Seven Hills SEVN Q4 2025 Earnings Call Transcript

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DATE

Thursday, Feb. 19, 2026 at 11 a.m. ET

CALL PARTICIPANTS

• President and Chief Investment Officer — Thomas Joseph Lorenzini
• Managing Director — Jared Lewis
• Chief Financial Officer and Treasurer — Matthew C. Brown

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TAKEAWAYS

• Distributable Earnings -- $4,600,000, or $0.28 per share, for the quarter, including $0.03 per share dilution from the recent rights offering.
• Rights Offering -- Raised $61,500,000 in net proceeds, expanding investment capacity by over $200,000,000, and increasing manager ownership to just over 20%.
• New Loan Commitments -- Three new loans totaling $101,300,000 added: $37,300,000 for student housing, $37,000,000 for a hotel, and $27,000,000 for industrial property.
• Loan Portfolio Size -- $724,500,000 in total commitments across 24 first mortgage loans, up $83,000,000, or approximately 13% year over year.
• Weighted Average Yield -- All-in yield of 7.92%, with a portfolio weighted average loan-to-value at origination of 66% and a risk rating of 2.8.
• Loan Performance -- All loans current on debt service with zero past due or nonaccrual loans at quarter end.
• SOFR Floors -- All but one loan covered by SOFR floors, averaging 2.81%, supporting $0.01 per share in earnings protection for the quarter.
• Dividends -- $0.28 per share regular quarterly dividend declared, yielding approximately 14% on the closing price, and management reiterated its commitment to this dividend level "for the foreseeable future."
• First Quarter Loan Pipeline -- $30,500,000 loan closed post quarter; two loans for $37,000,000 scheduled to close within a week; two loans in diligence for about $39,000,000 expected by quarter end or shortly after.
• Guidance for Q1 Distributable Earnings -- Projected at $0.22 to $0.24 per share, reflecting temporary dilution from the rights offering, with expectations of a return to Q4 run-rate as capital is deployed.
• Secured Financing Facilities -- Post quarter, maturities extended and capacity increased by $125,000,000, resulting in $377,000,000 pro forma capacity.
• CECL Reserve -- 130 basis points of total loan commitments, down 20 basis points sequentially, with no five-rated, collateral-dependent, or specifically reserved loans.
• Portfolio Growth Target -- Management expects to approach $1,000,000,000 of total loan portfolio by year-end 2026, subject to timing of loan repayments.
• Originations Outlook -- Originations projected at $100,000,000 in Q1, escalating to $200,000,000 in Q2 and Q3, subject to market activity and repayments.
• Loan Acquisition Disclosure -- Two acquired loans originated, underwritten, and asset-managed by the company, with no further similar acquisitions expected.
• Unfunded Commitments -- $36,900,000 unfunded commitments included in year-end portfolio.
• Cash on Hand -- Ended the quarter with $123,000,000 cash available.

SUMMARY

Seven Hills Realty Trust (NASDAQ:SEVN) delivered quarterly distributable earnings at $0.28 per share, incorporating the temporary dilution from its December rights offering, which added $61,500,000 in net proceeds and raised manager alignment. The company’s loan portfolio increased 13%, driven by three new loans totaling $101,300,000 and full redeployment of repaid principal. Floating rate loans with SOFR floors provided a buffer against recent rate declines and ensured the portfolio’s all-in yield remained at 7.92%. Looking ahead, management projects temporary first-quarter distributable earnings of $0.22 to $0.24 per share, expecting this to recover as capital is fully deployed and repayments reinvested through the year. Diversified lending activity spans multiple property types, and the company aims to reach a $1,000,000,000 portfolio by year-end 2026, supported by increased capacity and extended secured financing.

• Management stated, "remain committed to our $0.28 per quarter dividend," directly addressing shareholder concerns about payout sustainability.
• The company’s CECL reserve reduced by 20 basis points, reflecting continued improvement in portfolio risk characteristics and no requirement for specific loan reserves.
• No strategic shift toward mezzanine or junior debt is under consideration; management confirmed focus remains on senior secured mortgage lending.
• Rights offering proceeds are being deployed in stages, with a Q1 pipeline of over $100,000,000 in new loan originations expected to establish forward earnings momentum.
• All bank facility expansions and maturities were completed without changes to advance rate, underscoring banking partner confidence.
• No acquired loans remain in the pipeline, eliminating future uncertainty regarding off-platform portfolio sourcing.

INDUSTRY GLOSSARY

• SOFR Floor: A contractual minimum reference rate based on the Secured Overnight Financing Rate, providing downside protection to a lender’s earnings as floating rates decline.
• CECL Reserve: The current expected credit loss reserve, calculated as a percentage of loan commitments, representing projected lifetime credit losses under accounting standards.
• First Mortgage Loan: A senior secured debt instrument collateralized by a borrower’s commercial real estate asset, with first priority in repayment in the event of default.
• Rights Offering: A capital-raising transaction in which existing shareholders are granted the right to purchase additional shares, often at a discount, to increase company equity funding.

Full Conference Call Transcript

Thomas Joseph Lorenzini. Thank you, Matt, and good morning, everyone. On our call today, I will start by providing an update on our fourth quarter performance and an overview of our loan portfolio before turning it over to Jared to discuss current market conditions and our pipeline. Then Matthew C. Brown will discuss our financial results and guidance before we open the call for Q&A. Yesterday, we reported strong fourth quarter results driven by a fully performing loan portfolio and ongoing capital deployment. Distributable earnings for the fourth quarter came in at $4,600,000 or $0.28 per share. As previously announced, we successfully completed our rights offering in December, raising $61,500,000 in net proceeds.

This transaction meaningfully increased our investment capacity by over $200,000,000, allowing us to accretively deploy capital into compelling opportunities while maintaining a conservative balance sheet. In addition, as part of the rights offering, our manager increased their ownership percentage to just over 20%, further aligning their interests with Seven Hills Realty Trust shareholders. Our increased capacity allowed us to accelerate our activity during the fourth quarter, investing in three new loans with total commitments of $101,300,000. These included a $37,300,000 loan secured by a student housing property in College Park, Maryland, the acquisition of a $37,000,000 loan secured by a hotel in Boston, and the acquisition of a $27,000,000 loan secured by an industrial property in Wayne, Pennsylvania.

Following these transactions, we entered 2026 with significant available capacity as a result of the rights offering, positioning us to continue executing on our strategy and selectively deploying capital into attractive opportunities. So far in the first quarter, we have closed one additional loan for $30,500,000 on a medical office property in Atlanta, have two loans scheduled to close within the next week or so for another $37,000,000 combined, and two additional loans in diligence for approximately $39,000,000 scheduled to close at the end of Q1 or shortly thereafter. Collectively, these investments reflect the breadth of opportunities in our pipeline, with new originations spanning multiple property types and geographies.

We also received the full repayment of a $15,300,000 loan during the fourth quarter secured by a retail property in Sandy Springs, Georgia, which we were able to redeploy into new originations consistent with our underwriting and return objectives. Turning to our loan portfolio, as of 12/31/2025, we had total commitments of $724,500,000 across 24 floating rate first mortgage loans, including $36,900,000 of unfunded commitments. Year over year, we were able to increase our portfolio by $83,000,000, or approximately 13%. Our weighted average all-in yield was 7.92%, our weighted average risk rating improved to 2.8, and our weighted average loan-to-value at origination was 66%.

Importantly, all loans were current on debt service, and we had no past due or nonaccrual loans at year-end. In addition, all but one of our loans are covered by SOFR floors, which provide support to earnings in a declining rate environment and help to partially offset the impact of lower base interest rates. Later, Matthew C. Brown will provide additional details on how active SOFR floors are currently providing earnings protection across our portfolio. We expect limited repayments beyond perhaps one or two loans over the next several months, followed by almost $300,000,000 of maturing loans beginning in 2026.

Many of these loans, particularly those by office properties with conservative leverage, will allow for increased investment capacity and further portfolio growth as they roll off. In summary, we believe Seven Hills Realty Trust is well positioned to capitalize on attractive middle market lending opportunities. With enhanced liquidity following the rights offering and improving visibility into near-term repayments and originations, we remain focused on disciplined execution and capital deployment as transaction activity continues to improve. We look forward to providing further updates on our portfolio growth throughout the year. With that, I will now turn the call over to Jared Lewis to discuss current market conditions and the opportunity set in our pipeline.

Jared Lewis: Thanks, Tom. During the fourth quarter, market conditions continued to improve, supported by abundant debt liquidity and greater visibility around interest rates. As expected, we saw two additional 25 basis point rate cuts during the quarter, bringing the target Fed funds rate down to a range of 3.50% to 3.75%, which helped to drive an increase in financing activity and investment volume during the quarter. Although refinancing activity continues to be a key driver of new loan origination, we saw a meaningful increase in sales volume across all property types, making it the most active period for the industry since 2019. Multifamily and industrial continue to account for the majority of investment and financing activity.

We also saw growth in retail and hospitality. Most notably, office transaction volume increased 25% year over year, signaling that buyers and sellers are increasingly finding common ground on pricing and debt capital is becoming more available for the asset class. Despite increased acquisition activity, lender demand for loan collateral continues to exceed supply. Many debt investors continue to view commercial real estate debt as an attractive relative value compared to corporate bonds, and certain areas of private credit have been under increased scrutiny of late.

The competition for quality lending opportunities continues to put downward pressure on credit spreads, particularly in the industrial and multifamily sectors, where certain lenders continue to aggregate loan collateral to sell into future CRE CLO securitizations. We believe that market conditions exist for transaction activity to continue to increase in 2026 as acquisition and refinancing volumes recover and pricing stabilizes across markets. Higher overall transaction volumes across all property sectors should lead to a substantial increase in the number of viable lending opportunities available to lenders. As such, we expect to remain disciplined while evaluating a broader range of transactions across property types and geographies.

In many cases, we are identifying attractive risk-adjusted opportunities in sectors beyond multifamily and industrial, including medical office, necessity-based retail, self storage, and selectively within the hospitality sector. Overall, demand for short-term floating rate bridge loans remains strong, as improving fundamentals and expectations for a more accommodative rate environment in the latter half of the year drive borrowers to seek flexibility while they execute their business plans and maximize asset values. Borrower and broker engagement with Seven Hills Realty Trust remains strong, and we are currently evaluating over $1,000,000,000 of loan opportunities as we move through 2026. As always, we remain focused on deploying capital in transactions that align with our underwriting standards and leverage our platform's expertise.

I will now turn the call over to Matthew C. Brown to discuss our financial results. Thank you, Jared, and good morning, everyone. Yesterday, we reported fourth quarter distributable earnings of $4,600,000, or $0.28 per share, which included $0.03 of dilution related to the shares issued in connection with our rights offering completed in December. Last 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. Adjusted for the impact from the rights offering, fourth quarter distributable earnings would have been $0.31 per share, which was at the high end of our guidance range.

Loan investments since July 1 contributed $0.03 per share to distributable earnings, whereas loan repayments over the same period negatively impacted results by $0.01 per share. For the full year of 2025, distributable earnings were $1.21 per share. Our run-rate annual dividend of $1.12 per share represents a 93% payout ratio based on these full-year earnings. During the fourth quarter, interest rate floors became active for seven of our loans, limiting the impact of rate cuts in the quarter and providing earnings protection of $0.01 for the quarter, based on SOFR as of December 31.

As Tom mentioned, all but one of our loans contain interest rate floors ranging from 25 basis points to 4.34%, with a weighted average floor of 2.81%. Further declines in SOFR would be mitigated by additional loans becoming subject to these floors. It is important to note that none of our secured financing facilities contain floors. As Tom highlighted, since quarter-end, we have closed one loan totaling $30,500,000, have two additional loans expected to close in the coming weeks, approximately $37,000,000 combined, and also have two loans currently in diligence, totaling approximately $39,000,000, that are expected to close at or shortly after the end of the first quarter.

Overall, we expect first quarter distributable earnings to be in the range of $0.22 to $0.24 per share. This guidance reflects the impact from our rights offering, which we expect to be temporary. As the proceeds from the rights offering are invested, and capital from expected loan repayments in the second half of the year is redeployed, we expect the incremental earnings contribution to offset the impact of the higher share count. Our CECL reserve remains modest at 130 basis points of our total loan commitments, down 20 basis points from last quarter, and is supported by a conservative portfolio risk rating of 2.8, which has improved since last quarter.

Our portfolio remains well diversified by property type and geography, and all loans are current on debt service. We do not have any five-rated loans, collateral-dependent loans, or loans with specific reserves. This highlights the strength in our underwriting and asset management functions, which provide long-term value for shareholders. We ended the quarter with $123,000,000 of cash on hand. Since quarter-end, we extended the maturities of two of our secured financing facilities and increased the maximum size of one of these facilities by an additional $125,000,000. Pro forma for this increased facility size, we have $377,000,000 of capacity on our secured financing facilities.

This activity demonstrates our strong relationships with our banking partners and positions us to continue to grow our loan investment portfolio with proceeds from our rights offering. That concludes our prepared remarks. Operator, please open the line for questions.

Operator: We will now begin the question and answer session. Our first question comes from Jason Price Weaver with Janney Montgomery Scott. Please go ahead.

Jason Price Weaver: Hi, guys. Thanks for taking the question. And actually it is from JonesTrading. I do not know how that got mixed up, but I wonder if you could talk a bit, just given how the portfolio has evolved and how the pipeline is looking today. You mentioned one thing like moving from, you know, strict multifamily over to something like student housing and industrial and hospitality as well. How specifically are you thinking about finding pockets of inefficiency across the pipeline given the heightened amount of competition in the space right now?

Jared Lewis: Jason, this is Jared. That is a good question. So it is obvious that the multifamily sector contributes to the lion's share of the activity that we see both in our pipeline, but also overall in the markets. It is an extremely liquid sector. But what we found is that it is sort of a race to the bottom in terms of yields and pricing. We certainly look at a lot, and we bid on a lot of those assets and transactions, but given the securitization markets' demand for that paper, we just have not decided to go there yet.

Where we do find opportunities, and I think a big part of that is because of the breadth of the platform that we have here with our manager, we see assets in the pockets, as I mentioned, storage, industrial, medical office. You know, we have a pretty wide range of property-level managers and asset managers that see opportunities across the country. So, you know, we do not have to deploy billions of dollars of capital. We can be really selective and find good opportunities that can get outsized risk-adjusted returns rather than just, you know, bidding multifamily assets to the bottom, if that makes sense.

Jason Price Weaver: Got it. That is helpful. And then I wonder, without implying taking risk up to a huge degree, are there any opportunities that you are sort of evaluating outside of the first lien space, maybe in a bit more of the junior tranches?

Thomas Joseph Lorenzini: At this time, we are not really focused on that, Jason. We like to stick with the knitting currently, which is senior secured positions. We have certainly discussed mezzanine and preferred equity and things. We certainly understand that space and have those capabilities, but the focus remains on senior secured positions. Got it.

Jason Price Weaver: Alright. Thanks, guys.

Operator: And the next question comes from Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Christopher Nolan: Hey, guys. Matthew, on your $0.22 to $0.24 distributable EPS guidance, does that assume that the incremental capital that you raised is fully levered and deployed in the first quarter?

Matthew C. Brown: No. So we talked about in the first quarter, we have closed one loan for $30,500,000. We have two loans expected to close in the near term, another about $37,000,000, and then two loans under app that will close toward the very end of Q1, if not trickling into the beginning of Q2, for about $39,000,000. So by the end of Q1, we have not fully deployed the rights offering capital, but we have increased the weighted shares for the period, and that is really driving down earnings for the first quarter. As I noted in prepared remarks, this is temporary.

We expect by the end of the year to get distributable earnings back around where it was in the fourth quarter of this year.

Christopher Nolan: Understood. Also, with the change in the bank facilities, was there any change in advance rate?

Matthew C. Brown: No. No specific changes to the advance rates. But what I will say is that all of our banking partners have been really supportive of what we have been doing here.

Jared Lewis: By, you know, with the upsizes of one of the facilities and the extension terms that we have received, they continue to support what we are trying to accomplish here. So it has been super helpful.

Christopher Nolan: Great. And then I noticed that your investment spreads widened a little bit in the quarter. Was there a delayed impact from rate changes from Fed moves of short-term interest rates? Does it take a quarter or two for it to filter down to you guys?

Matthew C. Brown: No. It does not take any time to filter down. I think part of what we are seeing is we have seven active floors, so that is kind of supporting the trends a little bit. In addition to that, ongoing loan investments being made are further supporting our total portfolio net spread.

Christopher Nolan: Great. And finally, I am correct where when you guys did the rights offering, the current dividend is secure at least through the end of 2026. Is this still the case?

Matthew C. Brown: That is. We still remain committed to our $0.28 per quarter dividend. We know there is a temporary drag on earnings as we deploy the rights offering capital. In addition, we have a lot of loan repayments in the second half of the year. Some of those have reduced leverage, which can increase our overall investment capacity and get us back to more current levels. So we do remain committed to the dividend for the foreseeable future.

Christopher Nolan: Great. Thanks. That is it for me.

Operator: Thanks, guys. And the next question comes from Christopher Muller with Citizens. Please go ahead. Hey, guys. Thanks for taking the questions and congrats on a solid quarter here.

Christopher Muller: I guess originations came in really strong in the quarter and it looks like the first quarter is on a similar pace. Do you guys expect that run rate around $100,000,000 to continue into 2026? And then I guess the flip side of that is, how are you guys thinking about portfolio growth this year following the rights offering? Do you have a target portfolio size that you would like to reach by year-end?

Thomas Joseph Lorenzini: Yeah. So I think from a production standpoint, across the industry everybody has seen more transaction flow, which is very welcome. We are expecting Q1, depending on timing, could be about $100,000,000. We might see one of those trickle into Q2. But for Q2 and Q3, we are hopeful about $200,000,000 per quarter, and then Q4, of new originations. And part of that will be driven by the repayments that we are going to see in the back half of the year, Chris. As far as where we hope to end at the end of the year or expect to end at the end of the year, it should be close to about $1,000,000,000 of total loan portfolio size.

And, again, part of that depends a little bit on some of the repayments that we are expecting towards the end of Q3 and Q4.

Christopher Muller: Got it. Very helpful. And then I guess just a quick clarifying one. On the two loans you guys acquired in the quarter, were those purchased from another lender, or did that come through the RMR pipeline?

Thomas Joseph Lorenzini: Those loans were underwritten and were asset managed by our team. They were loans that would have, just under normal circumstances, gone into Seven Hills Realty Trust as a production. RMR had them on their balance sheet. If you recall, RMR was considering a private financing vehicle. These were going to be seed assets for that. But they were originated by our team here, closed by our team, and asset managed by our team, so they met our approval and credit requirements. So there was really no uncertainty when we acquired those loans as to what we were buying.

They fit very nicely into the portfolio, and given the rights offering, with the excess capacity that we had, it just made sense for us to acquire those loans and put them into the Seven Hills Realty Trust portfolio.

Christopher Muller: Got it. And are there additional loans like that could filter through in the coming quarters? Or is that the rest of it?

Thomas Joseph Lorenzini: Those are the only two. We do not expect any other loan acquisitions to occur.

Christopher Muller: Got it. Very helpful. Thanks again for taking the questions.

Thomas Joseph Lorenzini: Thank you.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Thomas Joseph Lorenzini, President and Chief Investment Officer, for any closing remarks.

Thomas Joseph Lorenzini: Thanks, everyone, for joining today's call. Please reach out to Investor Relations if you are interested in scheduling a call with Seven Hills Realty Trust. Operator, that concludes our call.

Operator: The conference has now concluded. Thank you for attending today's conference presentation. You may now disconnect.

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