Seven Hills Realty Trust (SEVN) has delivered a strong efficiency within the first quarter, surpassing earnings expectations and sustaining a steady mortgage portfolio. The firm reported distributable earnings per share of $0.38, which is 9% increased than its quarterly dividend. With no loans in default and a wholesome pipeline of lending alternatives, Seven Hills Realty Trust is poised for development in numerous actual property sectors. The agency’s liquidity and conservative leverage technique additional strengthen its place for originating accretive loans. Despite a difficult workplace market, the corporate stays cautiously optimistic about its workplace portfolio, buoyed by optimistic leasing actions in sure transactions.
Key Takeaways
- Seven Hills Realty Trust’s distributable earnings per share of $0.38 exceed the quarterly dividend by 9%.
- The mortgage portfolio is steady with no defaults or nonaccrual loans, and the corporate obtained over $40 million in mortgage payoffs.
- Total shareholder return surpassed the business benchmark by greater than 7 proportion factors.
- An acceleration in mortgage manufacturing is anticipated, with over $600 million in potential lending alternatives recognized throughout numerous sectors.
- The firm anticipates distributable earnings for the second quarter to be between $0.35 and $0.37 per share.
- Positive leasing momentum was reported in particular properties, regardless of the final challenges of the workplace market.
Company Outlook
- Seven Hills Realty Trust plans to extend mortgage manufacturing all year long.
- Attractive funding alternatives are seen within the multifamily, self-storage, retail, hospitality, and industrial sectors.
- The firm’s robust liquidity and conservative leverage allow it to originate accretive loans successfully.
Bearish Highlights
- The workplace market presents challenges, with success closely reliant on the efficiency of leasing groups and sponsor help.
- Factors such because the expectation of decrease rates of interest, over-leveraged transactions, and competitors have affected mortgage transactions, making deal closures tougher.
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Bullish Highlights
- Positive leasing exercise in sure properties, just like the Dallas transaction and Floral Vale in Yardley, Pennsylvania, signifies potential occupancy will increase.
- The firm’s monetary place is anticipated to stay robust regardless of the anticipated run-off of the acquisition accretion low cost by the third quarter.
Misses
- The firm has confronted challenges in closing mortgage offers because of numerous market components, together with persistent excessive rates of interest and competitors from lenders with vital capital reserves.
Q&A Highlights
- Tom Lorenzini mentioned the influence of excessive rates of interest on refinancing optimism and the presence of over-leveraged transactions within the multifamily sector.
- He acknowledged the aggressive lending panorama, which has led to unfold compression.
- Fernando Diaz addressed the acquisition accretion low cost, anticipating a gradual lower with out a vital impact on earnings.
Seven Hills Realty Trust’s first-quarter efficiency indicators a powerful begin to the 12 months, with strategic plans in place to navigate the complexities of the actual property market. As the corporate appears ahead to the NAREIT Conference in New York City this June, traders and stakeholders can anticipate continued concentrate on development and stability within the quarters to come back.
InvestingPro Insights
Seven Hills Realty Trust (SEVN) has not solely proven a powerful begin in its first-quarter efficiency but in addition presents an intriguing profile when contemplating the real-time knowledge and InvestingPro Tips. The firm’s market capitalization stands at a strong $180.54 million, and it boasts a compelling P/E ratio of 6.83, indicating that the inventory could also be undervalued relative to its earnings. This is especially noteworthy given the corporate’s income development of 26.14% during the last twelve months as of This fall 2023.
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InvestingPro Tips counsel that SEVN has been rewarding its shareholders constantly, having raised its dividend for 3 consecutive years, with a big dividend yield of 11.16% as of the most recent knowledge. This aligns with the corporate’s distributable earnings outpacing its quarterly dividend, as talked about within the article. Moreover, the corporate is not only worthwhile during the last twelve months but in addition demonstrates a liquid monetary place the place belongings exceed short-term obligations, including a layer of safety for traders involved concerning the firm’s capability to fulfill its rapid liabilities.
It’s additionally price noting the corporate’s massive worth uptick during the last six months, with a 25.61% complete return, which can sign investor confidence in its development prospects. This could possibly be of curiosity to traders searching for firms with optimistic momentum of their inventory efficiency.
For readers enthusiastic about a deeper evaluation, there are further InvestingPro Tips obtainable that might present additional insights into SEVN’s monetary well being and future outlook. By utilizing the coupon code PRONEWS24, readers can get a further 10% off a yearly or biyearly Pro and Pro+ subscription, which incorporates entry to those priceless suggestions. There are 5 extra InvestingPro Tips listed in InvestingPro for SEVN, which might assist traders make extra knowledgeable choices.
Full transcript – Seven Hills Realty Trust (SEVN) Q1 2024:
Operator: Good morning, and welcome to the Seven Hills Realty Trust First Quarter 2024 Financial Results Conference Call. [Operator Instructions] After as we speak’s presentation, there can be a chance to ask questions. Please word, this occasion is being recorded. I might now like to show the decision over to Stephen Colbert, Director of Investor Relations. Please go forward.
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Stephen Colbert: Good morning. Joining me on as we speak’s name are Tom Lorenzini, President and Chief Investment Officer; and Fernando Diaz, Chief Financial Officer and Treasurer. Today’s name features a presentation by administration, adopted by a question-and-answer session with analysts. Please word that the recording, retransmission and transcription of as we speak’s convention name is prohibited with out the prior written consent of the corporate. Also word that as we speak’s convention name comprises forward-looking statements inside the which means of the Private Securities Litigation Reform Act of 1995 and different securities legal guidelines. These forward-looking statements are primarily based on Seven Hills’ beliefs and expectations as of as we speak, April 30, 2024, and precise outcomes could differ materially from people who we venture. The firm undertakes no obligation to revise or publicly launch the outcomes of any revision to the forward-looking statements made in as we speak’s convention name. Additional data regarding components that might trigger these variations is contained in our filings with the Securities and Exchange Commission, or SEC, which may be accessed from the SEC’s web site. Investors are cautioned to not place undue reliance upon any forward-looking statements. In addition, we can be discussing non-GAAP monetary numbers throughout this name, together with distributable earnings and distributable earnings per share. A reconciliation of GAAP to non-GAAP monetary measures may be present in our earnings launch presentation, which may be discovered on our web site at sevnreit.com. And with that, I’ll flip the decision over to Tom.
Tom Lorenzini: Thanks, Stephen. Good morning, everybody, and thanks for becoming a member of our name as we speak. Last evening, we reported robust first quarter outcomes highlighted by distributable earnings per share that had been above the excessive finish of our steering vary. The continued power and stability of Seven Hills’ funding portfolio as soon as once more helped to ship optimistic complete shareholder returns that exceeded our NAREIT business benchmark for the quarter. We imagine this ongoing outperformance serves as a testomony to the power of our mortgage guide and our disciplined underwriting, originations and asset administration groups. With ample liquidity available, we sit up for persevering with to construct on our momentum all through 2024. Turning to a couple highlights from the primary quarter. We delivered distributable earnings per share of $0.38, exceeding our $0.35 per share of quarterly dividend by 9%. The credit score profile of our mortgage portfolio remained steady with an general common danger ranking of three with no loans in default and no nonaccrual loans. We obtained over $40 million of mortgage payoffs, demonstrating the continued capability of our well-capitalized sponsors to execute on their enterprise plans in as we speak’s market. And we delivered complete shareholder return that outperformed the business benchmark by greater than 7 proportion factors, equating to cumulative outperformance of greater than 60% because the starting of 2022. From a macro perspective, the U.S. financial system has remained resilient amid a backdrop of comparatively robust financial knowledge and inflation readings above the Federal Reserve’s consolation degree. As a end result, expectations for rate of interest cuts have shifted and are actually weighted in direction of the again half of this 12 months. While we imagine that decrease rates of interest will in the end create a extra favorable atmosphere for actual property transactions and end in elevated lending alternatives, we’re assured our present manufacturing pipeline present a gradual circulate of enticing funding alternatives to additional develop our mortgage guide this 12 months. Turning to our first quarter portfolio exercise. Our conservatively underwritten portfolio continues to expertise repayments throughout numerous property varieties. During the quarter, we obtained three mortgage payoffs, together with one workplace, one retail and one industrial property for a complete of $40.4 million. We didn’t shut on any new loans throughout the first quarter, which is historically a slower interval of the 12 months. Post quarter finish, nevertheless, on April 25, we closed a multifamily mortgage with a complete dedication of $17.8 million with a coupon SOFR plus 315 foundation factors for an all-in yield of 9% when together with mortgage charges. Turning to our mortgage guide as of March 31. Seven Hills portfolio stays 100% invested in floating price loans and consisted of 21 first mortgages with a mean mortgage dimension of $30 million and complete commitments of practically $630 million, down roughly 6% or $40 million from final quarter, whereas future fundings stay constant at solely about 6% of our complete commitments. Our investments have a weighted common coupon of 9.1% and an all-in yield of 9.6%. In combination, the portfolio has a weighted common most maturity of two.8 years when together with extension choices and a steady general credit score profile with a mean danger ranking of three and a loan-to-value at shut of 68%. We proceed to make progress diversifying our mortgage guide. As of quarter finish, multifamily was our largest property kind at 35%. Our workplace publicity has declined to twenty-eight% in comparison with 40% a 12 months in the past. And the steadiness of our portfolio is comprised of retail, hospitality, self-storage and industrial loans. In phrases of portfolio classic, after the repayments we obtained throughout the first quarter, Seven Hills portfolio now consists solely of loans that had been originated subsequent to the onset of the pandemic. From a capital perspective, our lending companions stay very supportive of our enterprise. In combination, our 4 secured financing services present us with practically $700 million in borrowing capability. And we had a weighted common borrowing price of SOFR plus 218 foundation factors on the finish of the quarter. Turning to our lively deal pipeline. We proceed to see a gradual circulate of offers of over $600 million of potential lending alternatives in numerous levels of our screening and diligence course of consisting of acquisition and refinancing requests for industrial, multifamily, self-storage, retail and hospitality properties, together with one mortgage for $23.8 million presently underneath software and in diligence and anticipated to shut inside the subsequent 45 days. In closing, our portfolio and general credit score efficiency stays robust and our enterprise continues to ship strong outcomes. While rates of interest are more likely to stay increased for longer, we imagine we’re effectively positioned to speed up mortgage manufacturing this 12 months, deciding on essentially the most compelling funding alternatives for our portfolio and proceed to generate enticing returns for our shareholders. With that, I’ll now flip the decision over to Fernando.
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Fernando Diaz: Thank you, Tom, and good morning. Yesterday afternoon, we reported first quarter 2024 Distributable Earnings, or DE, of $5.6 million or $0.38 per share, which was $0.01 above the excessive finish of our steering vary, primarily because of the timing of mortgage repayments throughout the quarter. Our run price earnings over the previous couple of quarters have comfortably exceeded our dividend degree. In mid-April, we declared our common quarterly dividend to shareholders of $0.35 per share payable on May 16, which our first quarter DE lined by roughly 109%. On an annualized foundation, our dividend equates to a yield of roughly 11% primarily based on yesterday’s closing inventory worth. Our CECL reserve stays modest at 100 foundation factors of our complete mortgage commitments as of March 31. And all loans stay present on debt service, and now we have no nonaccrual loans. We stay targeted on additional diversifying our portfolio into actual property sectors with fundamentals we deem to be extra enticing and have decreased our workplace publicity to twenty-eight% as of quarter finish in comparison with 40% within the first quarter of 2023. As a reminder, to assist shield us towards funding losses, we construction all of our loans with danger mitigation mechanisms corresponding to money circulate sweeps, curiosity reserves and rebalancing necessities. And we should not have any collateral-dependent loans or loans with particular reserves. In the primary quarter, Seven Hills maintained its conservative leverage metrics and continues to have substantial liquidity. We ended the quarter with $93 million of money available and $272 million of reinvestment capability throughout our 4 secured financing services. Total debt to fairness decreased to 1.6x from 1.7x on the finish of the earlier quarter, primarily because of the three mortgage repayments that Tom mentioned. We imagine that our conservative leverage and obtainable borrowing capability present a powerful alternative to originate accretive loans that can profit the corporate going ahead. Turning to our outlook and steering for the second quarter. We count on distributable earnings to be inside a spread of $0.35 to $0.37 per share, which can proceed to cowl our quarterly dividend. This steering displays our latest origination and compensation exercise and assumes flat G&A bills and that rates of interest will stay per present ranges. That concludes our ready remarks. And with that, operator, please open the traces for questions.
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Operator: [Operator Instructions] The first query comes from Matthew Erdner with JonesTrading. Please go forward.
Matthew Erdner: Hi, good morning, guys. Thanks for taking the query. Could you discuss just a little bit concerning the pipeline and what you guys are actually searching for to speed up that mortgage development, whether or not it’s particular property varieties, geographic areas? And I assume, how rapidly do you suppose which you can scale up the portfolio to an optimum dimension?
Tom Lorenzini: Thanks for the decision. It’s Tom right here. So from a geographic area, actually, we lend nationwide as you are conscious. There’s actually – and that continues to be the main target, proper? So we have not redlined any specific markets that we’ll lend into. From a product standpoint, I might inform you that we’re nonetheless very lively within the multifamily sector. As I famous, we simply closed a multifamily mortgage. We presently have underneath software proper now and in diligence a self-storage property that we’re within the West Coast. We count on that to shut within the subsequent 45 days or so. Industrial nonetheless is smart in sure areas. And hospitality, we’re seeing hospitality carry out very effectively proper now. And we’re a number of alternatives there as effectively. What we have modeled for manufacturing is about $175 million of loans for the 12 months. I feel we’re projected to do six loans at about $28 million to $30 million a bit. And then from there, we might enhance that relying on the rate of repayments that now we have. We do count on a few repayments within the – earlier than the tip of the 12 months but, so perhaps there’s one other $50 million to $80 million that comes again that we are able to reinvest. But we see no cause why we won’t hit our goal proper now of the six loans for the 12 months of ’24.
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Matthew Erdner: Awesome. Thank you for that. That’s good colour there. And then I seen a few occupancies on the workplace, significantly the one in Dallas ticked as much as 73% from 67% quarter-over-quarter. Could you discuss what you are seeing in leasing in your guys’ properties and simply the general market there?
Tom Lorenzini: Yes. So the Dallas transaction, they had been – they did have some – a modest uptick in leasing there. They really modified their leasing crew there as effectively, which has generated further foot site visitors and extra excursions of the property. As far as what we’re seeing in leasing for the one asset that we personal, the Floral Vale transaction that you just’re conscious of in Yardley, Pennsylvania, we have seen some optimistic leasing momentum there as effectively. We’ve had quite a few excursions for our leasing brokers there. And we’re presently underneath an LOI for a modest enhance in occupancy there with a brand new tenant that is shifting into the house. So general, workplace is troublesome, as you are conscious. I feel it actually relies on the leasing crew that you’ve there and in case you have capitalized sponsors which might be keen to contribute the money essential to the TI spend and the fee spend, proper, to draw these new tenants. So we’re cautiously optimistic, I might say, on our workplace portfolio. Everybody is present on debt service. All loans are – and obtainable money as wanted for TIs, leasing and for carry, if that is the case, so…
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Matthew Erdner: Yes, effectively that is nice information. Thanks for answering the questions
Tom Lorenzini: Thank you.
Operator: [Operator Instructions] The subsequent query comes from Chris Muller with Citizens JMP. Please go forward.
Chris Muller: Hi guys, thanks for taking the questions. So I need to hit on the pipeline just a little bit as effectively. So I feel on the final name, you guys mentioned there was like $750 million within the pipeline there. Can you discuss form of the dynamics which might be taking part in on the market? Are loans falling out of the pipeline earlier than reaching the end line? Or are you guys simply not seeing loans you want there or simply perhaps constructing some defensive and even opportunistic capital proper now?
Tom Lorenzini: Chris, I feel it is just a little little bit of all of these issues that you just simply talked about. There’s been – going again a number of months, proper, I feel the optimism available in the market was, “Hey, the Fed is going to lower rates. Maybe now is the time I can entertain a refinance if I’m an existing borrower and get off my current loan, maybe ride the curve down and put some better financing in place.” So an excellent variety of these transactions simply did not occur, proper, as a result of the messaging coming from the Fed and the financial system on the whole is simply mentioned, “Hey, look, we’re going to be at a higher interest rate period for a longer time.” So I feel it took just a little little bit of wind out of the sails, if you’ll, for fairly a number of folks which may have been trying to refinance. The different factor that we’re seeing, there’s nonetheless, available in the market, you will have over-leveraged transactions that had been written in 2021 perhaps which might be coming due, particularly within the multifamily sector, the place we’re attempting to be lively, that are going to require some money in. So we’ll usually underwrite transactions that we need to go after. And there could also be some money required from the sponsorship to steadiness that out, and so they’re not keen to do this. So that transaction would not occur. The different dynamic that you’ve happening is there’s simply numerous dry powder, I feel, on the sidelines with numerous lenders. So whenever you discover a transaction that works, it is very aggressive. And we have seen unfold compression. So we could discover ourselves in conditions the place we actually need the transaction, we’re placing finest foot ahead and any person actually simply form of is available in and nearly buys the enterprise, if you’ll, as a result of they is perhaps chatting with a CLO or another securitized execution. And they’re keen to do it less expensive than we really feel applicable. So there may be circulate on the market. It’s just a bit tougher to get it throughout the aim line proper now.
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Chris Muller: Got it. That’s very useful. And then altering gears just a little bit right here, so it appears like the acquisition accretion low cost ought to run out within the subsequent perhaps quarter or two. It appears like that added about $0.08 to revenues within the first quarter right here. So I assume, my query is do you count on GAAP earnings to run beneath the dividend degree within the close to time period and we’ll see some guide worth decline on account of that?
Fernando Diaz: Chris, that is Fernando, I’ll take that. We expect this accretion to run off by the third quarter. So it will likely be progressive. Second quarter and third quarter can be down, like I mentioned. So we do not imagine that is going to be impacting that a lot by way of the earnings. Obviously, as we ramp up our manufacturing, as Tom alluded, that is going to assist us steadiness that as effectively.
Chris Muller: That’s useful. Thanks for taking the query.
Operator: This concludes our question-and-answer session. I wish to flip the convention again over to Tom Lorenzini for any closing remarks.
Tom Lorenzini: Thanks, everybody, for becoming a member of us as we speak. We sit up for seeing a lot of you on the NAREIT Conference in New York City in June. Operator, this concludes our name as we speak.
Operator: The convention has now concluded. Thank you for attending as we speak’s presentation. You could now disconnect.
This article was generated with the help of AI and reviewed by an editor. For extra data see our T&C.
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