20Office%20Loan%20Exposure) The portfolio maintains a weighted average risk rating of 2.9, with 71% of loans rated 'Acceptable Risk' (3) or 'Lower Risk' (1-2). The weighted average LTV is 68%. The office loan segment, representing 26% of the portfolio, consists entirely of suburban properties with no exposure to urban or CBD markets. While 86% of the office portfolio carries a 'Higher Risk' (4) rating, all borrowers were current on debt service payments as of quarter-end - The portfolio's credit risk profile is concentrated in the middle of the risk spectrum: - **Risk Rating:** **49%** of the portfolio is rated 'Acceptable Risk' (3), **22%** is 'Average Risk' (2), and **23%** is 'Higher Risk' (4) - **LTV:** **67%** of the portfolio has an LTV of **70%** or lower[31](index=31&type=chunk) - The office portfolio (**26%** of total) is entirely in suburban markets. All office borrowers were current on debt service payments as of June 30, 2025[33](index=33&type=chunk)[35](index=35&type=chunk) - Within the office portfolio, **86%** of the principal balance is rated 'Higher Risk' (4), while **14%** is rated 'Acceptable Risk' (3). Sponsors have shown commitment through recent equity contributions and loan modifications on several of these assets[33](index=33&type=chunk)[34](index=34&type=chunk) [Capitalization and Liquidity](index=11&type=section&id=Capitalization%20and%20Liquidity) [Secured Financing Facilities](index=11&type=section&id=Secured%20Financing%20Facilities) As of June 30, 2025, SEVN had total secured financing capacity of $740 million across four facilities with UBS, Citibank, BMO, and Wells Fargo. The company had an outstanding principal balance of $417.2 million, leaving $322.8 million in unused capacity. The weighted average coupon rate on this debt was 6.51% Secured Financing Facilities Summary (as of June 30, 2025) | Metric | Total/Weighted Average | | :--- | :--- | | Maximum Facility Size | $740.0 million | | Principal Balance | $417.2 million | | Unused Capacity | $322.8 million | | Weighted Average Coupon Rate | 6.51% | | Weighted Average Advance Rate | 67.9% | | Weighted Average Remaining Maturity | 0.7 years | [Appendix](index=12&type=section&id=Appendix) [Detailed Financial Statements](index=17&type=section&id=Detailed%20Financial%20Statements) The appendix provides the condensed consolidated balance sheets as of June 30, 2025, and December 31, 2024, and the condensed consolidated statements of operations for the three and six months ended June 30, 2025, and 2024. Total assets stood at $687.4 million, with total shareholders' equity at $267.0 million as of quarter-end Condensed Balance Sheet (June 30, 2025) | Category | Amount (in thousands) | | :--- | :--- | | Loans held for investment, net | $621,943 | | Cash and cash equivalents | $45,951 | | **Total Assets** | **$687,383** | | Secured financing facilities, net | $415,999 | | **Total Liabilities** | **$420,363** | | **Total Shareholders' Equity** | **$267,020** | Condensed Statement of Operations (Three Months Ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | | :--- | :--- | :--- | | Income from loan investments, net | $6,835 | $8,812 | | Total Revenue | $7,393 | $9,380 | | Provision for credit losses | $912 | $1,315 | | **Net Income** | **$2,678** | **$4,229** | [Non-GAAP Reconciliations](index=19&type=section&id=Non-GAAP%20Reconciliations) This section reconciles GAAP Net Income to the non-GAAP measure of Distributable Earnings, and GAAP Shareholders' Equity to Adjusted Book Value. For Q2 2025, Distributable Earnings were $4.5 million, adjusted from a Net Income of $2.7 million primarily by adding back non-cash items like the provision for credit losses ($0.9 million) and non-cash equity compensation ($0.7 million) Reconciliation of Net Income to Distributable Earnings (Q2 2025) | Item | Amount (in thousands) | | :--- | :--- | | **Net Income (GAAP)** | **$2,678** | | Non-cash equity compensation expense | $677 | | Provision for credit losses | $912 | | Depreciation and amortization | $269 | | **Distributable Earnings (Non-GAAP)** | **$4,536** | Reconciliation of Book Value to Adjusted Book Value (June 30, 2025) | Item | Amount (in thousands) | Per Share | | :--- | :--- | :--- | | **Shareholders' Equity (GAAP)** | **$267,020** | **$17.87** | | Allowance for credit losses | $9,667 | - | | **Adjusted Book Value (Non-GAAP)** | **$276,687** | **$18.51** | [Detailed Loan Portfolio Investments](index=14&type=section&id=Detailed%20Loan%20Portfolio%20Investments) The appendix provides a detailed schedule of all 23 first mortgage loans held as of June 30, 2025. The list includes location, property type, origination date, committed and principal amounts, coupon rates, maturity dates, LTV, and risk rating for each individual loan - The portfolio's largest single loan commitment is **$54.6 million** for a multifamily property in Olmsted Falls, OH. The smallest is **$16.0 million** for a hotel in Lake Mary, FL[45](index=45&type=chunk)[46](index=46&type=chunk) - The loans have floating coupon rates, typically expressed as SOFR plus a spread (e.g., S + 3.00% to S + 5.00%). The weighted average coupon for the total portfolio is **S + 3.64%**[45](index=45&type=chunk)[46](index=46&type=chunk) [Interest Rate Sensitivity](index=16&type=section&id=Interest%20Rate%20Sensitivity) The company's net interest income is sensitive to changes in the SOFR index. A hypothetical immediate 100 basis point increase in interest rates would increase annualized net interest income by approximately $0.13 per share. Conversely, a 100 basis point decrease would reduce it by $0.07 per share. This sensitivity is mitigated by interest rate floors on nearly all loans - The company's earnings have an asymmetrical sensitivity to interest rate changes. A +100 bps change in SOFR results in a **+$0.13 per share** impact, while a -100 bps change results in a **-$0.07 per share** impact[48](index=48&type=chunk) - All but one loan agreement contains an interest rate floor, with a weighted average floor of **2.56%**. However, only one loan currently has an active floor. The company's secured financing facilities have no interest rate floors[50](index=50&type=chunk) [Corporate Information and Definitions](index=13&type=section&id=Corporate%20Information%20and%20Definitions) This section provides details on the company's management team and Board of Trustees, equity research coverage, and investor relations contacts. It also includes definitions for key terms used throughout the presentation, such as 'All In Yield', 'LTV', and 'Distributable Earnings' - SEVN is managed by Tremont Realty Capital, a subsidiary of The RMR Group, which provides access to a large real estate platform and network[40](index=40&type=chunk) - The company is covered by equity research analysts from JMP Securities, Janney Montgomery Scott, and Jones Trading Institutional Services, LLC[41](index=41&type=chunk)[42](index=42&type=chunk) - Key definitions provided include: - **All In Yield:** Loan yield including amortization of deferred fees - **LTV (Loan to value ratio):** Initial loan amount divided by underwritten in-place value - **Maximum Maturity:** Assumes all borrower loan extension options are exercised[61](index=61&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk)
Seven Hills Realty Trust (SEVN) 2025 Conference Transcript
2025-06-04 15:15
Summary of Seven Hills Realty Trust (SEVN) Conference Call Company Overview - **Company**: Seven Hills Realty Trust (SEVN) - **Market Cap**: Approximately $177 million - **Industry**: Commercial Mortgage REITs - **Management**: Externally managed by RMR Group, which has over $40 billion in assets under management [2][3] Key Points and Arguments RMR Platform and Competitive Advantage - Seven Hills benefits from the extensive resources and knowledge of the RMR platform, which operates across various commercial real estate sectors [4][5] - The firm has access to a broad deal flow due to RMR's management of multiple REITs, enhancing loan sourcing and asset management capabilities [8][10] - The company focuses on middle-market loans, typically ranging from $20 million to $75 million, which provides more pricing power and a sophisticated borrowing base [11][12] Loan Portfolio and Risk Management - Seven Hills maintains a vertically integrated structure, handling all critical functions internally, including origination, underwriting, and asset management [13][14] - The company emphasizes strong sponsorship, focusing on borrowers with proven track records and financial capability to support their projects [15][16] - The firm has only had to foreclose on one asset, indicating effective credit management and risk assessment [34] Interest Rate Environment - The current elevated interest rate environment has created challenges, but the company remains competitive with net interest rate spreads averaging about 1.5% on recent originations [21][22] - The volatility in interest rates has impacted transaction activity, with borrowers hesitant to commit during uncertain periods [27][29] - Seven Hills expects a couple of rate cuts in 2025, which could positively influence origination activity [30] Loan Performance and Future Outlook - The company has a robust pipeline of approximately $1 billion in potential deals, with expectations of $125 million to $150 million in repayments during 2025 [41][42] - The current cash position is about $42 million, deemed adequate for operational needs and upcoming originations [50] - The dividend has been well-covered historically, with a current payout of $0.35 per quarter, and the company anticipates maintaining solid earnings coverage [51][52] Market Dynamics and Opportunities - Banks are expected to maintain lower real estate exposure, creating opportunities for alternative lenders like Seven Hills to capture market share [44][45] - The company is focused on sectors with strong fundamentals, such as multifamily, industrial, select-service hotels, and grocery-anchored retail [59][60] Additional Important Insights - The company has a strong focus on repeat sponsorship, with about one-third of their volume coming from repeat borrowers [58] - The firm is cautious about over-leveraged assets and prefers to work with sponsors who can contribute additional equity when necessary [55][56] This summary encapsulates the key insights from the conference call, highlighting Seven Hills Realty Trust's strategic positioning, market dynamics, and future outlook in the commercial mortgage REIT sector.
SEVEN HILLS REAL(SEVN) - 2025 Q1 - Earnings Call Transcript
2025-04-29 16:00
Financial Data and Key Metrics Changes - The company reported distributable earnings of $0.34 per share, exceeding the high end of the guidance range [6][18] - A quarterly dividend of $0.35 per share was declared and paid [6][18] - The weighted average risk rating improved to 2.9 from 3.1 in the previous quarter [6][18] - Total debt to equity remained at 1.6 times, with a cash balance of approximately $42 million [19] Business Line Data and Key Metrics Changes - The loan portfolio totaled $691 million in commitments, with 23 first mortgage loans and a weighted average yield of 8.5% [7] - Office exposure decreased to 25% of the portfolio from 27% at year-end [8] - The company closed two new student housing loans totaling approximately $50 million during the quarter [7] Market Data and Key Metrics Changes - The company noted a robust pipeline with increased requests for new acquisitions, indicating improved market conditions [13] - There was a shift in market sentiment with signs of spreads widening due to tariff-related headlines and uncertainties surrounding the Fed's rate path [14] Company Strategy and Development Direction - The company is focused on reducing exposure to office loans while increasing investments in multifamily, student housing, industrial, and necessity-based retail sectors [8] - The management emphasized a disciplined credit selection approach and maintaining strong sponsor relationships to navigate market volatility [11][17] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that a lower rate environment could pressure earnings, particularly as older loans with higher margins are expected to be repaid [20] - The company remains confident in its portfolio's quality and the ability to capitalize on new opportunities despite a cautious outlook [11] Other Important Information - The company has a modest CECL reserve of 130 basis points of total loan commitments, down from 140 basis points [18] - New slides were added to the earnings presentation to illustrate earnings trends and net interest rate spreads [21] Q&A Session Summary Question: Discussions with lenders and market sentiment - Management reported supportive conversations with lenders, maintaining steady borrowing costs despite widening market spreads [24][25] Question: Underwriting approach and credit standards - Management confirmed no modifications to their underwriting approach, emphasizing the importance of maintaining credit standards [27] Question: Credit performance and portfolio growth expectations - Management highlighted strong credit performance due to diligent underwriting and sponsorship, with a robust pipeline for new loans [32][34] Question: Updates on specific loans and maturities - Management provided updates on loan extensions and anticipated repayments, indicating a proactive approach to managing the portfolio [42][45] Question: Dividend evaluation timing - The Board of Trustees evaluates the dividend each quarter, considering overall performance and market conditions [48]
SEVEN HILLS REAL(SEVN) - 2025 Q1 - Quarterly Report
2025-04-28 20:23
[Financial Information](index=3&type=section&id=PART%20I%20Financial%20Information) This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2025 [Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements for the quarter ended March 31, 2025, including balance sheets, statements of operations, shareholders' equity, and cash flows, with detailed notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to $714.4 million by March 31, 2025, driven by a rise in net loans, while cash decreased and liabilities grew due to increased borrowings Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $41,637 | $70,750 | | Loans held for investment, net | $652,589 | $601,842 | | Total assets | $714,402 | $692,808 | | Secured financing facilities, net | $440,474 | $417,796 | | Total liabilities | $445,457 | $423,530 | | Total shareholders' equity | $268,945 | $269,278 | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Net income for Q1 2025 decreased to $4.5 million ($0.30 EPS) from $5.2 million ($0.35 EPS) in Q1 2024, primarily due to lower interest income and absence of purchase discount accretion Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total revenue | $7,594 | $9,362 | | Income from loan investments, net | $6,885 | $8,783 | | Total other expenses | $3,051 | $4,126 | | Net income | $4,532 | $5,233 | | Net income per share - diluted | $0.30 | $0.35 | - A key driver for the year-over-year decrease in net income was the absence of **$1.145 million** in purchase discount accretion that was recognized in Q1 2024[9](index=9&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Shareholders' equity slightly decreased to $268.9 million by Q1 2025, influenced by net income offset by distributions to shareholders Changes in Shareholders' Equity Q1 2025 (in thousands) | Item | Amount | | :--- | :--- | | Balance at Dec 31, 2024 | $269,278 | | Net income | $4,532 | | Distributions | ($5,216) | | Share grants & repurchases | $351 | | **Balance at Mar 31, 2025** | **$268,945** | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash and cash equivalents decreased by $29.1 million in Q1 2025, primarily due to net cash used in investing activities for new loan originations Cash Flow Summary (in thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $3,686 | $4,724 | | Net cash (used in) provided by investing activities | ($49,901) | $39,554 | | Net cash provided by (used in) financing activities | $17,102 | ($38,835) | | **(Decrease) increase in cash** | **($29,113)** | **$5,443** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes cover loan portfolio growth to $661.4 million, a decrease in allowance for credit losses, and details on $740 million in secured financing facilities - The loan portfolio grew to **23 loans** from 21 at year-end 2024, with total commitments increasing to **$690.9 million**[18](index=18&type=chunk) - The allowance for credit losses decreased from **$8.9 million** at year-end 2024 to **$8.76 million** at March 31, 2025, primarily due to loans nearing maturity and improved collateral performance[30](index=30&type=chunk) - The company has **$740 million** in total capacity under its Secured Financing Facilities, with **$442 million** outstanding at a weighted average coupon rate of **6.52%** as of March 31, 2025[44](index=44&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's focus on floating-rate first mortgage loans, Q1 2025 net income decrease, loan portfolio growth, and sufficient liquidity for the next 12 months [Our Loan Portfolio](index=18&type=section&id=Our%20Loan%20Portfolio) The loan portfolio comprised 23 first mortgage loans totaling $661.4 million in principal balance with a weighted average all-in yield of 8.46% as of March 31, 2025 Loan Portfolio Statistics | Metric | As of March 31, 2025 | As of December 31, 2024 | | :--- | :--- | :--- | | Number of loans | 23 | 21 | | Principal balance | $661,389 thousand | $610,811 thousand | | Weighted average all in yield | 8.46% | 8.62% | | Weighted average risk rating | 2.9 | 3.1 | - As of March 31, 2025, the company had **five loans** with a risk rating of 4 ('higher risk'), representing approximately **22%** of the amortized cost of the loan portfolio[88](index=88&type=chunk) - All borrowers had paid their debt service obligations owed and due as of March 31, 2025, and April 24, 2025[94](index=94&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) Net income decreased from $4.9 million in Q4 2024 to $4.5 million in Q1 2025, primarily due to increased interest expenses and a smaller reversal of credit losses Quarter-over-Quarter Results of Operations (in thousands) | Line Item | Q1 2025 | Q4 2024 | Change | | :--- | :--- | :--- | :--- | | Income from loan investments, net | $6,885 | $7,112 | ($227) | | Reversal of credit losses | ($153) | ($450) | $297 | | Net income | $4,532 | $4,879 | ($347) | | Net income per common share | $0.30 | $0.33 | ($0.03) | [Non-GAAP Financial Measures](index=22&type=section&id=Non-GAAP%20Financial%20Measures) Adjusted Book Value per share was $18.63 and Distributable Earnings were $5.0 million ($0.34 per share) for Q1 2025 Non-GAAP Measures per Share | Measure | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Book value per common share | $18.04 | $18.07 | | Adjusted Book Value per common share | $18.63 | $18.67 | Distributable Earnings per Share | Measure | Q1 2025 | Q4 2024 | | :--- | :--- | :--- | | Distributable Earnings | $5,004 thousand | $4,867 thousand | | Distributable Earnings per share | $0.34 | $0.33 | [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by cash on hand, operations, and secured financing facilities, deemed sufficient for the next 12 months, with total contractual obligations of $494.6 million - Primary sources of cash include cash on hand, payments received on investments, and unused borrowing capacity under Secured Financing Facilities[114](index=114&type=chunk) Contractual Obligations as of March 31, 2025 (in thousands) | Obligation | Total | Less than 1 Year | | :--- | :--- | :--- | | Unfunded loan commitments | $29,524 | $12,353 | | Principal payments on Secured Financing Facilities | $442,026 | $343,624 | | Interest payments on Secured Financing Facilities | $22,921 | $19,463 | | **Total** | **$494,614** | **$375,583** | - As of March 31, 2025, the company was in compliance with all covenants and other terms under its Secured Financing Facilities[131](index=131&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company has determined that quantitative and qualitative disclosures about market risk are not applicable for this reporting period - The company has determined that quantitative and qualitative disclosures about market risk are not applicable[135](index=135&type=chunk) [Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures are effective as of the end of the period covered by the report[136](index=136&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls[137](index=137&type=chunk) [Other Information](index=29&type=section&id=PART%20II%20Other%20Information) This section covers updates on risk factors, unregistered sales of equity securities, and a list of exhibits filed with the report [Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the 2024 Annual Report[146](index=146&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In March 2025, the company purchased 359 common shares at $12.74 per share to satisfy tax obligations related to vested share awards Issuer Purchases of Equity Securities (Q1 2025) | Calendar Month | Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | March 2025 | 359 | $12.74 | - The share purchases were made to satisfy tax withholding and payment obligations for certain current and former officers and employees of Tremont and/or RMR related to vested common share awards[148](index=148&type=chunk) [Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including organizational documents, officer certifications, and Interactive Data Files (XBRL) - The exhibits filed with the report include officer certifications (Rule 13a-14(a), Section 1350) and XBRL data files[149](index=149&type=chunk)
SEVEN HILLS REAL(SEVN) - 2025 Q1 - Quarterly Results
2025-04-28 20:19
[First Quarter 2025 Results](index=1&type=section&id=First%20Quarter%202025%20Results) Seven Hills Realty Trust reported solid Q1 2025 results with sequential growth in distributable earnings, a strong performing loan portfolio, and a declared quarterly distribution [Q1 2025 Results Announcement](index=2&type=section&id=Q1%202025%20Results%20Announcement) Seven Hills Realty Trust (SEVN) announced solid first-quarter 2025 results, featuring sequential growth in distributable earnings per share to $0.34. The company highlighted a strong loan portfolio with all loans performing and an improved average risk rating. A quarterly distribution of $0.35 per common share was declared - Distributable earnings per share grew to **$0.34** for the first quarter[3](index=3&type=chunk) - Closed two new loans during the quarter, totaling **$49.7 million** in commitments[3](index=3&type=chunk) - The portfolio's average risk rating improved, decreasing from **3.1 to 2.9**, with all loans currently performing[3](index=3&type=chunk) - A quarterly distribution of **$0.35** per common share was declared on April 10, 2025, payable around May 15, 2025[5](index=5&type=chunk) [Company Snapshot](index=3&type=section&id=Company%20Snapshot) As of March 31, 2025, SEVN's portfolio consists of $691 million in floating-rate first mortgage loan commitments with a weighted average LTV of 67%. The company maintains a conservative 1.6x debt-to-equity ratio and benefits from its management by Tremont Realty Capital, an affiliate of The RMR Group, which has approximately $40 billion in assets under management Company Metrics (as of March 31, 2025) | Metric | Value | | :--- | :--- | | **Loan Portfolio** | | | Total Loan Commitments | $691 million | | Average Loan Commitment | $30 million | | Weighted Average LTV | 67% | | Weighted Average All-In Yield | 8.5% | | Portfolio Type | 100% floating rate first mortgage | | **Leverage & Liquidity** | | | Debt to Equity Ratio | 1.6x | | Maximum Facility Size | $740 million | | Unused Financing Capacity | $298 million | | Cash on Hand | $42 million | - SEVN is managed by Tremont Realty Capital, a wholly owned subsidiary of RMR, which provides deep market knowledge and an extensive network[8](index=8&type=chunk) [First Quarter 2025 Highlights](index=4&type=section&id=First%20Quarter%202025%20Highlights) In Q1 2025, SEVN generated net income of $4.5 million ($0.30/share) and Distributable Earnings of $5.0 million ($0.34/share). The company was active in the market, closing two student housing loans totaling $49.7 million. The portfolio's weighted average risk rating stood at 2.9, and the company maintained significant liquidity with $41.6 million in cash and $298.0 million in unused financing capacity Q1 2025 Financial & Operational Highlights | Category | Highlight | Value | | :--- | :--- | :--- | | **Financial Results** | Net Income | $4.5 million | | | Net Income per Diluted Share | $0.30 | | | Distributable Earnings | $5.0 million | | | Distributable Earnings per Diluted Share | $0.34 | | **Investment Activity** | New Loan Commitments | $49.7 million | | **Portfolio** | Weighted Average All-In Yield | S + 4.08% | | | Weighted Average Risk Rating | 2.9 | | | Allowance for Credit Losses | 1.3% of total commitments | | **Liquidity** | Cash on Hand | $41.6 million | | | Unused Financing Capacity | $298.0 million | - Closed two new loans: a **$31.2 million** loan in San Marcos, TX (**S + 3.25%**) and an **$18.5 million** loan in Waco, TX (**S + 3.35%**)[11](index=11&type=chunk) [Financial Results](index=5&type=section&id=Financial%20Results) The company reported Q1 2025 net income of $4.5 million and distributable earnings of $5.0 million, while facing headwinds from declining index rates and margin compression [Q1 2025 Financial Summary](index=5&type=section&id=Q1%202025%20Financial%20Summary) For the three months ended March 31, 2025, SEVN reported net income of $4.5 million and Distributable Earnings of $5.0 million, or $0.34 per share. The company's quarterly distribution of $0.35 per share represents a 103% payout ratio of distributable earnings. As of quarter-end, total assets were $714.4 million, with a book value per common share of $18.04 and an adjusted book value of $18.63 per share Q1 2025 Income Statement Summary (in thousands, except per share) | Metric | Value | | :--- | :--- | | Income from loan investments, net | $6,885 | | Net income | $4,532 | | Net income per common share | $0.30 | | Distributable Earnings | $5,004 | | Distributable Earnings per common share | $0.34 | | Quarterly distribution per common share | $0.35 | Balance Sheet Summary (as of March 31, 2025, in thousands, except per share) | Metric | Value | | :--- | :--- | | Loans held for investment, net | $652,589 | | Cash and cash equivalents | $41,637 | | Total assets | $714,402 | | Secured financing facilities, net | $440,474 | | Total shareholders' equity | $268,945 | | Book value per common share | $18.04 | [Distributable Earnings and Net Interest Margin Trends](index=6&type=section&id=Distributable%20Earnings%20and%20Net%20Interest%20Margin%20Trends) Distributable Earnings per share increased slightly from $0.33 in Q4 2024 to $0.34 in Q1 2025, primarily driven by net interest income from new loan originations. However, the company faces earnings headwinds from declining index rates and compression in net interest margins on new loans, which stood at 1.04% for Q1 2025 originations, down from 1.89% in late 2021 - Distributable Earnings per share increased from **$0.33** in Q4 2024 to **$0.34** in Q1 2025[19](index=19&type=chunk) - The increase in distributable earnings was driven by a **$0.04 per share** positive impact from new loan originations, partially offset by a **$0.02 per share** negative impact from a decline in the SOFR index rate[19](index=19&type=chunk) - The company notes that declining index rates, compression of net interest margins on new loans, and less overall portfolio leverage present headwinds to earnings[21](index=21&type=chunk) - The net interest margin on new loan originations has compressed, falling to **1.04%** in Q1 2025[26](index=26&type=chunk) [Loan Portfolio](index=9&type=section&id=Loan%20Portfolio) SEVN's loan portfolio grew to $690.9 million with a weighted average LTV of 67% and improved credit quality, despite a concentration of higher-risk office loans [Loan Portfolio Summary and Activity](index=9&type=section&id=Loan%20Portfolio%20Summary%20and%20Activity) As of March 31, 2025, SEVN's loan portfolio comprised 23 loans with total commitments of $690.9 million and an outstanding principal balance of $661.4 million. The portfolio has a weighted average All-In Yield of 8.46% and a conservative LTV of 67%. During Q1 2025, the principal balance grew from $610.8 million to $661.4 million, driven by $46.5 million in new originations Loan Portfolio Metrics (as of March 31, 2025) | Metric | Value | | :--- | :--- | | Number of loans | 23 | | Total loan commitments | $690.9 million | | Principal balance | $661.4 million | | Weighted average All In Yield | 8.46% | | Weighted average LTV | 67% | | Weighted average risk rating | 2.9 | - In Q1 2025, the company originated **2** new loans with total commitments of **$49.7 million** and a principal balance of **$46.5 million**[28](index=28&type=chunk) - The portfolio's principal balance increased by **$50.6 million** during Q1 2025, from **$610.8 million** to **$661.4 million**[29](index=29&type=chunk) [Portfolio Originations and Diversity](index=10&type=section&id=Portfolio%20Originations%20and%20Diversity) Based on principal balance as of March 31, 2025, the loan portfolio is geographically diversified, with the largest concentration in the South (36%), followed by the West (22%), East (21%), and Midwest (21%). By property type, the portfolio is led by Multifamily (32%), Office (25%), Industrial (21%), Hotel (13%), and Retail (9%). Loan originations in Q1 2025 totaled $49.7 million in commitments - Q1 2025 loan originations totaled **$49.7 million** in commitments across **2** loans[33](index=33&type=chunk) Portfolio Diversity by Principal Balance (as of March 31, 2025) | Category | Type | Percentage | | :--- | :--- | :--- | | **Geographic Region** | South | 36% | | | West | 22% | | | East | 21% | | | Midwest | 21% | | **Property Type** | Multifamily | 32% | | | Office | 25% | | | Industrial | 21% | | | Hotel | 13% | | | Retail | 9% | [Loan Portfolio Credit Quality](index=11&type=section&id=Loan%20Portfolio%20Credit%20Quality) The portfolio demonstrates strong credit quality with a weighted average risk rating of 2.9 and a weighted average LTV of 67%. A significant majority of the portfolio, 73% by principal balance, is rated as 'Acceptable Risk' (3) or 'Lower Risk' (1-2). The office loan portfolio, representing 25% of the total, is entirely in suburban markets, with 86% of these loans rated as 'Higher Risk' (4). However, all borrowers remain current on debt service payments - The weighted average risk rating for the portfolio is **2.9**. **51%** of the portfolio is rated 'Acceptable Risk' (3) and **22%** is rated 'Average Risk' (2)[36](index=36&type=chunk) - The weighted average LTV is **67%**, with **52%** of the portfolio having an LTV of **70% or less**[36](index=36&type=chunk) - Office loans comprise **25%** of the total portfolio, a reduction from **27%** at the end of 2024. All office loans are in suburban, not urban or CBD, markets[38](index=38&type=chunk)[40](index=40&type=chunk) - Within the office portfolio, **86%** of the principal balance is rated 'Higher Risk' (4), while **14%** is rated 'Acceptable Risk' (3). All borrowers were current on debt service obligations as of March 31, 2025[38](index=38&type=chunk)[40](index=40&type=chunk) [Financing and Capitalization](index=13&type=section&id=Financing%20and%20Capitalization) The company maintains strong liquidity with $298 million in unused financing capacity across four secured facilities totaling $740 million [Secured Financing Facilities](index=13&type=section&id=Secured%20Financing%20Facilities) As of March 31, 2025, SEVN had four secured financing facilities with a total maximum size of $740 million. The outstanding principal balance was $442.0 million, leaving $298.0 million in unused capacity. The weighted average coupon rate on these borrowings was 6.52%, with a weighted average advance rate of 68.8% Secured Financing Facilities Summary (as of March 31, 2025, in thousands) | Metric | Total Value | | :--- | :--- | | Maximum facility size | $740,000 | | Principal balance | $442,026 | | Unused capacity | $297,974 | | Weighted average coupon rate | 6.52% | | Weighted average advance rate | 68.8% | | Weighted average remaining maturity (years) | 0.8 | - The company has financing facilities with UBS, Citibank, BMO, and Wells Fargo[41](index=41&type=chunk) [Appendix](index=14&type=section&id=Appendix) The appendix provides detailed financial statements, reconciliations for non-GAAP measures, interest rate sensitivity analysis, and a comprehensive schedule of loan investments [Detailed Financial Statements](index=19&type=section&id=Detailed%20Financial%20Statements) The condensed consolidated balance sheet shows an increase in total assets from $692.8 million at year-end 2024 to $714.4 million at March 31, 2025, primarily due to growth in loans held for investment. The statement of operations for Q1 2025 shows net income of $4.5 million, a decrease from $5.2 million in Q1 2024, mainly due to lower income from loan investments and a reversal of credit losses in the current period versus a provision in the prior year Balance Sheet Comparison (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $41,637 | $70,750 | | Loans held for investment, net | $652,589 | $601,842 | | Total assets | $714,402 | $692,808 | | Secured financing facilities, net | $440,474 | $417,796 | | Total shareholders' equity | $268,945 | $269,278 | Statement of Operations Comparison (in thousands) | Account | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Income from loan investments, net | $6,885 | $8,783 | | Total revenue | $7,594 | $9,362 | | (Reversal of) provision for credit losses | ($153) | $697 | | Net income | $4,532 | $5,233 | [Non-GAAP Financial Measures](index=21&type=section&id=Non-GAAP%20Financial%20Measures) The company provides reconciliations for non-GAAP measures like Distributable Earnings and Adjusted Book Value. For Q1 2025, Distributable Earnings were $5.0 million, or $0.34 per share, reconciled from a net income of $4.5 million. Adjusted Book Value per share was $18.63, compared to a book value of $18.04, with the adjustment primarily adding back the allowance for credit losses Reconciliation of Net Income to Distributable Earnings (Q1 2025, in thousands) | Line Item | Amount | | :--- | :--- | | Net income | $4,532 | | Non-cash equity compensation expense | $356 | | (Reversal of) provision for credit losses | ($153) | | Depreciation and amortization of real estate owned | $269 | | **Distributable Earnings** | **$5,004** | Reconciliation of Book Value to Adjusted Book Value (as of March 31, 2025, in thousands) | Line Item | Amount | | :--- | :--- | | Shareholders' equity | $268,945 | | Allowance for credit losses | $8,755 | | **Adjusted Book Value** | **$277,700** | [Interest Rate Sensitivity](index=18&type=section&id=Interest%20Rate%20Sensitivity) As of March 31, 2025, SEVN's net interest income is sensitive to changes in the SOFR. A 100 basis point increase in interest rates is projected to increase annualized net interest income per share by $0.15, while a 100 basis point decrease would lower it by $0.07. This sensitivity is mitigated by interest rate floors in nearly all loan agreements, with a weighted average floor of 2.16% Annualized Impact to Net Interest Income per Share from SOFR Changes | Change in SOFR | Impact per Share | | :--- | :--- | | +100 bps | +$0.15 | | +50 bps | +$0.08 | | -50 bps | -$0.04 | | -100 bps | -$0.07 | - All but one loan agreement contain interest rate floor provisions, with a weighted average floor of **2.16%**[56](index=56&type=chunk) - There are no interest rate floors on the company's borrowings under its Secured Financing Facilities[56](index=56&type=chunk) [Loan Investment Details](index=16&type=section&id=Loan%20Investment%20Details) The appendix provides a detailed schedule of the 23 first mortgage loans in the portfolio as of March 31, 2025. The loans range in committed principal from $16.0 million to $54.6 million and are secured by multifamily, industrial, office, hotel, and retail properties across the United States. The total committed principal is $690.9 million with a weighted average All-in Yield of S+4.08% and a weighted average LTV of 67% - The portfolio consists of **23 loans** with a total committed principal of **$690.9 million** and an outstanding balance of **$661.4 million**[50](index=50&type=chunk)[51](index=51&type=chunk) - The largest loan is a **$54.6 million** commitment for a multifamily property in Olmsted Falls, OH, and the smallest is a **$16.0 million** commitment for a hotel in Lake Mary, FL[50](index=50&type=chunk)[51](index=51&type=chunk) - The portfolio's weighted average coupon rate is **SOFR + 3.69%**, and the weighted average All-in Yield is **SOFR + 4.08%**[51](index=51&type=chunk)
SEVEN HILLS REAL(SEVN) - 2024 Q4 - Annual Report
2025-02-18 21:30
Part I [Item 1. Business](index=7&type=section&id=Item%201.%20Business) The company is a REIT specializing in floating-rate first mortgage loans for transitional commercial real estate, externally managed by Tremont Realty Capital - The company focuses on originating floating-rate first mortgage loans between **$15.0 million and $75.0 million** for transitional CRE properties valued up to $100.0 million[19](index=19&type=chunk) - The company is externally managed by Tremont Realty Capital LLC, a subsidiary of The RMR Group LLC (RMR), which had over **$40 billion** of real estate assets under management as of December 31, 2024[39](index=39&type=chunk)[41](index=41&type=chunk) Loan Portfolio Snapshot (as of Dec 31, 2024) | Metric | Value | | :--- | :--- | | Number of Loans | 21 | | Aggregate Loan Commitments | $641.2 million | | Weighted Average Max Maturity | 2.6 years | | Weighted Average Coupon Rate | 8.24% | | Weighted Average All-in Yield | 8.62% | [Investment and Leverage Strategies](index=7&type=section&id=Our%20Investment%20and%20Leverage%20Strategies) The company balances capital preservation with risk-adjusted returns by originating short-term, floating-rate first mortgage loans for transitional CRE - The company targets floating-rate first mortgage loans with principal balances from **$15.0M to $75.0M**, stabilized LTVs of 75% or less, and terms of five years or less[26](index=26&type=chunk) - As of December 31, 2024, **96.1% of the loan portfolio had interest rate floors** with a weighted average of 2.12%, mitigating risk in declining rate environments[25](index=25&type=chunk) - The company's debt-to-equity ratio was **1.6:1** as of December 31, 2024, well below its target maximum of 3:1[27](index=27&type=chunk) [Material U.S. Federal Income Tax Considerations](index=10&type=section&id=MATERIAL%20UNITED%20STATES%20FEDERAL%20INCOME%20TAX%20CONSIDERATIONS) The company outlines its REIT qualification requirements, tax treatment for shareholders, and strategies to avoid adverse tax consequences - The company elected to be taxed as a REIT commencing with its 2020 taxable year and believes it has operated in a manner to maintain this qualification[60](index=60&type=chunk) - To maintain REIT status, the company must annually distribute at least **90% of its REIT taxable income** and satisfy various complex asset and income tests[33](index=33&type=chunk)[113](index=113&type=chunk) - The company does not intend to own assets or conduct activities that would produce **'excess inclusion income,'** which can create adverse tax consequences for shareholders[68](index=68&type=chunk)[71](index=71&type=chunk) [ERISA Considerations](index=31&type=section&id=ERISA%20PLANS%2C%20KEOGH%20PLANS%20AND%20INDIVIDUAL%20RETIREMENT%20ACCOUNTS) The company's shares are structured as 'publicly-offered securities' to ensure its assets are not considered 'plan assets' under ERISA - Fiduciaries of ERISA and other retirement plans must consider if an investment in SEVN shares satisfies diversification, prudence, and other fiduciary responsibilities under applicable law[160](index=160&type=chunk) - The company believes its assets will not be deemed 'plan assets' of any ERISA or Non-ERISA plan because its shares qualify as **'publicly-offered securities'** under Department of Labor regulations[164](index=164&type=chunk)[169](index=169&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks related to its business operations, financing, external management structure, and REIT tax status - The company operates in a **highly competitive market**, which may limit its ability to originate loans on attractive terms[173](index=173&type=chunk) - **Unfavorable market conditions**, including high interest rates and inflation, can adversely affect investment returns, borrower stability, and portfolio growth[175](index=175&type=chunk) - The management structure with Tremont and RMR creates **potential conflicts of interest** regarding investment allocation, fees, and operational decisions[233](index=233&type=chunk) - **Failure to maintain qualification as a REIT** would subject the company to corporate income tax, reducing cash available for distributions[266](index=266&type=chunk) - The company is subject to **restrictive covenants** in its secured financing facilities, which could limit operational flexibility and distributions[225](index=225&type=chunk) [Item 1B. Unresolved Staff Comments](index=59&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the SEC - None[288](index=288&type=chunk) [Item 1C. Cybersecurity](index=59&type=section&id=Item%201C.%20Cybersecurity) The company relies on its manager, Tremont, and RMR for cybersecurity, with oversight provided by the Audit Committee - The company relies on its manager, Tremont, and RMR to identify and manage cybersecurity risks[289](index=289&type=chunk) - The Audit Committee oversees cybersecurity matters and receives regular updates from RMR's Chief Information Officer[289](index=289&type=chunk) [Item 2. Properties](index=59&type=section&id=Item%202.%20Properties) The company leases its principal executive offices and owns one office property acquired through a deed in lieu of foreclosure - The company's main offices are located at Two Newton Place, 255 Washington Street, Newton, MA[290](index=290&type=chunk) - The company owns an office property in Yardley, PA, which it acquired in June 2023 via a **deed in lieu of foreclosure**[290](index=290&type=chunk) [Item 3. Legal Proceedings](index=60&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently a party to any litigation expected to have a material adverse effect on its business - The company is not currently party to any material litigation[292](index=292&type=chunk) [Item 4. Mine Safety Disclosures](index=60&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[293](index=293&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=61&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq as 'SEVN', and the company repurchased shares to satisfy tax withholding obligations - The company's common stock trades on Nasdaq under the symbol **SEVN**[295](index=295&type=chunk) Issuer Purchases of Equity Securities (Q4 2024) | Month | Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | October 2024 | 3,602 | $13.61 | | December 2024 | 78 | $13.35 | | **Total** | **3,680** | **$13.60** | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=61&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Net income decreased in 2024 due to a smaller loan portfolio and a provision for credit losses, though management is cautiously optimistic for 2025 - Management expresses cautious optimism for 2025, expecting that over **$2 trillion in maturing CRE debt** and a stabilized rate environment will create lending opportunities[310](index=310&type=chunk) Results of Operations Comparison (in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Total Revenue | $35,274 | $38,235 | | Total Other Expenses | $17,421 | $12,308 | | Provision for (reversal of) credit losses | $3,080 | $(799) | | Net Income | $17,820 | $25,965 | | Net Income per Share | $1.20 | $1.76 | Non-GAAP Reconciliation (in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net Income | $17,820 | $25,965 | | Distributable Earnings | $21,284 | $22,901 | | Distributable Earnings per Share | $1.45 | $1.57 | [Loan Portfolio](index=65&type=section&id=Our%20Loan%20Portfolio) The loan portfolio decreased in size, with a higher average risk rating driven by office sector loans, though all borrowers remained current - As of Dec 31, 2024, five loans (**24% of amortized cost**) had a risk rating of '4' or 'higher risk', primarily secured by office properties[326](index=326&type=chunk)[327](index=327&type=chunk)[328](index=328&type=chunk)[329](index=329&type=chunk) - As of February 13, 2025, **all borrowers with outstanding loans had paid their debt service obligations** owed and due to the company[331](index=331&type=chunk) Loan Portfolio Comparison | Metric | As of Dec 31, 2024 | As of Dec 31, 2023 | | :--- | :--- | :--- | | Number of loans | 21 | 24 | | Total loan commitments | $641.2M | $670.3M | | Principal balance | $610.8M | $629.9M | | Weighted average all in yield | 8.62% | 9.64% | | Weighted average risk rating | 3.1 | 3.0 | [Financing Activities](index=67&type=section&id=Financing%20Activities) The company utilizes four secured financing facilities and maintained compliance with all debt covenants after extending several agreements in 2024 - In 2024, the company **extended the maturity dates** of its Citibank, Wells Fargo, and UBS facilities, and increased the maximum size of the UBS facility to $250.0 million[333](index=333&type=chunk)[334](index=334&type=chunk) Secured Financing Facilities Overview (as of Dec 31, 2024) | Facility | Maximum Size | Principal Balance | Unused Capacity | | :--- | :--- | :--- | :--- | | UBS Master Repurchase | $250.0M | $182.0M | $68.0M | | Citibank Master Repurchase | $215.0M | $93.3M | $121.7M | | BMO Facility | $150.0M | $103.9M | $46.1M | | Wells Fargo Master Repurchase | $125.0M | $40.5M | $84.5M | | **Total** | **$740.0M** | **$419.6M** | **$320.4M** | [Critical Accounting Estimates](index=73&type=section&id=Critical%20Accounting%20Estimates) The allowance for credit losses is the most critical accounting estimate, relying on a CECL model and an internal 5-point risk rating system - The **allowance for credit losses** is a critical estimate, calculated using a CECL model that incorporates historical data, current conditions, and reasonable forecasts[369](index=369&type=chunk) - Significant judgments in the CECL model include loan-specific data (LTV, property type) and **macroeconomic forecasts** (CRE asset performance, unemployment, interest rates)[371](index=371&type=chunk) - The company evaluates loan credit quality quarterly using an internal **5-point risk rating scale**, which is a primary credit quality indicator[375](index=375&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=75&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable to the company - Not applicable[383](index=383&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=75&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The required financial statements and supplementary data are included in Item 15 of this Annual Report - The required financial statements and supplementary data are included under Item 15[384](index=384&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=75&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants - None[385](index=385&type=chunk) [Item 9A. Controls and Procedures](index=75&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of year-end - Management concluded that the company's disclosure controls and procedures were **effective** as of December 31, 2024[386](index=386&type=chunk) - Management assessed internal control over financial reporting as **effective** based on the COSO 2013 framework[389](index=389&type=chunk)[390](index=390&type=chunk) Part III This part incorporates information by reference from the company's 2025 Proxy Statement regarding governance, compensation, and ownership [Item 10. Directors, Executive Officers and Corporate Governance](index=77&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, officers, and governance is incorporated by reference from the company's 2025 Proxy Statement - The required information is **incorporated by reference** from the company's 2025 Proxy Statement[396](index=396&type=chunk) [Item 11. Executive Compensation](index=77&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's 2025 Proxy Statement - The required information is **incorporated by reference** from the company's 2025 Proxy Statement[397](index=397&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=77&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section provides details on the company's equity compensation plan, with other ownership information incorporated by reference Equity Compensation Plan Information (as of Dec 31, 2024) | Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders - 2021 Plan | None | None | 57,466 | | Total | None | None | 57,466 | [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=77&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related transactions and director independence is incorporated by reference from the company's 2025 Proxy Statement - The required information is **incorporated by reference** from the company's 2025 Proxy Statement[400](index=400&type=chunk) [Item 14. Principal Accountant Fees and Services](index=77&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding accountant fees and services is incorporated by reference from the company's 2025 Proxy Statement - The required information is **incorporated by reference** from the company's 2025 Proxy Statement[401](index=401&type=chunk) Part IV [Item 15. Exhibits and Financial Statement Schedules](index=78&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the consolidated financial statements, schedules, and all exhibits filed with the Form 10-K - This section contains the index to the Consolidated Financial Statements and Schedule IV - Mortgage Loans on Real Estate[403](index=403&type=chunk) - A list of all exhibits filed with the report is provided, including amendments to financing agreements and management contracts[404](index=404&type=chunk) [Item 16. Form 10-K Summary](index=80&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports that there is no Form 10-K summary - None[406](index=406&type=chunk) Financial Statements and Supplementary Data [Report of Independent Registered Public Accounting Firm](index=81&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The auditor issued an unqualified opinion, identifying the allowance for credit losses as a Critical Audit Matter - The auditor, Deloitte & Touche LLP, issued an **unqualified (clean) opinion** on the financial statements[409](index=409&type=chunk) - The **allowance for credit losses** was identified as a Critical Audit Matter because of the subjective and complex judgments required for the macroeconomic assumptions[414](index=414&type=chunk)[415](index=415&type=chunk) [Consolidated Financial Statements](index=83&type=section&id=Consolidated%20Financial%20Statements) The financial statements show a decrease in total assets and net income for 2024 compared to the prior year Consolidated Balance Sheet Data (in thousands) | Account | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Loans held for investment, net | $601,842 | $622,086 | | Total Assets | $692,808 | $731,525 | | Secured financing facilities, net | $417,796 | $454,422 | | Total Liabilities | $423,530 | $460,277 | | Total Shareholders' Equity | $269,278 | $271,248 | Consolidated Statement of Operations Data (in thousands) | Account | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | | :--- | :--- | :--- | | Income from loan investments, net | $32,993 | $36,947 | | Total Revenue | $35,274 | $38,235 | | Total Other Expenses | $17,421 | $12,308 | | Net Income | $17,820 | $25,965 | [Notes to Consolidated Financial Statements](index=87&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, loan portfolio specifics, financing terms, and related party transactions with the external manager - The company adopted the **CECL model** for credit losses on January 1, 2023, recording a cumulative-effect adjustment of $6.6 million to retained earnings[436](index=436&type=chunk)[442](index=442&type=chunk) - The management agreement with Tremont includes a base management fee of **1.5% of 'Equity'** and a 20% incentive fee over a 7% hurdle on 'Core Earnings'[506](index=506&type=chunk) - The company has a property management agreement with RMR for its real estate owned property, with fees based on gross collected rents and construction supervision[525](index=525&type=chunk) [Schedule IV - Mortgage Loans on Real Estate](index=103&type=section&id=Schedule%20IV%20-%20Mortgage%20Loans%20on%20Real%20Estate) This schedule provides a detailed listing and reconciliation of the 21 mortgage loans held by the company at year-end - Provides a detailed breakdown of each of the **21 loans** in the portfolio, including property type, location, interest rate, maturity, and carrying value[533](index=533&type=chunk) Mortgage Loan Reconciliation (Carrying Value, in thousands) | Description | Amount | | :--- | :--- | | Balance as of Dec 31, 2023 | $622,086 | | Additions (Originations, Funding, etc.) | $148,656 | | Deductions (Repayments, Fees, etc.) | $(167,899) | | Increase in allowance for credit losses | $(3,698) | | **Balance as of Dec 31, 2024** | **$601,842** |