SEVEN HILLS REAL(SEVN) - 2025 Q2 - Quarterly Results

Financial Results and Company Overview Second Quarter 2025 Highlights and Financial Summary 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] 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] Company Snapshot and Earnings Trend 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] - 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][18] Loan Portfolio Analysis Portfolio Summary and Quarterly Activity 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] Portfolio Composition and Origination Trends 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][27] 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 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] - 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][35] - 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][34] Capitalization and Liquidity Secured Financing Facilities 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 Detailed Financial Statements 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 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 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][46] - 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][46] Interest Rate Sensitivity 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] - 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] Corporate Information and Definitions 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] - The company is covered by equity research analysts from JMP Securities, Janney Montgomery Scott, and Jones Trading Institutional Services, LLC[41][42] - 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][66][67]