Seven Hills Realty Trust

Good morning, and welcome to the Seven Hills Realty Trust's first quarter 2024 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. Please note, this event is being recorded. I would now like to turn the call over to Stephen Colbert, Director of Investor Relations. Please go ahead.

Good morning. Joining me on today's call are Tom Lorenzini, President and Chief Investment Officer, and Fernando Diaz, Chief Financial Officer and Treasurer. Today's call includes a presentation by management, followed by a question and answer session with analysts. Please note that the recording, retransmission 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' beliefs and expectations as of today, April 30, 2024, 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 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 presentation, which can be found on our website at sevnrete.com. And with that, I will turn the call over to Tom.

Thanks, Stephen. Good morning, everyone. Thank you for joining our call today. Last night, we reported strong first quarter results highlighted by distributable earnings per share that were above the high end of our guidance range. The continued strength and stability of Seven Hills Investment Portfolio once again helped to deliver positive total shareholder returns that exceeded our NAE REIT industry benchmark for the quarter. We believe this ongoing outperformance serves as a testament to the strength of our loan book and our disciplined underwriting, originations, and asset management teams. With ample liquidity on hand, we look forward to continuing to build on our momentum throughout 2024. Turning to a few highlights from the first quarter. We delivered distributable earnings per share of $0.38, exceeding our $0.35 per share quarterly dividend by 9%. The credit profile of our loan portfolio remains stable, with an overall average risk rating of 3, with no loans in default and no non-accrual loans. We received over $40 million of loan payoffs, demonstrating the continued ability of our well-capitalized funders to execute on their business plans in today's market. And we delivered total shareholder returns that outperformed the industry benchmark by more than seven percentage points, equating to cumulative outperformance of more than 60% since the beginning of 2022. From a macro perspective, the U.S. economy has remained resilient amid a backdrop of relatively strong economic data and inflation readings above the Federal Reserve's comfort level. As a result, expectations for interest rate cuts have shifted and are now weighted toward the back half of this year. While we believe that lower interest rates will ultimately create a more favorable environment for real estate transactions and result in increased lending opportunities, We are confident in our current production pipeline to provide a steady flow of attractive investment opportunities to further expand our loan book this year. Turning to our first quarter portfolio activity, our conservatively underwritten portfolio continues to experience repayments across various property types. During the quarter, we received three loan payoffs, including one office, one retail, and one industrial property for a total of $40.4 million. We did not close on any new loans during the first quarter, which is traditionally a slower period of the year. Post-quarter end, however, on April 25th, we closed a multifamily loan with a total commitment of $17.8 million with a coupon of SOPR plus 315 basis points for an only yield of 9% when including loan fees. Turning to our loan book as of March 31st, Seven Hills Portfolio remained 100% invested in floating rate loans and consisted of 21 first mortgages with an average loan size of $30 million and total commitments of nearly $630 million, down approximately 6% or $40 million from last quarter, while future fundings remain consistent at only about 6% of our total commitments. Our investments have a weighted average coupon, 9.1%, and an all-in yield of 9.6%. In aggregate, the portfolio has a weighted average maximum maturity of 2.8 years when including extension options and a stable overall credit profile with an average risk rating of three and a loan-to-value at close of 68%. We continue to make progress diversifying our loan book. As of quarter end, multifamily was our largest property type at 35%. Our office exposure has declined to 28% compared to 40% a year ago, The balance of our portfolio is comprised of retail, hospitality, self-storage, and industrial loans. In terms of portfolio vintage, after the repayments we received during the first quarter, Seven Hills portfolio now consists entirely of loans that were originated subsequent to the onset of the pandemic. From a capital perspective, our lending partners remain very supportive of our business. In aggregate, our four secured financing facilities provide us with nearly $700 million in borrowing capacity, and we had a weighted average borrowing rate of SOFR plus 218 basis points at the end of the quarter. Turning to our active deal pipeline, we continue to see a steady flow of deals with over $600 million of prospective lending opportunities in various stages of our screening and diligence process, consisting of acquisition and refinancing requests for industrial, multifamily, self-storage, retail, and hospitality properties, including one loan for $23.8 million currently under application and in diligence and expected to close within the next 45 days. In closing, our portfolio and overall credit performance remains strong and our business continues to deliver solid results. While interest rates are likely to remain higher for longer, we believe we are well positioned to accelerate loan production this year. selecting the most compelling investment opportunities for our portfolio, and continue to generate attractive returns for our shareholders. With that, I will now turn the call over to Fernando.