SEVEN HILLS REAL(SEVN) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Distributable Earnings for Q4 2025 were reported at $4.6 million, or $0.28 per share, with an adjusted figure of $0.31 per share when accounting for the rights offering dilution [4][16] - The full year 2025 distributable earnings were $1.21 per share, with a run rate annual dividend of $1.12 per share, representing a 93% payout ratio [16][19] - The weighted average all-in yield was 7.92%, and the weighted average risk rating improved to 2.8 [8] Business Line Data and Key Metrics Changes - The company invested in three new loans totaling $101.3 million during Q4 2025, including a $37.3 million loan for student housing, a $37 million hotel loan, and a $27 million industrial property loan [5] - Total commitments as of December 31, 2025, were $724.5 million across 24 floating-rate first mortgage loans, with a year-over-year increase of $83 million, or approximately 13% [8] Market Data and Key Metrics Changes - Market conditions improved in Q4 2025, with two 25 basis point rate cuts bringing the target Fed funds rate to 350-375 basis points, leading to increased financing activity [11] - Office transaction volume increased by 25% year-over-year, indicating a recovery in the market [12] Company Strategy and Development Direction - The company aims to capitalize on middle-market lending opportunities with enhanced liquidity following the rights offering and a focus on disciplined capital deployment [9] - The strategy includes diversifying investments beyond multifamily and industrial sectors to include medical office, necessity-based retail, and hospitality [13] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about transaction activity continuing to increase in 2026, driven by recovering acquisition and refinancing volumes [12] - The company expects first quarter distributable earnings to be in the range of $0.22 to $0.24 per share, reflecting temporary impacts from the rights offering [18] Other Important Information - The company ended Q4 2025 with $123 million in cash and extended the maturities of two secured financing facilities, increasing the maximum size of one facility by $125 million [19][20] - The CECL reserve remains modest at 130 basis points of total loan commitments, down 20 basis points from the previous quarter [19] Q&A Session Summary Question: How is the company finding pockets of inefficiency in the current competitive environment? - Management noted that while multifamily remains liquid, they are focusing on sectors like storage, industrial, and medical office for better risk-adjusted returns [22][25] Question: Does the $0.22-$0.24 distributable EPS guidance assume full deployment of the raised capital? - Management clarified that the guidance does not assume full deployment by the end of Q1, as some loans are still in the pipeline [31] Question: Is the current dividend secure through the end of 2026? - Management confirmed commitment to the $0.28 per quarter dividend, despite temporary earnings drag from the rights offering [35] Question: What is the expected portfolio size by year-end? - Management anticipates reaching close to $1 billion in total loan portfolio size by year-end, depending on repayments and new originations [36]