Seven Hills Realty Trust Q4 FY2024 earnings call

• For the full year, Seven Hills Realty Trust outperformed the benchmark index and REIT Mortgage Commercial Financing Index by over 20% for the second consecutive year.
• Fourth quarter results met the high end of guidance, with total loan commitments increased to $641 million from $594 million at Q3 end, average loan commitment up to $31 million.
• Loan portfolio performed well with no defaults or non-accrual loans, ended quarter with $70 million in cash and ample borrowing capacity.
• Closed two loans totaling $87 million in Q4, received loan repayments, and extended repurchase agreements with UBS and Wells Fargo.
• Elected Ann Danner to the Board, who brings over 40 years of real estate experience.

Seven Hills Realty Trust's loan portfolio for the fourth quarter was 100% invested in floating rate loans, consisting of 21 first mortgages with an average loan size of $31 million and total commitments of $641 million (an increase from $594 million at Q3 end). The office exposure was reduced to 26% of total outstanding loan dollars from 30% at Q3 end. 52% of the portfolio was in multifamily and industrial loans, with the remainder in select service hospitality and grocery-anchored retail loans. The loan portfolio had a weighted average risk rating of 3.1, no five-rated, default, or non-accrual loans, and ended the quarter with $70 million in cash.

• First-quarter distributable earnings expected to be in the range of $0.30.
• Expect to grow the portfolio by approximately $100 million in 2025 before recycling capital from loan repayments.
• Anticipate six to seven loans totaling approximately $200 million being repaid in the back half of 2025.

• Forward-looking statements are subject to risks that actual results may differ materially from projections, as detailed in SEC filings.

Q: Hey, good morning guys. Turning to the portfolio, targeting $100 million in net originations and $200 million in payoffs, how comfortable are you with the current dividend and portfolio size?

A: Fernando Diaz mentioned the board evaluates the dividend quarterly based on market conditions, loan originations, payoffs, and interest rates. Tom Lorenzini noted the pace of production with loans closing and repayments recycling cash.

Q: How are you guys thinking about leverage in 2025 and the CLO market?

A: Fernando Diaz said they finished the quarter at 1.6 times leverage, putting $100 million to work could get to around 2 times leverage. Jared Lewis discussed that CMBS and CRE CLO markets are active but accessing them is challenging given portfolio size, but they continue to find ways to generate returns elsewhere.