SEVEN HILLS REAL(US:SEVN)2026-02-19 17:02Financial 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 company raised $61.5 million in net proceeds from a rights offering, increasing investment capacity by over $200 million [4][5] - For the full year of 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] Business Line Data and Key Metrics Changes - The loan portfolio increased by $83 million year-over-year, reaching total commitments of $724.5 million across 24 floating-rate first mortgage loans [8] - The weighted average all-in yield was reported at 7.92%, with a weighted average risk rating improving to 2.8 [8] - The company invested in three new loans totaling $101.3 million during Q4 2025, including loans secured by student housing, a hotel, and an industrial property [5][7] Market Data and Key Metrics Changes - Market conditions improved in Q4 2025, with two additional 25 basis point rate cuts, bringing the target Fed funds rate to 350-375 basis points [11] - Office transaction volume increased by 25% year-over-year, indicating a recovery in the market [12] - Demand for short-term floating rate bridge loans remains strong, with a broad range of transactions being evaluated [13][14] Company Strategy and Development Direction - The company aims to capitalize on middle-market lending opportunities with enhanced liquidity following the rights offering [9] - There is a focus on deploying capital selectively into attractive opportunities across various property types and geographies [13] - The strategy remains centered on senior secured positions, avoiding riskier junior tranches for the time being [26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about transaction activity continuing to increase in 2026, driven by improving market conditions and increased financing activity [12][13] - The company expects first quarter distributable earnings to be in the range of $0.22 to $0.24 per share, with a temporary drag on earnings due to the rights offering [18] - The expectation is to reach close to $1 billion in total loan portfolio size by year-end 2026, with quarterly new originations targeted at $200 million [34] Other Important Information - The company ended Q4 2025 with $123 million in cash and extended the maturities of two secured financing facilities, increasing capacity to $377 million [19][20] - The CECL reserve remains modest at 130 basis points of total loan commitments, indicating a conservative risk profile [19] Q&A Session Summary Question: How is the company finding pockets of inefficiency in the current competitive environment? - Management noted that while multifamily contributes significantly to activity, they are focusing on sectors like storage, industrial, and medical office for better risk-adjusted returns [24][25] Question: Are there opportunities outside of the first lien space being evaluated? - Management confirmed that the focus remains on senior secured positions, with no current plans to explore mezzanine or preferred equity [26] Question: Does the distributable EPS guidance assume full deployment of the rights offering capital? - Management clarified that the guidance does not assume full deployment by the end of Q1, but expects earnings to recover by year-end [29] Question: Is the current dividend secure through the end of 2026? - Management affirmed commitment to the $0.28 per quarter dividend, despite temporary earnings drag from the rights offering [33] Question: What is the expected portfolio growth following the rights offering? - Management anticipates reaching close to $1 billion in total loan portfolio size by year-end, with significant new originations expected in the coming quarters [34]