Seven Hills Realty Trust

Good morning and welcome to Seven Hills Realty Trust's second 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. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference 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, Fernando Diaz, Chief Financial Officer and Treasurer, and Jared Lewis, Vice President. Today's call includes the 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, July 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 scvnreit.com. And with that, I will turn the call over to Tom.

Thanks, Steven. Good morning, everyone. Thank you for joining our call today. As Steven mentioned, Jared Lewis has joined our team at Seven Hills Realty Trust as vice president. Jared and I have worked together for over 20 years at Tremont Realty Capital, our manager, where he leads the underwriting team responsible for screening and structuring new investments. We look forward to Jared's continued contributions to our ongoing success at Seven Hills. Last evening, We reported strong second quarter results highlighted by distributable earnings per share that were above analyst consensus estimates. The continued strength and stability of Seven Hills Investment Portfolio is a reflection of our resilient loan book supported by our disciplined underwriting, originations, and asset management teams. With ample liquidity on hand and a robust pipeline of new opportunities under evaluation, we look forward to building on our momentum as we move into the second half of 2024. Turning to a few highlights from the second 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 one loan payoff for $17.3 million and we accelerated our loan production, closing $41.6 million across two new loan commitments. From a macro perspective, while the U.S. economy has remained resilient with relatively strong economic activity, inflation readings have begun to recede to what the Federal Reserve has indicated is within their comfort level. As a result, the market now expects to see interest rate reductions beginning later this year. An easing rate environment traditionally bodes well for commercial real estate transactions, and we continue to believe that lower interest rates will lead to increased lending opportunities in the months ahead. Turning to our second quarter portfolio activity. A conservatively underwritten portfolio continues to experience repayments across various property types. During the quarter, we received the repayment of our Scottsdale hotel loan totaling $17.3 million. And earlier this month, we received a $19.7 million payoff on a Portland multifamily property. We closed on two new loans during the second quarter as transaction activity increased. A $17.8 million loan on the acquisition of a multifamily property in Virginia and a $23.8 million loan on a self-storage facility in Los Angeles. From a capital perspective, Our securities financing partners remain very supportive of our business and continue to provide us ample capacity to originate new loans. Turning to our loan book, as of June 30th, Seven Hills Portfolio remained 100% invested in floating rate loans, which consisted of 22 first mortgages with an average loan size of $30 million and total commitments of $652 million. With our two recent investments, our portfolio increased approximately 4% or $23 million sequentially, while future fundings remain consistent at only about 6% of total commitments. Our investments have a weighted average coupon of 9.1% and an all-in yield of 9.6%. In aggregate, the portfolio has a weighted average maximum maturity of 2.6 years when including extension options and a stable credit profile with an average risk rating of 3 and a loan-to-value at close of 68%. None of our loans are rated 5. We continue to make progress diversifying our loan book. As of quarter end, multifamily was our largest property type at 37%, while we have decreased our office exposure to 27%, and the balance of our portfolio is comprised of retail, hospitality, self-storage, and industrial loans. In terms of portfolio vintage, as a reminder, Seven Hills portfolio now consists entirely of loans that were originated subsequent to the onset of the pandemic. We recently agreed to extension terms with our Dallas borrower whose outstanding loan of $43.5 million was set to mature in August. The borrower continues to support the asset and will be contributing additional capital to be invested into the property. And in return, we will be providing additional term allowing the borrower to complete their business plan. Our 26.6 million Plano, Texas loan, which was set to mature on July 1, has been extended on a short-term basis while we finalize the documentation for a longer 24-month term extension. This asset is outpacing the market with current occupancy at 88%. Turning to our active deal pipeline, we continue to see a steady flow of potential deals in our pipeline with over $700 million of prospective lending opportunities in various stages of our screening, diligence, process consisting of acquisitions and refinancing requests for industrial, multifamily, self-storage, retail, and hospitality properties. We remain on track to deliver on our goal of six new loans in 2024 with one loan currently in diligence and several additional term sheets outstanding. In closing, our portfolio and overall credit performance remains strong and our business continues to deliver solid results. With the Federal Reserve expected to cut interest rates potentially as early as their next meeting in September, we believe we are well positioned to accelerate loan production in the back half of this year and for our portfolio to deliver attractive returns for our shareholders. And with that, I'll now turn the call over to Fernando.