Seven Hills Realty Trust

Good morning and welcome to Seven Hills Realty Trust's third quarter 2022 financial results conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch tone phone. To withdraw your question, please press star then two. Please note, This event is being recorded. I would now like to turn the call over to Kevin Barry, Director of Investor Relations. Kevin, please go ahead.

Thank you, and good morning, everyone. Thanks for joining us today. With me on the call are President Tom Lorenzini and Chief Financial Officer and Treasurer Tiffany Tsai. In just a moment, they will provide details about our business and our performance for the third quarter of 2022. We will then open the call to a question and answer session with sales side analysts. First, I would like to note that the recording and retransmission of today's conference call is strictly prohibited without Seven Hills Realty Trust's prior written consent. Also note that today's conference call contains forward looking statements within the meeting of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward looking statements are based on Seven Hill's beliefs and expectations as of today, Thursday, October 27th, 2022, 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, or SEC, which can be accessed from the SEC's website. Investors are cautioned not to place undue reliance upon any forward looking statements. In addition, we will be discussing non-GAAP numbers during this call, including distributable earnings, Distributable earnings per share and adjusted book value per share. For a reconciliation of GAAP to non-GAAP financial measures, please see our quarterly earnings release, which is available on our website, scvnreit.com. With that, I will now turn the call over to Tom.

Thank you, Kevin. Good morning, everyone, and welcome to the third quarter earnings call for Seven Hills Realty Trust. I would like to begin by introducing Tiffany Tsai, who has joined SEVN as our Chief Financial Officer and Treasurer, effective October 1st. Tiffany brings more than 20 years of accounting experience, including 15 years in public accounting, as well as various corporate finance and accounting leadership roles within the RMR Group and other public companies. Tiffany succeeds Doug LaNoy, who will be leaving us to pursue other opportunities. Doug has played a significant role helping to build our business since inception. Thank you, Doug, and we wish you all the best in your future endeavors. Last night, we reported another solid quarter of earnings growth supported by continued investment activity, along with the growing benefit of rising interest rates on our floating rate loan portfolio. During the quarter, distributable earnings per share increased 13% on a sequential quarter basis. Our quarterly distribution of 25 cents per share was well covered, and total committed capital increased to more than $760 million. The credit quality of our portfolio remains strong, with all of our loans current on debt service, and our weighted average risk rating remains below 3. We continue to closely monitor the ongoing macroeconomic landscape and the capital market volatility driven by the Fed's aggressive increases in short-term interest rates this year. While these rising rates provide favorable tailwinds for floating rate lenders such as The rising cost of capital puts pressure on debt covenant ratios and underwriting standards across the CRE debt markets, weighing on commercial mortgage securitizations and real estate values. We continue to position Seven Hills to take advantage of attractive opportunities in our pipeline to deploy capital. Even in the current rising rate environment, our relationships with our secured financing partners remain strong. And while our lending partners continue to fund our loans, credit spreads have widened for new loans due to the scarcity of balance sheet capacity. As a result, we are taking a more measured approach to identifying investments that meet our disciplined underwriting criteria and targeted returns. We are also maintaining an elevated level of cash on our balance sheet to protect against any market deterioration and to enhance flexibility as we invest available capital. To maximize net interest income, we may temporarily make unlevered loans with the plan to add leverage as the market conditions improve. Turning to our recent investment activity and loan book at quarter end. In September, we closed a $47 million loan secured by an industrial property in a strong submarket of northern New Jersey. The loan carries a spread of 385 basis points and a weighted average loan-to-value of 69%. This is our sixth loan closing this year, bringing our year-to-date production to more than $200 million. During the quarter, we received $19.5 million of repayment proceeds from our retail loan in Coppell, Texas. In addition, late last week we received a $22.5 million repayment of an unlevered loan on a retail property in Los Angeles. As of September 30th, Seven Hills Portfolio consisted of 28 first mortgage loans with total commitments of $763 million, representing a 45% increase compared to a year ago. Despite the market backdrop, our portfolio is performing well and we feel very good about the quality of our loans and their risk-adjusted returns. Our investments have a weighted average coupon of 6.6% and an all-in yield of 7.1%. In aggregate, the portfolio has a weighted average loan value of 68% and a weighted average maximum maturity of 3.5 when including extension options. The weighted average risk rating for the portfolio remains below three, increasing slightly from 2.7 to 2.9 since last quarter. All of our loans continue to perform and none of our loans are rated five. We continue to focus on diversifying our originations and our mindful concentration risk in our portfolio as we deploy capital. We have improved our mix of property types this year, mainly by increasing our exposure to multifamily and industrial sectors, while reducing our office exposure. At the end of the third quarter, our total loan portfolio consisted of 39% office, 28% multifamily, 19% retail, and 14% industrial. While we have a pipeline of $500 million of potential transactions, our lending activity over the rest of the year will largely depend on capital availability and the overall market environment. Our general focus remains consistent with our recent production, favoring multifamily and industrial loans to middle-market, institutionally backed sponsors. We believe these sectors represent the most attractive risk-adjusted returns for our shareholders in today's market. We currently have a $24 million loan under application for the acquisition of an industrial property, which we expect to close next month, subject to our final due diligence. Additionally, we have an accepted term sheet for acquisition financing of an additional industrial property with a respective loan balance of $26.5 million. And with that, I will now turn the call over to Tiffany.