Le Lézard
Classified in: Business
Subjects: EARNINGS, Conference Call, Webcast

Seven Hills Realty Trust Announces Third Quarter 2022 Results


Seven Hills Realty Trust (Nasdaq: SEVN) today announced financial results for the quarter and nine months ended September 30, 2022.

Tom Lorenzini, President of SEVN, made the following statement:

"We delivered another solid quarter of earnings growth supported by continued investment activity and the positive impact of rising interest rates on our floating rate loan portfolio. During the third quarter, earnings increased sequentially, our quarterly distribution remained well covered and total committed capital increased to $763 million.

We continue to closely monitor the ongoing macroeconomic changes related to rising inflation, higher interest rates and recessionary concerns. Our portfolio's credit quality remains strong, with all of our loans current on debt service and our weighted average risk rating below three. While SEVN has ample cash on hand and is modestly leveraged, we are taking a measured approach to new loan originations, with one loan closed during the quarter and one loan currently in diligence. In the meantime, SEVN's earnings should continue to benefit in the quarters ahead from expected future increases in interest rates."

Quarterly Results

 

Three Months Ended

(dollars in thousands, except per share data)

September 30, 2022

 

June 30, 2022

 

September 30, 2021

Income from investments, net

$7,799

 

$7,498

 

$4,022

Net income

$5,176

 

$4,578

 

$2,484

Net income per diluted share

$0.35

 

$0.31

 

$0.24

Adjusted Distributable Earnings

$3,943

 

$3,490

 

$2,484

Adjusted Distributable Earnings per diluted share

$0.27

 

$0.24

 

$0.24

Book value per common share

$18.24

 

$18.22

 

$16.32

Adjusted Book Value per common share (1)

$18.80

 

$18.89

 

$18.83

(1)

Adjusted Book Value per common share is a non-GAAP financial measure that excludes the impact of the unaccreted purchase discount resulting from the excess of the fair value of the loans Tremont Mortgage Trust, or TRMT, then held for investment and which SEVN acquired as a result of the merger with TRMT on September 30, 2021, or the Merger, over the consideration SEVN paid in the Merger. The purchase discount of $36.4 million was allocated to each acquired loan and is being accreted into income over the remaining term of the respective loan. As of September 30, 2022, June 30, 2022 and September 30, 2021, Adjusted Book Value per common share excludes $8.2 million, or $0.56 per common share, $9.8 million, or $0.67 per common share, and $36.4 million, or $2.51 per common share, respectively, of unaccreted purchase discount.

Portfolio Summary

 

As of

(dollars in thousands)

September 30, 2022

 

June 30, 2022

 

September 30, 2021

Number of loans

28

 

28

 

22

Total loan commitments

$763,076

 

$734,883

 

$525,885

Weighted average maximum maturity (years)

3.5

 

3.6

 

3.7

Weighted average coupon rate

6.59%

 

5.14%

 

4.86%

Weighted average all in yield

7.10%

 

5.64%

 

5.43%

Weighted average floor

0.55%

 

0.61%

 

1.01%

Weighted average risk rating

2.9

 

2.7

 

3.0

Weighted average loan to value

68%

 

68%

 

68%

Recent Investment Activities

SEVN originated the following first mortgage loan during the three months ended September 30, 2022:

Location

 

Property
Type

 

Origination
Date

 

Committed

Principal

 

Principal as of
September 30,
2022

 

Coupon
Rate

 

All in
Yield

 

Maximum
Maturity
(date)

 

Loan to
Value

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Passaic, NJ

 

Industrial

 

09/08/2022

 

$

47,000

 

$

38,440

 

S + 3.85%

 

S + 4.22%

 

09/08/2027

 

69%

Recent Financing Activities

Distributions

Conference Call

At 11:00 a.m. Eastern Time on Thursday, October 27, 2022, President, Tom Lorenzini, and Chief Financial Officer and Treasurer, Tiffany Sy, will host a conference call to discuss SEVN's third quarter 2022 financial results. The conference call telephone number is (866) 739-7850. Participants calling from outside the United States and Canada should dial (412) 317-6592. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available through 11:59 p.m. Eastern Time on Thursday, November 3, 2022. To access the replay, dial (412) 317-0088. The replay pass code is 6097520.

A live audio webcast of the conference call will also be available in a listen-only mode on SEVN's website, which is located at www.sevnreit.com. Participants wanting to access the webcast should visit SEVN's website about five minutes before the call. The archived webcast will be available for replay on SEVN's website after the call. The transcription, recording and retransmission in any way of SEVN's third quarter conference call are strictly prohibited without the prior written consent of SEVN.

Supplemental Data

A copy of SEVN's Third Quarter 2022 Supplemental Operating and Financial Data is available for download at SEVN's website, www.sevnreit.com. SEVN's website is not incorporated as part of this press release.

About Seven Hills Realty Trust

Seven Hills Realty Trust (Nasdaq: SEVN) is a real estate investment trust, or REIT, that originates and invests in first mortgage loans secured by middle market and transitional commercial real estate. SEVN is managed by Tremont Realty Capital, an affiliate of The RMR Group (Nasdaq: RMR), a leading U.S. alternative asset management company with over $37 billion in assets under management and more than 35 years of institutional experience in buying, selling, financing and operating commercial real estate. For more information about SEVN, please visit www.sevnreit.com.

Non-GAAP Financial Measures

SEVN presents Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings, Adjusted Distributable Earnings per common share and Adjusted Book Value per common share, which are considered "non-GAAP financial measures" within the meaning of the applicable rules of the Securities and Exchange Commission, or SEC.

These non-GAAP financial measures do not represent net income, net income per common share or cash generated from operating activities and should not be considered as an alternative to net income or net income per common share determined in accordance with GAAP or as an indication of SEVN's cash flows from operations determined in accordance with GAAP, a measure of SEVN's liquidity or operating performance or an indication of funds available for SEVN's cash needs. In addition, SEVN's methodologies for calculating these non-GAAP financial measures may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures; therefore, SEVN's reported Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share may not be comparable to distributable earnings, distributable earnings per common share, adjusted distributable earnings and adjusted distributable earnings per common share, as reported by other companies.

SEVN calculates Distributable Earnings and Distributable Earnings per common share as net income and net income per common share, respectively, computed in accordance with GAAP, including realized losses not otherwise included in net income determined in accordance with GAAP, and excluding: (a) the management incentive fees earned by SEVN's manager, if any; (b) depreciation and amortization, if any; (c) non-cash equity compensation expense; (d) unrealized gains, losses and other similar non-cash items that are included in net income for the period of the calculation (regardless of whether such items are included in or deducted from net income or in other comprehensive income under GAAP), if any; and (e) one-time events pursuant to changes in GAAP and certain non-cash items, if any. Distributable Earnings are reduced for realized losses on loan investments when amounts are deemed uncollectable.

SEVN defines Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share as Distributable Earnings and Distributable Earnings per common share, respectively, excluding the effects of certain non-recurring transactions.

Management believes that Adjusted Book Value per common share is a meaningful measure of SEVN's capital adequacy because it excludes the unaccreted purchase discount resulting from the excess of the fair value of the loans TRMT then held for investment and that SEVN acquired as a result of the Merger over the consideration SEVN paid in the Merger. Adjusted Book Value per common share does not represent book value per common share or alternative measures determined in accordance with GAAP. SEVN's methodology for calculating Adjusted Book Value per common share may differ from the methodologies employed by other companies to calculate the same or similar supplemental capital adequacy measures; therefore, SEVN's Adjusted Book Value per common share may not be comparable to the adjusted book value per common share reported by other companies.

In order to maintain its qualification for taxation as a REIT, SEVN is generally required to distribute substantially all of its taxable income, subject to certain adjustments, to its shareholders. SEVN believes that one of the factors that investors consider important in deciding whether to buy or sell securities of a REIT is its distribution rate. Over time, Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share may be useful indicators of distributions to SEVN's shareholders and are measures that are considered by SEVN's Board of Trustees when determining the amount of distributions. SEVN believes that Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share provide meaningful information to consider in addition to net income, net income per common share and cash flows from operating activities determined in accordance with GAAP. These measures help SEVN evaluate its performance excluding the effects of certain transactions, the variability of any management incentive fees that may be paid or payable and GAAP adjustments that SEVN believes are not necessarily indicative of SEVN's current loan portfolio and operations. In addition, Distributable Earnings is used in determining the amount of base management and management incentive fees payable by SEVN to its manager under SEVN's management agreement.

Please see the pages attached hereto for a more detailed statement of SEVN's operating results and financial condition and for a reconciliation of net income and net income per common share determined in accordance with GAAP to SEVN's calculation of Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share.

 

SEVEN HILLS REALTY TRUST

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

INCOME FROM INVESTMENTS:

 

 

 

 

 

 

 

 

Interest income from investments

 

$

11,650

 

 

$

4,510

 

 

$

30,098

 

 

$

9,566

 

Purchase discount accretion

 

 

1,596

 

 

 

?

 

 

 

9,167

 

 

 

?

 

Less: interest and related expenses

 

 

(5,447

)

 

 

(488

)

 

 

(10,191

)

 

 

(680

)

Income from investments, net

 

 

7,799

 

 

 

4,022

 

 

 

29,074

 

 

 

8,886

 

OTHER EXPENSES:

 

 

 

 

 

 

 

 

Base management fees

 

 

1,064

 

 

 

731

 

 

 

3,190

 

 

 

2,167

 

General and administrative expenses

 

 

1,016

 

 

 

433

 

 

 

3,340

 

 

 

1,739

 

Reimbursement of shared services expenses

 

 

520

 

 

 

349

 

 

 

1,520

 

 

 

950

 

Other transaction related costs

 

 

?

 

 

 

?

 

 

 

37

 

 

 

?

 

Total other expenses

 

 

2,600

 

 

 

1,513

 

 

 

8,087

 

 

 

4,856

 

Income before income taxes

 

 

5,199

 

 

 

2,509

 

 

 

20,987

 

 

 

4,030

 

Income tax expense

 

 

(23

)

 

 

(25

)

 

 

(107

)

 

 

(36

)

Net income

 

$

5,176

 

 

$

2,484

 

 

$

20,880

 

 

$

3,994

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

14,551

 

 

 

10,263

 

 

 

14,526

 

 

 

10,225

 

Weighted average common shares outstanding - diluted

 

 

14,551

 

 

 

10,264

 

 

 

14,526

 

 

 

10,225

 

 

 

 

 

 

 

 

 

 

Net income per common share - basic and diluted

 

$

0.35

 

 

$

0.24

 

 

$

1.43

 

 

$

0.39

 

 

SEVEN HILLS REALTY TRUST

RECONCILIATION OF NET INCOME TO DISTRIBUTABLE EARNINGS AND

ADJUSTED DISTRIBUTABLE EARNINGS

(amounts in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

Reconciliation of net income to Distributable Earnings and Adjusted Distributable Earnings:

 

 

 

 

 

 

 

 

Net income

 

$

5,176

 

 

$

2,484

 

$

20,880

 

 

$

3,994

Non-cash equity compensation expense

 

 

259

 

 

 

?

 

 

889

 

 

 

181

Non-cash accretion of purchase discount

 

 

(1,596

)

 

 

?

 

 

(9,167

)

 

 

?

Exit fees collected on loans acquired in Merger (1)

 

 

104

 

 

 

?

 

 

104

 

 

 

?

Distributable Earnings

 

 

3,943

 

 

 

2,484

 

 

12,706

 

 

 

4,175

Other transaction related costs (2)

 

 

?

 

 

 

?

 

 

37

 

 

 

?

Adjusted Distributable Earnings

 

$

3,943

 

 

$

2,484

 

$

12,743

 

 

$

4,175

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

14,551

 

 

 

10,263

 

 

14,526

 

 

 

10,225

Weighted average common shares outstanding - diluted

 

 

14,551

 

 

 

10,264

 

 

14,526

 

 

 

10,225

 

 

 

 

 

 

 

 

 

Net income per common share - basic and diluted

 

$

0.35

 

 

$

0.24

 

$

1.43

 

 

$

0.39

Distributable Earnings per common share - basic and diluted

 

$

0.27

 

 

$

0.24

 

$

0.87

 

 

$

0.41

Adjusted Distributable Earnings per common share - basic and diluted

 

$

0.27

 

 

$

0.24

 

$

0.88

 

 

$

0.41

(1)

Exit fees collected on loans acquired in the Merger represent fees collected upon repayment of loans for which no income has previously been recognized in Distributable Earnings. In accordance with GAAP, exit fees on loans acquired in the Merger were accreted as a component of the purchase discount and were excluded from Distributable Earnings as a non-cash item. Accordingly, these exit fees have been recognized in Distributable Earnings upon collection.

(2)

Other transaction related costs include expenses related to the Merger.

 

SEVEN HILLS REALTY TRUST

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(unaudited)

 

 

 

September 30,

 

December 31,

 

 

 

2022

 

 

 

2021

 

ASSETS

 

 

 

 

Cash and cash equivalents

 

$

76,371

 

 

$

26,197

 

Restricted cash

 

 

66

 

 

 

98

 

Loans held for investment, net

 

 

695,154

 

 

 

570,780

 

Prepaid expenses and other assets

 

 

3,608

 

 

 

2,918

 

Total assets

 

$

775,199

 

 

$

599,993

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

Accounts payable, accrued liabilities and deposits

 

$

1,508

 

 

$

1,561

 

Secured financing facilities, net

 

 

503,514

 

 

 

339,627

 

Due to related persons

 

 

1,768

 

 

 

1,111

 

Total liabilities

 

 

506,790

 

 

 

342,299

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

Common shares of beneficial interest, $0.001 par value, 25,000,000 shares authorized; 14,713,623 and 14,597,079 shares issued and outstanding, respectively

 

 

15

 

 

 

15

 

Additional paid in capital

 

 

238,417

 

 

 

237,624

 

Cumulative net income

 

 

45,530

 

 

 

24,650

 

Cumulative distributions

 

 

(15,553

)

 

 

(4,595

)

Total shareholders' equity

 

 

268,409

 

 

 

257,694

 

Total liabilities and shareholders' equity

 

$

775,199

 

 

$

599,993

 

Warning Concerning Forward-Looking Statements

This press release contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Also, whenever SEVN uses words such as "believe", "expect", "anticipate", "intend", "plan", "estimate", "will", "may" and negatives or derivatives of these or similar expressions, SEVN is making forward-looking statements. These forward-looking statements are based upon SEVN's present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Actual results may differ materially from those contained in or implied by SEVN's forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond SEVN's control. For example:

The information contained in SEVN's filings with the SEC, including under "Risk Factors" in SEVN's periodic reports, or incorporated therein, identifies other important factors that could cause SEVN's actual results to differ materially from those stated in or implied by SEVN's forward-looking statements. SEVN's filings with the SEC are available on the SEC's website at www.sec.gov.

You should not place undue reliance upon forward-looking statements.

Except as required by law, SEVN does not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.

A Maryland Real Estate Investment Trust with transferable shares of beneficial interest listed on the Nasdaq.
No shareholder, Trustee or officer is personally liable for any act or obligation of the Trust.


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