SEVEN HILLS REAL(SEVN) - 2025 Q1 - Quarterly Report

Financial Information 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) 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 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 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] Condensed Consolidated Statements of Shareholders' Equity 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 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 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] - 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] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - All borrowers had paid their debt service obligations owed and due as of March 31, 2025, and April 24, 2025[94] Results of Operations 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 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 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] 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] Quantitative and Qualitative Disclosures About Market Risk 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] Controls and Procedures 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] - 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] Other Information This section covers updates on risk factors, unregistered sales of equity securities, and a list of exhibits filed with the report Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] Exhibits 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]