Seven Hills (SEVN) Q1 2026 Earnings Transcript
Seven Hills (SEVN) Q1 2026 Earnings Transcript
Motley Fool Transcribing, The Motley FoolWed, April 29, 2026 at 4:08 PM UTC
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Wednesday, April 29, 2026 at 11 a.m. ET
CALL PARTICIPANTS -
President and Chief Investment Officer — Thomas Lorenzini
Chief Financial Officer and Treasurer — Matthew C. Brown
Vice President — Jared Lewis
TAKEAWAYS -
Distributable Earnings -- $5.3 million, or $0.24 per share, was reported, at the high end of company guidance.
Loan Originations -- Three new loans totaling $67.5 million were closed, including deals in medical office, retail, and hospitality property types.
Total Loan Commitments -- Portfolio commitments reached a record $776 million across 26 floating rate first mortgage loans as of quarter end.
Net Interest Margin on Originations -- New loans achieved a net interest margin of approximately 195 basis points, the highest level in four years.
Weighted Average All-In Yield -- Portfolio yield was 7.8% at quarter end.
Weighted Average Loan-to-Value at Origination -- Portfolio reflected a conservative 66% average LTV.
Credit Performance -- Weighted average risk rating held at 2.8; all loans remained current with no realized losses.
Loan Repayments -- $16 million prepaid for a hotel in Florida during the quarter, plus $54.6 million in repayment of a multifamily loan post-quarter end; an additional $26.5 million office loan repayment is expected imminently, reducing office exposure to approximately 21% of the portfolio.
Liquidity -- Company held about $110 million in cash and nearly $400 million of available financing capacity; financing facilities extended to 2028 with the Wells Fargo line doubled to $250 million.
Dividend -- Board declared a regular quarterly dividend of $0.28 per share, generating a 14% annualized yield based on the prior closing price. Management stated, "we remain committed to this dividend level through 2026 at a minimum."
Dividend Coverage -- Distributable earnings did not cover the dividend this quarter; management expects earnings to "trend back to our quarterly dividend level by the end of this year."
Earnings Guidance -- Second quarter distributable earnings are guided to $0.23 to $0.25 per share.
Interest Rate Floors -- Seven loans had active floors in place, contributing $0.01 per share of earnings protection; all but one loan had floors between 25 basis points and 4.34%.
CECL Reserve -- Reserve set at 1.3% of loan commitments, unchanged sequentially; no loans rated "five," collateral dependent, or with specific reserves.
Origination Pipeline -- Over $105 million of term sheets are outstanding, with three loans totaling $78 million in advanced diligence, including multifamily, medical office, and self storage properties.
Future Funding Exposure -- Limited to about 6% of total loan commitments.
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RISKS -
Chief Financial Officer Brown stated, "distributable earnings have not covered our dividend over the past quarter," indicating a dividend coverage shortfall.
President Lorenzini said, "With the war in Iran, things have slowed a little from a transaction standpoint," signaling geopolitical risk is impacting transaction flow.
Vice President Lewis noted, "recent market volatility has started to have an impact on owners' decision making," with some moderation in acquisition and sales activity.
Seven Hills Realty Trust (NASDAQ:SEVN) reported robust Q1 loan commitments and record net interest margins on new originations, supported by a fully performing loan book and disciplined underwriting. Management highlighted increased loan repayments leading to enhanced liquidity and financing facilities, positioning the company for continued deployment and further growth. The origination pipeline remains strong across diverse property types, although recent geopolitical events and market volatility have tempered near-term transaction volumes.
The majority of new loan demand is for refinancing rather than acquisitions, driven by borrowers addressing maturing bridge and construction loans.
Management expects the total loan portfolio to approach $950 million by year-end if net portfolio growth in the $200 million range is realized.
Exposure to office properties is expected to decline further as additional repayments occur, with no new office or healthcare-related loans being targeted.
Asset type focus remains diversified, with self storage, multifamily, medical office, student housing, grocery-anchored retail, and industrial all identified as attractive opportunity areas.
The Yardley REO property continues to outperform with occupancy around 81%-82%, and management may consider disposition if further leasing is achieved.
INDUSTRY GLOSSARY -
CECL Reserve: The Current Expected Credit Loss reserve, an accounting estimate for lifetime credit losses on the loan portfolio under U.S. GAAP.
WALT: Weighted Average Lease Term, a measure of the average remaining lease life in a property portfolio weighted by rental income.
Full Conference Call Transcript
Thomas Lorenzini, President and Chief Investment Officer; Matthew C. Brown, Chief Financial Officer and Treasurer; and Jared Lewis, Vice President. Today's call includes a presentation by management followed by a question and answer session with analysts. Please note that the recording, rebroadcast, transmission, and transcription of today's conference call is prohibited without the prior written consent of the company. Also note that today's conference call contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward looking statements are based on Seven Hills Realty Trust's beliefs and expectations as of today, 04/29/2026, and actual results may differ materially from those that we project.
The company undertakes no obligation to revise or publicly release the results of any revision to the forward looking statements made in today's conference call. Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission, which can be accessed from the SEC's website. Investors are cautioned not to place undue reliance on any forward looking statements. In addition, we will be discussing non-GAAP financial numbers during this call, including distributable earnings and distributable earnings per share. A reconciliation of GAAP to non-GAAP financial measures can be found in our earnings release, and the presentation can be found on our website at 7reit.com.
With that, I will now turn the call over to Thomas Lorenzini.
Thomas Lorenzini: Thank you, Matt, and good morning, everyone. On our call today, I will start by providing an update on our first quarter performance and recent investment activity, followed by an overview of our loan portfolio, then Jared Lewis will discuss current market conditions and our pipeline, before Matthew C. Brown reviews our financial results and guidance. Yesterday, we reported solid first quarter results reflecting the continued strength of our fully performing loan portfolio and our disciplined underwriting approach. Distributable earnings for the quarter came in at $5.3 million, or $0.24 per share, which was at the high end of our guidance.
We reached a new high watermark with approximately $776 million in total outstanding loan commitments, after originating three new loans totaling $67.5 million during the quarter, reflecting our continued progress in deploying the capital raised from our December rights offering. First quarter closings included a $30.5 million loan secured by a medical office property in Atlanta, a $19.5 million loan secured by a grocery-anchored retail property in Palm Desert, California, and a $17.5 million loan secured by a select-service hotel in Scottsdale, Arizona. We also have three additional loans in process that we expect to close in the near term totaling approximately $78 million, which Jared will speak to in more detail.
These originations reflect our ability to source opportunities across property types and geographies while maintaining disciplined underwriting. Importantly, we remain selective in deploying capital and continue to focus on opportunities that meet our return thresholds. Originations so far in 2026 have been executed at a net interest margin of approximately 195 basis points, representing the highest level we have achieved over the past four years. When including the impact of exit fees, total returns are incrementally higher. We believe this reflects both the strength of our platform and an improved first quarter transaction environment. Turning to our loan portfolio. As of March 31, we had total loan commitments of approximately $776 million across 26 floating rate first mortgage loans.
Our portfolio continues to demonstrate strong credit performance with a weighted average risk rating of 2.8, no realized losses, and all loans current on debt service. Our weighted average all-in yield at quarter end was 7.8%, and our weighted average loan-to-value at origination remained conservative at 66%. During the quarter, we received the full repayment of a $16 million loan secured by a hotel in Lake Mary, Florida, and subsequent to quarter end, we received an additional $54.6 million from the repayment of a multifamily loan in Ohio.
We are also expecting the repayment of a $26.5 million loan secured by an office building in suburban Chicago as early as this week; upon payoff, this will reduce our overall office exposure to approximately 21% of the current portfolio. This repayment activity meaningfully increases our available capital and supports continued deployment into new investments. With recent loan repayments, we currently have approximately $110 million of cash on hand and nearly $400 million of available capacity under our secured financing facilities.
As previously announced, we extended the maturities of our UBS and Wells Fargo financing facilities to 2028 and doubled the capacity of the Wells Fargo facility to $250 million, further enhancing our ability to deploy capital and continue growing the portfolio. In summary, we believe Seven Hills Realty Trust is well positioned to capitalize on an active pipeline of middle market lending opportunities. While recent headlines have raised concerns around private credit, it is important to note that Seven Hills Realty Trust remains narrowly focused on senior secured commercial real estate lending. This approach is reinforced by RMR's multi-decade track record managing and operating commercial real estate, providing deep asset-level insight, disciplined underwriting, and proven experience across market cycles.
With strong liquidity, expectations of improving transaction activity, and attractive lending spreads, we remain focused on disciplined execution and generating compelling risk-adjusted returns for our shareholders. With that, I will now turn the call over to Jared Lewis.
Jared Lewis: Thanks, Tom. Since our last call, we have seen increased volatility across the capital markets, driven in part by the ongoing conflict in Iran and its impact on investor sentiment. Interest rates have also moved higher, with the ten-year Treasury increasing from approximately 3.95% in February to 4.39% today, and the expectation is that the FOMC will maintain its target range for the federal funds rate at 3.5% to 3.75% later this afternoon. While the year began with strong transaction activity, continuing the momentum we saw at the end of 2025, recent market volatility has started to have an impact on owners' decision making.
Over the past month, we have seen some moderation in acquisition and sales activity as market participants take a slightly more cautious approach due to the uncertainty around interest rates, inflation, monetary policy, and broader geopolitical developments. With respect to debt capital markets, the CMBS market appeared to slow a bit earlier this month given the macroeconomic uncertainty and interest rate volatility, but overall, we have not seen a meaningful pullback in capital availability. Banks, debt funds, life companies, and government sponsored enterprises all remain active, and importantly, our bank partners continue to support transactions through our secured financing facilities. From an activity standpoint, we are seeing a divergence across asset classes.
Multifamily refinancing continues to dominate as borrowers work through maturing bridge and construction loans originated in 2021 and 2022. In contrast, for new acquisitions and in many other asset classes, owners that are not under pressure to transact are generally waiting for greater clarity on macroeconomic conditions before moving forward with buy, sell, or refinance decisions. However, despite this period of slow acquisition transaction volume, assets still need to be financed, and we continue to see consistent demand for flexible lending solutions.
As a result, our pipeline remains strong, and we have over $105 million of term sheets outstanding for new loan opportunities and three loans totaling $78 million currently in diligence that we expect to close in the near term. These include a $39.2 million loan secured by a multifamily property in Georgia, a $22.7 million loan secured by a medical office property in Texas, and a $16 million loan secured by a self storage property in Pennsylvania. In addition, we continue to evaluate a range of opportunities across the industrial, storage, retail, and hospitality sectors where we believe we can achieve more attractive risk-adjusted returns relative to more competitive segments of the market. Importantly, we remain disciplined in our approach.
While competition remains elevated in certain sectors, particularly multifamily, we are focused on transactions that offer attractive yields. We believe our ability to provide certainty of execution and flexibility to borrowers is a key differentiator in the current environment. Overall, while near-term transaction activity may remain somewhat uneven given ongoing macro uncertainty, we believe the current backdrop represents an attractive opportunity for lenders with available capital and a disciplined underwriting approach. As conditions stabilize, we expect to continue to selectively deploy capital into opportunities that meet both our credit standards and return thresholds. And with that, I will turn the call over to Matthew C. Brown to discuss our financial results.
Matthew C. Brown: Thank you, Jared, and good morning, everyone. Yesterday, we reported first quarter distributable earnings of $5.3 million, or $0.24 per share, which includes $0.08 of dilution related to our rights offering in December. As expected, the rights offering has impacted earnings in the near term; however, deployment of the proceeds is progressing well. New loan investments over the last two quarters contributed $0.03 per share of distributable earnings in the first quarter, and as Tom mentioned, originations so far in 2026 have been executed at net interest margins of 1.95%, the highest level over the past four years.
During the first quarter, interest rate floors remained active for seven of our loans, a structural feature of our portfolio that actively protects earnings in a declining rate environment. These floors contributed $0.01 per share of earnings protection for the quarter based on SOFR as of March 31. All but one of our loans contain floors ranging from 25 basis points to 4.34%, providing a meaningful baseline of downside protection as the rate environment evolves. Earlier this month, our Board declared a regular quarterly dividend of $0.28 per share, which equates to an annualized yield of approximately 14% based on yesterday's closing price.
Although distributable earnings have not covered our dividend over the past quarter, we remain committed to this dividend level through 2026 at a minimum and expect distributable earnings to trend back to our quarterly dividend level by the end of this year. Overall, we expect second quarter distributable earnings to be in the range of $0.23 to $0.25 per share. As the proceeds from the rights offering are invested and capital from loan repayments is redeployed, we expect the incremental earnings contribution by the end of the year to offset the impact of the higher share count. Credit quality remains strong at Seven Hills Realty Trust.
Our CECL reserve stands at a modest 130 basis points of total loan commitments, flat from last quarter, and is supported by a conservative portfolio risk rating of 2.8, also unchanged. The portfolio is well diversified by property type and geography, and all loans are current on debt service. Importantly, we have no five-rated loans, no collateral dependent loans, and no loans with specific reserves. This reflects a disciplined underwriting and asset management process that we believe creates durable, long-term value for shareholders. That concludes our prepared remarks. Operator, please open the line for questions.
Operator: We will now open the call for questions. The first question today comes from Jason Weaver with Jones Trading. Please go ahead.
Jason Price Weaver: Hi, good morning, and thanks for taking my question. I thought it was notable that your origination net interest margin of 195 basis points this quarter is about 35 basis points wider than last year's average. Is that a function of mix, or pockets of the market that you are able to access that others are not? We are seeing opposite trends at some of your peers. And where do you see the rest of the year's NIM settling, and how much of that is a step of the base rate?
Thomas Lorenzini: Thanks for the question. The loans that we did in Q1 were medical office, retail, and select-service hospitality, so there was no multifamily in there, which is where we see the tightest pricing and the narrowest margins. We were able to attract some outsized returns, especially in select-service hospitality, which generally tends to price at wider spreads, then medical office as well, and then retail. It is really product mix on those. I would also say we take a rifle-shot approach to originations.
While we have a lot of transactions come through a robust pipeline, we really pick our spots and take deals off the street where we are going to achieve that outsized return, rather than get into a commodity situation where we are simply bidding against several other lenders and everyone is cutting spreads by a few basis points to win the business. We try to avoid those auction-type situations. Going forward, for the three loans we expect to close here in short order, net interest margin is probably a little bit inside of 195 basis points, closer to about 180. Again, that is a function of product type.
We do have a multifamily loan in there that is fairly sizable relative to the three, which drives down that net interest margin a little bit, and the other properties—another medical office and a self storage, as Jared mentioned—help round that out. We are able to maintain a healthy margin, but it is really the multifamily loans where we are seeing the most compression.
Jason Price Weaver: Understood, that is helpful. And then after the Olmsted Falls repayment in April, I think you are sitting on a pretty large chunk of liquidity, almost half a billion. What does the qualifying pipeline look like by sector and size, as well as probability of closing in the near term? And what is the realistic deployment timeline?
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Jared Lewis: Thanks, Jason. Right now, the pipeline averages about $1 billion and it continues to turn over pretty frequently. We are seeing a lot of transactions, and as we mine through them and meet on the ones we want to look at, they get replenished, so we are still seeing quite a bit of activity. The majority of the activity we are seeing today is really for refinancing of assets as opposed to acquisitions, so those are a little bit more challenging to underwrite.
We do have three loans right now that we are negotiating term sheets for, about $125 million, and the average deal size is a little bit barbelled, but we are targeting deals in the $25 million to $40 million range as a sweet spot. With the majority of the pipeline being refinancings, they are a little bit harder to quantify because we are determining whether we want to do deals with borrowers who are bringing new cash to the table—we want to do deals where we understand a reset basis in the transaction—and a refinance is much harder to do that than an acquisition.
In terms of our ability to deploy the capital that we have now, as I said, we are negotiating three term sheets at $125 million and are far along in a couple of those. I cannot handicap whether we will win all of them, but we feel pretty good about it. Going forward, we will continue to evaluate quite a bit of multifamily; the majority of our pipeline is in multifamily, but we are not going to chase deals down to win business by 5, 10, or 15 basis points. Over the next two quarters, we should have the ability to meet our targets of origination activity in the $100 million to $300 million range.
Jason Price Weaver: Got it. Thank you. I appreciate the color.
Operator: Your next question comes from Citizens Capital Markets. Please go ahead.
Analyst: Hi, everyone. Thanks for taking the questions. First, 1Q originations were pretty diverse—you touched on this a little bit—but is there a particular asset type that you want to increase exposure to, or are you more just looking at the best opportunities across the board that are not in super competitive asset classes?
Thomas Lorenzini: We would certainly like to increase exposure further to multifamily. That is beneficial given it is an extremely liquid market with Fannie and Freddie active, and from an investor standpoint as well. But the transactions we are going to pursue there will be ones where we feel we are making a decent return. That said, other product types certainly make sense in today’s world. We like self storage; student housing has been attractive to us; medical office has been attractive; and industrial remains an attractive asset class. The only thing we are not actively pursuing right now is new office loans and healthcare-related assets. We do not target, per se, a set percentage per property type.
It is more holistic—making sure we have a diverse portfolio, which we do and want to continue to maintain—while focusing on proper risk-adjusted returns. If we can pick off a few multifamily deals, we will do that, but we are more than capable with the other products as well. Grocery-anchored retail is also an area of focus. It is less formulaic and more about the rifle-shot approach, lending against quality real estate and earning an outsized return to do so.
Analyst: That is helpful. Were 1Q origination volumes impacted at all by the geopolitical disruptions? How are you thinking about net portfolio growth over the coming quarters?
Thomas Lorenzini: We touched on it a bit. In the first quarter we saw quite a bit of activity and were very happy with what came through the pipeline. With the war in Iran, things have slowed a little from a transaction standpoint. If borrowers and investors do not need to make a decision right now, they might pause to see what happens with interest rates given the recent volatility. That said, there is still adequate flow. We anticipate this quarter—with the loans that have closed, the loans that are closing, and a couple of speculative loans—originations of approximately $200 million.
From a repayment standpoint, we have an office loan we believe is repaying possibly this week, and beyond that we are not expecting other payoffs in the quarter. So we should have pretty good net portfolio growth—maybe $50 million to $75 million—compared to where we are today, and then in Q3 and Q4, another couple of hundred million dollars of net portfolio growth.
Analyst: Understood. And any updates you could share on the plans for the Yardley REO property?
Thomas Lorenzini: That property continues to perform remarkably well. Occupancy remains about 81% to 82%. We renewed a large tenant, and the WALT is almost six years now. There has been quite a bit of recent activity from new tenants; we have done some test fit-outs for a few groups looking for space. Our goal would be, if we lease a bit more incremental space, to consider discussing with the Board a potential disposition of the asset, maybe late this year.
Operator: Your next question comes from Christopher Nolan with Ladenburg Thalmann. Please go ahead.
Christopher Nolan: Hi. Just to follow up on portfolio growth, is it fair to say you are expecting roughly a couple hundred million dollars in incremental portfolio growth for 2026?
Thomas Lorenzini: Yes. Ideally, we end up close to $950 million at the end of the year for total portfolio size.
Christopher Nolan: Great. And on the allowance reserve, does the steeper yield curve impact reserving? If someone has a property and interest rates are higher at refinance, they may need to add equity. Does CECL require you to increase your allowance as long rates go up?
Matthew C. Brown: It is an interesting question. There are many factors that go into the CECL reserve. Some are related to our specific portfolio, maturities, and so on, as well as broader economic factors. We would expect our reserve at 1.3% of total commitments to hang around there for a while. It could tick down a little bit—Tom mentioned an office loan we expect to repay in the near term and we have some other office loan maturities coming up this year—but overall, we have a modest reserve at 1.3%, which is on the low end for some of our mortgage REIT peers.
Christopher Nolan: Final question. Given the jump in fuel prices, for projects being repositioned with a developer, construction inputs go up. How does that impact your underwriting? Do you require the developer to put in more equity, or is there no real impact?
Thomas Lorenzini: A couple of points. First, our portfolio’s future funding exposure is somewhat limited—about 6% of total commitments—so it is not that sizable. Where it is a value-add transaction and there are cost increases beyond what we budgeted when we closed, there is typically an equity rebalance required from the sponsor. If a project has commenced rehab or construction and there are X dollars available inside the loan to fund those costs but the actual costs come in higher, they are required to rebalance and come to the table with equity.
Christopher Nolan: Great. Thanks, Tom.
Operator: That concludes our question and answer session. I would like to turn the conference back over to Thomas Lorenzini for any closing remarks.
Thomas Lorenzini: Thanks, everyone, for joining today's call. We look forward to seeing many of you at the upcoming NAREIT Conference in New York City this June. Please reach out to Investor Relations if you are interested in scheduling a meeting with Seven Hills Realty Trust. Operator, that concludes our call.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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