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

First Quarter 2025 Results 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 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] - Closed two new loans during the quarter, totaling $49.7 million in commitments[3] - The portfolio's average risk rating improved, decreasing from 3.1 to 2.9, with all loans currently performing[3] - A quarterly distribution of $0.35 per common share was declared on April 10, 2025, payable around May 15, 2025[5] Company Snapshot 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] First Quarter 2025 Highlights 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] Financial Results 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 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 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] - 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] - 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] - The net interest margin on new loan originations has compressed, falling to 1.04% in Q1 2025[26] Loan Portfolio 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 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] - The portfolio's principal balance increased by $50.6 million during Q1 2025, from $610.8 million to $661.4 million[29] Portfolio Originations and Diversity 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] 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 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] - The weighted average LTV is 67%, with 52% of the portfolio having an LTV of 70% or less[36] - 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][40] - 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][40] Financing and Capitalization The company maintains strong liquidity with $298 million in unused financing capacity across four secured facilities totaling $740 million Secured Financing Facilities 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] 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 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 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 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] - There are no interest rate floors on the company's borrowings under its Secured Financing Facilities[56] Loan Investment Details 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][51] - 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][51] - The portfolio's weighted average coupon rate is SOFR + 3.69%, and the weighted average All-in Yield is SOFR + 4.08%[51]