SEVEN HILLS REAL(SEVN) - 2024 Q4 - Annual Results

Fourth Quarter 2024 Financial Results Q4 2024 Overview SEVN reported $0.33 distributable earnings per share and $0.35 quarterly distribution, closing $87 million in new loans and maintaining strong liquidity Q4 2024 Key Metrics | Metric | Value | | :--- | :--- | | Distributable Earnings per Share | $0.33 | | Quarterly Distribution per Share | $0.35 | - Closed two new loans totaling $87 million in Q4 2024 and an additional $31 million loan in January 2025[3] - Ended the quarter with over $70 million in cash and excess borrowing capacity after receiving $165 million in repayments during 2024[3] Company Snapshot As of December 31, 2024, Seven Hills Realty Trust holds a $641 million portfolio of 100% floating-rate first mortgage loans with a 1.6x debt-to-equity ratio and $71 million in cash Company Snapshot (as of Dec 31, 2024) | Category | Metric | Value | | :--- | :--- | :--- | | Loan Portfolio | Total Loan Commitments | $641 million | | | Average Loan Commitment | $31 million | | | Weighted Average LTV | 67% | | | Weighted Average All-In Yield | 8.6% | | Leverage & Liquidity | Debt to Equity Ratio | 1.6x | | | Maximum Facility Size | $740 million | | | Unused Financing Capacity | $320 million | | | Cash on Hand | $71 million | - The entire loan portfolio consists of floating-rate first mortgage loans, secured by diverse property types and geographic regions[8] Fourth Quarter 2024 Highlights In Q4 2024, SEVN generated $4.9 million in net income and Distributable Earnings, closed $87.0 million in new loans, and strengthened its capital structure by extending key financing facility maturities - Generated net income and Distributable Earnings of $4.9 million, or $0.33 per diluted share[9] - Closed two new loans with total commitments of $87.0 million and received $37.2 million in repayment proceeds[9] - The portfolio had a weighted average risk rating of 3.1 and an allowance for credit losses representing 1.4% of total loan commitments[9] - Strengthened liquidity by extending the maturity of the Wells Fargo facility to March 2026 and the UBS facility to February 2026, while also increasing the UBS facility size to $250.0 million[9] Financial Results Fourth Quarter 2024 Financial Summary For Q4 2024, SEVN reported $4.879 million net income and $4.867 million Distributable Earnings, both $0.33 per share, with a book value of $18.07 per common share Q4 2024 Income Statement Summary (in thousands, except per share) | Metric | Value | | :--- | :--- | | Income from loan investments, net | $7,112 | | Net income | $4,879 | | Net income per common share | $0.33 | | Distributable Earnings | $4,867 | | Distributable Earnings per common share | $0.33 | | Quarterly Distribution per Share | $0.35 | Balance Sheet Summary (as of Dec 31, 2024) | Metric | Value | | :--- | :--- | | Total assets | $692,808 (in thousands) | | Total shareholders' equity | $269,278 (in thousands) | | Book value per common share | $18.07 | | Adjusted book value per common share | $18.67 | Consolidated Balance Sheets As of December 31, 2024, SEVN's total assets decreased to $692.8 million from $731.5 million in 2023, primarily due to lower net loans and secured financing liabilities Consolidated Balance Sheet Comparison (in thousands) | Account | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $70,750 | $87,855 | | Loans held for investment, net | $601,842 | $622,086 | | Total assets | $692,808 | $731,525 | | Liabilities & Equity | | | | Secured financing facilities, net | $417,796 | $454,422 | | Total liabilities | $423,530 | $460,277 | | Total shareholders' equity | $269,278 | $271,248 | Consolidated Statements of Operations For the full year 2024, SEVN generated $17.8 million net income or $1.20 per share, while Q4 2024 net income decreased to $4.9 million from $6.0 million in Q4 2023 Statement of Operations Comparison (in thousands, except per share) | Metric | Three Months Ended Dec 31, 2024 | Three Months Ended Dec 31, 2023 | Year Ended Dec 31, 2024 | | :--- | :--- | :--- | :--- | | Income from loan investments, net | $7,112 | $9,426 | $32,993 | | Total revenue | $7,675 | $10,000 | $35,274 | | (Reversal of) provision for credit losses | $(450) | $500 | $3,080 | | Net income | $4,879 | $6,045 | $17,820 | | Net income per share | $0.33 | $0.41 | $1.20 | Loan Portfolio Analysis Loan Portfolio Summary & Activity As of Q4 2024, SEVN's loan portfolio comprised 21 loans with $641.2 million in commitments, a weighted average All-In Yield of 8.62%, and a risk rating of 3.1 Loan Portfolio Summary (as of Dec 31, 2024) | Metric | Value | | :--- | :--- | | Number of loans | 21 | | Total loan commitments | $641,213 (in thousands) | | Principal balance | $610,811 (in thousands) | | Weighted average All In Yield | 8.62% | | Weighted average LTV | 67% | | Weighted average risk rating | 3.1 | - In Q4 2024, the loan portfolio saw $81.8 million in originations and $37.2 million in repayments[14] Loan Portfolio Originations and Diversity SEVN originated $87.0 million in new loan commitments in Q4 2024, with the $641.2 million portfolio diversified geographically across East, Midwest, and West, and by property type including Multifamily, Industrial, and Office - Loan originations in Q4 2024 totaled $87.0 million in commitments across two loans[18] Portfolio Diversity by Principal Balance | Category | Type | Percentage | | :--- | :--- | :--- | | Geography | East | 23% | | | Midwest | 22% | | | West | 23% | | Property Type | Multifamily | 31% | | | Industrial | 23% | | | Office | 23% | | | Hotel | 14% | Loan Portfolio Credit Quality The loan portfolio maintains a weighted average LTV of 67% and a weighted average risk rating of 3.1, with 58% of the portfolio rated '3' (Acceptable Risk) Risk Rating Distribution (% of Portfolio) | Rating | Description | % of Portfolio | | :--- | :--- | :--- | | 1 | Lower Risk | 0% | | 2 | Average Risk | 18% | | 3 | Acceptable Risk | 58% | | 4 | Higher Risk | 24% | | 5 | Impaired/Loss Likely | 0% | - The weighted average LTV of the portfolio is 67%[19] Office Loan Portfolio Detail Office loans represent 23% of SEVN's total portfolio, with 86% of the office loan balance rated '4' (Higher Risk), though none are in urban CBD markets and all borrowers are current - Office loans comprise 23% of the total portfolio[21] - Within the office segment, 86% of the principal balance is rated as '4' (Higher Risk) and 14% is rated '3' (Acceptable Risk)[21] - No office loans are located in urban or CBD markets, and all borrowers were current on debt service payments as of year-end[22] Capital Structure and Liquidity Secured Financing Facilities As of December 31, 2024, SEVN has four secured financing facilities totaling $740 million, with $419.6 million outstanding and $320.4 million in unused capacity, and a weighted average coupon of 6.62% Secured Financing Facilities Summary (as of Dec 31, 2024, in thousands) | Facility | Maximum Size | Principal Balance | Unused Capacity | | :--- | :--- | :--- | :--- | | UBS | $250,000 | $181,989 | $68,011 | | Citibank | $215,000 | $93,314 | $121,686 | | BMO | $150,000 | $103,855 | $46,145 | | Wells Fargo | $125,000 | $40,464 | $84,536 | | Total | $740,000 | $419,622 | $320,438 | - In Q4 2024, the company extended the maturity of its UBS facility to Feb 2026 and its Wells Fargo facility to Mar 2026[23] Interest Rate Sensitivity SEVN's earnings are sensitive to SOFR changes, with a 100 basis point increase potentially raising annualized net interest income by $0.15 per share, influenced by a 2.12% weighted average interest rate floor on loans Annualized Impact to Net Interest Income per Share | SOFR Change | Impact per Share | | :--- | :--- | | +100 bps | +$0.15 | | +50 bps | +$0.07 | | -50 bps | -$0.04 | | -100 bps | -$0.07 | - The loan portfolio has a weighted average interest rate floor of 2.12%, with all but one loan having floor provisions[41] - There are no interest rate floors on the company's borrowings under its Secured Financing Facilities[41] Appendix Company Profile, Governance and Research Coverage Seven Hills Realty Trust is managed by Tremont Realty Capital, an affiliate of The RMR Group, leveraging its over $40 billion real estate platform for market knowledge and investment opportunities - SEVN is managed by Tremont, an affiliate of The RMR Group, which has over $40 billion of real estate assets under management[28] - The Board of Trustees includes a Lead Independent Trustee and is chaired by Adam D Portnoy[29] - Key executive officers are Thomas J Lorenzini (President and CIO) and Jared R Lewis (CFO and Treasurer)[29][32] Loan Investment Details This section details SEVN's 21 first mortgage loans as of December 31, 2024, with a total committed principal of $641.2 million, including location, property type, and financial terms for each investment Top 5 Loan Investments by Committed Amount (in thousands) | Location | Property Type | Committed Amount | Principal Balance | Coupon Rate | | :--- | :--- | :--- | :--- | :--- | | Olmsted Falls, OH | Multifamily | $54,575 | $52,050 | S + 4.00% | | Passaic, NJ | Industrial | $47,000 | $43,808 | S + 3.85% | | Dallas, TX | Office | $46,811 | $43,511 | S + 3.25% | | Boston, MA | Hotel | $45,000 | $39,800 | S + 3.95% | | Brandywine, MD | Retail | $42,500 | $42,200 | S + 3.85% | - The total portfolio consists of 21 loans with a total committed principal of $641.2 million and an outstanding balance of $610.8 million[34] Non-GAAP Financial Measures This section defines and reconciles non-GAAP measures like Distributable Earnings and Adjusted Book Value, with Q4 2024 Distributable Earnings at $4.9 million and Adjusted Book Value per share at $18.67 Reconciliation of Net Income to Distributable Earnings (Q4 2024, in thousands) | Line Item | Amount | | :--- | :--- | | Net income | $4,879 | | Non-cash equity compensation expense | $159 | | (Reversal of) provision for credit losses | $(450) | | Depreciation and amortization of REO | $279 | | Distributable Earnings | $4,867 | Reconciliation to Adjusted Book Value (as of Dec 31, 2024, in thousands) | Line Item | Amount | | :--- | :--- | | Shareholders' equity | $269,278 | | Allowance for credit losses | $8,908 | | Adjusted Book Value | $278,186 | | Adjusted Book Value per common share | $18.67 | - The company defines Distributable Earnings as net income adjusted for non-cash items such as depreciation, non-cash equity compensation, and unrealized gains/losses, to provide a useful indicator of distributions to shareholders[47][48]