Q2 2026 Seven Hills Realty Trust Earnings Call

July 29, 2026

Speaker #1: Good morning, and welcome to the Seven Hills Realty Trust's second quarter 2026 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.

Operator 2: Good morning, welcome to the Seven Hills Realty Trust Q2 2026 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 call over to Matt Murphy, Manager of Investor Relations. Please go ahead, Matt.

Operator: Good morning, welcome to the Seven Hills Realty Trust Q2 2026 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 call over to Matt Murphy, Manager of Investor Relations. Please go ahead, Matt.

Speaker #1: 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.

Speaker #1: Please note that this event is being recorded. I would now like to turn the call over to Matt Murphy, Manager of Investor Relations. Please go ahead, Matt.

Speaker #2: Good morning. Joining me on today's call are Tom Lorenzini, president and chief investment officer; Matt Brown, chief financial officer and treasurer; and Jared Lewis, vice president.

Matt Murphy: Good morning. Joining me on today's call are Tom Lorenzini, President and Chief Investment Officer, Matt Brown, Chief Financial Officer and Treasurer, and Jared Lewis, Vice President. 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, 29 July 2026. 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: These forward-looking statements are based on Seven Hills' beliefs and expectations as of today, July 29, 2026, and actual results may differ materially from those that we project.

Speaker #2: 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.

Matt Murphy: 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 sevnreit.com. With that, I will now turn the call over to Tom.

Speaker #2: 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.

Speaker #2: 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 sevenreit.com.

Speaker #2: With that, I will now turn the call over to Tom.

Speaker #3: Thank you, Matt. And good morning, everyone. On our call today, I'll begin with an overview of our second quarter activity and portfolio performance. Jared will then discuss market conditions and our investment pipeline.

Tom Lorenzini: Thank you, Matt. Good morning, everyone. On our call today, I'll begin with an overview of our Q2 activity and portfolio performance. Jared will discuss market conditions and our investment pipeline before Matt reviews our financial results and outlook. The Q2 reflected continued progress for Seven Hills as we deployed capital raised through our rights offering while also strengthening our overall portfolio composition. During the quarter, we generated distributable earnings of $5.1 million, or $0.23 per share. Distributable earnings came in at the lower end of our guidance range, primarily due to several loans closing later in the quarter than initially expected. Despite these delays, we continue to make meaningful progress deploying our available capital, growing the portfolio, and remaining on pace to have a covered dividend by year-end.

Speaker #3: Before Matt reviews our financial results and outlook. The second quarter reflected continued progress for Seven Hills as we deployed capital raised through our rights offering while also strengthening our overall portfolio composition.

Speaker #3: During the quarter, we generated distributable earnings of 5.1 million dollars for 23 cents per share. Distributable earnings came in at the lower end of our guidance range primarily due to several loans closing later in the quarter than initially expected.

Speaker #3: Despite these delays, we continued to make meaningful progress deploying our available capital growing the portfolio and remaining on pace to have a covered dividend by year-end.

Speaker #3: Our second quarter investment activity reflects the strength of our origination platform and the flexibility provided by our balance sheet. We closed three new loans totaling 75 million dollars, including a 36.3 million dollar loan secured by a multifamily property in Roswell, Georgia, a 22.7 million dollar loan secured by a medical office property in Sugarland, Texas, and a 16 million dollar loan secured by a self-storage facility in Philadelphia.

Tom Lorenzini: Our Q2 investment activity reflects the strength of our origination platform and the flexibility provided by our balance sheet. We closed three new loans totaling $75 million, including a $36.3 million loan secured by a multifamily property in Roswell, Georgia, a $22.7 million loan secured by a medical office property in Sugar Land, Texas, and a $16 million loan secured by a self-storage facility in Philadelphia. Subsequent to quarter-end, we also closed a $24.3 million loan secured by a retail property in Park City, Utah. Together, these four investments reflect our ability to source attractive opportunities across varying property types and geographies. As a result, we have grown our portfolio by approximately $65 million year to date to roughly $790 million today.

Speaker #3: Subsequent to quarter-end, we also closed a $24.3 million loan secured by a retail property in Park City, Utah. Together, these four investments reflect our ability to source attractive opportunities across varying property types and geographies.

Speaker #3: As a result, we have grown our portfolio year-to-date to roughly $790 million today. The portfolio continues to perform well, with no realized losses, all borrowers current on debt service, and a weighted average all-in yield of approximately 7.7 percent at quarter end.

Tom Lorenzini: The portfolio continues to perform well, with no realized losses, all borrowers current on debt service, and a weighted average all-in yield of approximately 7.7% at quarter-end. Credit performance also remained stable during the quarter, with a weighted average risk rating of 2.9. More than 80% of our current portfolio has been originated since 2022, meaning the vast majority of our investments were underwritten in the post-pandemic environment and reflect current market conditions. Turning to Yardley, our sole REO property, the asset services team here at RMR has done a terrific job positioning the asset for an eventual sale. In addition to various lease renewals over the past 24 months, we recently signed one new lease and have another lease under LOI. As a result, the property is expected to achieve occupancy over 90%, well ahead of comparable properties in the market.

Speaker #3: Credit performance also remains stable during the quarter, with a weighted average risk rating of 2.9. More than 80 percent of our current portfolio has been originated since 2022, meaning the vast majority of our investments were underwritten in the post-pandemic environment and reflect current market conditions.

Speaker #3: Turning to Yardly, our sole REO property, the asset services team here at RMR has done a terrific job positioning the assets for an eventual sale.

Speaker #3: In addition to various lease renewals over the past 24 months, we recently signed one new lease and have another lease under LOI. As a result, the property is expected to achieve occupancy over 90 percent, well ahead of comparable properties in the market.

Speaker #3: Repayment activity during the quarter also enhanced the overall composition of our portfolio while providing flexibility to pursue new originations. We received over 85 million dollars of repayments including the full repayment of a 54.7 million dollar loan secured by a multifamily property in suburban Cleveland; a full repayment of a 26.5 million dollar loan secured by an office building in suburban Chicago; and a 4 million dollar partial repayment in conjunction with a one-year extension of a 37 million dollar loan secured by a hotel in Boston.

Tom Lorenzini: Repayment activity during the quarter also enhanced the overall composition of our portfolio while providing flexibility to pursue new originations. We received over $85 million of repayments, including the full repayment of a $54.7 million loan secured by a multifamily property in suburban Cleveland, a full repayment of a $26.5 million loan secured by an office building in suburban Chicago. A $4 million partial repayment in conjunction with a one-year extension of a $37 million loan secured by a hotel in Boston. Following this repayment activity, we ended June with approximately $70 million of cash on hand and nearly $400 million of available capacity across our financing facilities. Importantly, our legacy office exposure continues to trend downward from 24% at year-end to 19% today, and we expect this number to decrease even further with three office loans scheduled to mature later this year.

Speaker #3: Following this repayment activity, we ended June with approximately $70 million of cash on hand and nearly $400 million of available capacity across our financing facilities.

Speaker #3: Importantly, our legacy office exposure continues to trend downward, from 24 percent at year-end to 19 percent today, and we expect this number to decrease even further with three office loans scheduled to mature later this year.

Speaker #3: The repayment of these relatively underlevered loans should also increase our capacity to grow the portfolio through new originations later in the year. Overall, Seven Hills enters the second half of the year from a position of strength with reduced office exposure, a largely post-pandemic loan portfolio and ample liquidity.

Tom Lorenzini: The repayment of these relatively under-levered loans should also increase our capacity to grow the portfolio through new originations later in the year. Overall, Seven Hills enters the H2 of the year from a position of strength with reduced office exposure, a largely post-pandemic loan portfolio, and ample liquidity. Looking ahead, we remain focused on thoughtfully growing the portfolio and increasing earnings throughout the remainder of the year. With that, I'll turn the call over to Jared to discuss current market conditions and our pipeline.

Speaker #3: Looking ahead, we remain focused on thoughtfully growing the portfolio and increasing earnings throughout the remainder of the year. With that, I'll turn the call over to Jared to discuss current market conditions and our pipeline.

Speaker #2: Thanks, Tom. Since our last earnings call, market activity has been influenced by a combination of geopolitical uncertainty and interest rate volatility. During the quarter, concerns surrounding the conflict with Iran, the potential impact of higher energy prices, and renewed inflationary pressures contributed to a meaningful increase in treasury volatility with interest rates ranging from between 4 and 4.7 percent.

Jared Lewis: Thanks, Tom. Since our last earnings call, market activity has been influenced by a combination of geopolitical uncertainty and interest rate volatility. During the quarter, concerns surrounding the conflict with Iran, the potential impact of higher energy prices, and renewed inflationary pressures contributed to a meaningful increase in treasury volatility, with interest rates ranging from between 4% and 4.7%. As we have discussed previously, periods of treasury rate volatility often create hesitation among commercial real estate investors as they contemplate buy and sell decisions. We saw evidence of that during April, when transaction activity slowed noticeably as market participants took a cautious approach. However, activity accelerated as the quarter progressed through May and June. Against that backdrop, transaction activity today continues to be driven more by refinancings and acquisitions, as lenders are increasingly requiring borrowers to repay maturing debt rather than extending.

Speaker #2: As we have discussed previously, periods of treasury rate volatility often create hesitation among commercial real estate investors, as they contemplate buy and sell decisions.

Speaker #2: We saw evidence of that during April when transaction activity slowed noticeably as market participants took a cautious approach. However, activity accelerated as the quarter progressed through May and June.

Speaker #2: Against that backdrop, transaction activity today continues to be driven more by refinancings and acquisitions as lenders are increasingly requiring borrowers to repay maturing debt rather than extending.

Speaker #2: Additionally, many of these properties have not yet reached the level of stabilization needed to secure permanent financing or achieve optimal sale proceeds. Therefore, floating-rate financing remains an attractive option due to its lower borrowing costs and flexibility relative to longer-term, fixed-rate debt.

Jared Lewis: Additionally, many of these properties have not yet reached the level of stabilization needed to secure permanent financing or achieve optimal sale proceeds. Therefore, floating rate financing remains an attractive option due to its lower borrowing costs and flexibility relative to longer-term fixed rate debt. From a capital markets perspective, liquidity remains abundant. The banks have meaningfully re-entered the market as lenders. Debt funds continue to compete aggressively for new lending opportunities, and the securitization market continues to be extremely active. These competitive dynamics have led to credit spreads tightening across many property types. Multifamily continues to be the most competitive segment of the market, despite the fact that many of these assets and submarkets are still contending with elevated supply, slower absorption, and persistent rent concessions.

Speaker #2: From a capital markets perspective, liquidity remains abundant. The banks have meaningfully re-entered the market as lenders, debt funds continue to compete aggressively for new lending opportunities, and the securitization market continues to be extremely active.

Speaker #2: These competitive dynamics have led to credit spreads tightening across many property types. Multifamily continues to be the most competitive segment of the market, despite the fact that many of these assets and sub-markets are still contending with elevated supply, slower absorption, and persistent rent concessions.

Speaker #2: While we continue to evaluate a large volume of multifamily opportunities, we remain selective at current pricing levels and instead have found recent success in sectors such as retail, medical office, self-storage, industrial, and student housing, where we believe returns are more compelling relative to the underlying risk profile.

Jared Lewis: While we continue to evaluate a large volume of multifamily opportunities, we remain selective at current pricing levels and instead have found recent success in sectors such as retail, medical office, self-storage, industrial, and student housing, where we believe returns are more compelling relative to the underlying risk profile. From a pipeline perspective, activity remains healthy. We continue to see a steady flow of financing requests across multiple property types. We currently have seven outstanding term sheets representing approximately $300 million of potential lending opportunities. This provides a strong foundation for continued portfolio growth as we move through Q3. While competition has increased, we remain focused on opportunities where pricing, structure, and sponsorship align with our underwriting standards. Borrowers continue to value financing partners that can provide certainty of execution, structural flexibility, and customized solutions as they navigate upcoming maturities in an uncertain macroeconomic backdrop.

Speaker #2: From a pipeline perspective, activity remains healthy. We continue to see a steady flow of financing requests across multiple property types, and we currently have seven outstanding term sheets representing approximately $300 million of potential lending opportunities.

Speaker #2: This provides a strong foundation for continued portfolio growth as we move through the third quarter. While competition has increased, we remain focused on opportunities where pricing, structure, and sponsorship align with our underwriting standards.

Jared Lewis: While competition has increased, we remain focused on opportunities where pricing, structure, and sponsorship align with our underwriting standards. Borrowers continue to value financing partners that can provide certainty of execution, structural flexibility, and customized solutions as they navigate upcoming maturities in an uncertain macroeconomic backdrop. We believe this environment will continue to benefit floating rate lenders like Seven Hills that can provide bespoke financing solutions for its borrowers. I will now turn the call over to Matt to review our financial results and guidance.

Speaker #2: Borrowers continue to value financing partners that can provide certainty of execution, structural flexibility, and customized solutions as they navigate upcoming maturities and an uncertain macroeconomic backdrop.

Jared Lewis: We believe this environment will continue to benefit floating rate lenders like Seven Hills that can provide bespoke financing solutions for its borrowers. I will now turn the call over to Matt to review our financial results and guidance.

Matt Brown: Thank you, Jared, and good morning, everyone. Yesterday, we reported Q2 distributable earnings of $5.1 million, or $0.23 per share, which was at the low end of our guidance. As Tom mentioned, this was largely driven by delays in forecasted loan closings in the quarter. While deployment in the quarter was delayed from our assumptions, it is important to note that originations so far in 2026 have been executed at net interest margins of 1.86%, the highest level over the past 4 years. Earlier this 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.

Yesterday, we reported second quarter distributable earnings of $5.1 million, or $0.23 per share, which was at the low end of our guidance. As Tom mentioned, this was largely driven by delays in forecasted loan closings during the quarter.

While the employment in the quarter was delayed from our assumptions, it is important to note that originations so far in 2026 have been executed at net interest margins of 1.86%, the highest level over the past four years.

Matt Brown: While the rights offering has continued to impact distributable earnings, resulting in our dividend not being covered over the past 2 quarters, we remain committed to this dividend level through 2026 at a minimum and expect to cover our quarterly dividend level by the end of this year. Overall, we expect Q3 distributable earnings to be in the range of $0.23 to $0.25 per share. As we deploy our available capital toward Q3 and Q4 targets, we expect the incremental earnings to offset the impact of the higher share count by year-end. Credit quality remains strong at Seven Hills. Our CECL reserve stands at 190 basis points of total loan commitments, a 60-basis point increase from last quarter.

Earlier this month, our board declared a regular quarterly dividend of 28 cents per share, which equates to an annualized yield of approximately 14% based on yesterday's closing price.

While the rights offering has continued to impact distributor earnings, resulting in our dividend not being covered over the past two quarters, we remain committed to this dividend level through 2026 at a minimum and expect to cover our quarterly dividend level by the end of this year.

Overall, we expect third quarter, distributable, earnings to be in the range of 23 to 25 cents per share.

As we deploy our available Capital toward third and fourth quarter targets. We expect the incremental earnings to offset the impact of the higher share count by year end.

Matt Brown: While all office loans are performing and our exposure has declined to 19% with the full office loan repayment in the quarter, the increase is largely driven by increased reserves on two of our office loans with 2026 maturities. Our full loan portfolio is supported by a conservative portfolio risk rating of 2.9. The portfolio is well diversified by property type and geography, and all loans are current on debt service. This reflects a disciplined underwriting and asset management process that we believe creates durable long-term value for our shareholders.

Credit quality remains strong at Seven Hills. Our CECL reserve stands at 190 basis points of total loan commitments, a 60 basis point increase from last quarter.

While all office loans are performing and our exposure has declined to 19% with the full office loan repayment in the quarter, the increase is largely driven by increased reserves on two of our office loans with 2026 maturities.

Our full loan portfolio is supported by a conservative portfolio risk rating of 2.9.

The portfolio is well-diversified by property type and geography, and all loans are current on debt service.

Matt Murphy: That concludes our prepared remarks. Operator, please open the line for questions.

This reflects a disciplined underwriting and asset management process that we believe creates durable, long-term value for our shareholders.

That concludes our prepared remarks. Operator, please open the line for questions.

Operator 2: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. First question comes from Marissa Lobo with UBS.

Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. First question comes from Marissa Lobo with UBS.

We will now begin the question and answer session to ask a question. You may press star then 1 on your telephone keypad. If you are using a speaker-phone please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question please press star then

2. At this time, we will pause momentarily to assemble our roster.

Marissa Lobo: Good morning. Thank you for taking my question. First, if you could speak to just the competition, commentary points to increased competition from banks, life companies, securitized lenders. Are you seeing that directly in your deal process?

First question comes from Marissa lobo with UBS?

Good morning. Thank you for taking my question. Um, first, if if you could speak to just the competition, you know, commentary points to increase competition from Banks. Life, companies, securitized lenders, are you seeing that directly in your deal process?

Jared Lewis: Sure, Marissa. This is Jared. Yeah, we're absolutely seeing more competition. Where we play in the middle market, borrowers have a lot of options. They can go to local banks, regional banks for their financing needs. The life companies are active as well as the securitization market, particularly for CMBS, or excuse me, for multifamily loans. Where we play in that, our average loan size now is about $30 million. Borrowers have a lot of options, more so from the banks than they have in the past because they're becoming more active. What I will say is that competition and the activity that we're seeing with the banks returning to the market is also healthy for our business, because what it's allowing our existing borrowers to do, and it's providing more liquidity to refinance our assets as well.

Sure. Marissa this is Jared. Um,

Jared Lewis: What I will say is that competition and the activity that we're seeing with the banks returning to the market is also healthy for our business, because what it's allowing our existing borrowers to do, and it's providing more liquidity to refinance our assets as well. Loans that are on our balance sheet have a lot more options to be repaid or refinanced out at their maturity as well. Overall, it's healthy, the competition certainly is having an impact on pricing spreads.

Jared Lewis: Loans that are on our balance sheet have a lot more options to be repaid or refinanced out at their maturity as well. Overall, it's healthy, the competition certainly is having an impact on pricing spreads.

Yeah, we're absolutely seeing more competition where we play in the Middle Market. Borrowers have a lot of options. They can go to local banks, Regional banks, for their financing, uh, needs. Um, the life companies are active as well, as the securitization Market particularly for cnbs, or excuse me for multi family loans. So where we play in that our average loan size, now is about 30 million dollars, borrowers have a lot of options, uh, more. So from the banks and they have in the past because they're getting, you know, the becoming more active. Um, but I, what I will say is, you know, that that competition and the activity that we're seeing with the banks returning to the market is also healthy for our business because what it's allowing, our existing borrowers to do and it's it's providing more liquidity to refinance our assets as well. So loans that are on our balance sheet have, you know, a lot more options to be repaid or refinanced out.

At their maturity as well. So overall, it's healthy. But the competition certainly is having an impact on pricing and spreads.

Marissa Lobo: Okay, great. Just shifting, thanks for the color on Yardley, is there any update on anticipated disposition timeline for that asset?

Okay, great, and just shifting—thanks for the color on Yardly. But is there any update on the anticipated disposition timeline for that asset?

Tom Lorenzini: I think, pending the lease negotiations that are happening now that we believe we'll finalize in the very near term, we can consider bringing it to market towards the end of the year.

I think, um,

Marissa Lobo: Got it. Okay. Thank you for taking my questions.

Bringing it to market towards the end of the year.

Got it.

Okay, thank you for taking my questions.

Tom Lorenzini: Sure.

Sure.

Operator 2: Again, if you have a question, please press star then two. Our next question comes from Jason Weaver with JonesTrading.

Operator: Again, if you have a question, please press star then two. Our next question comes from Jason Weaver with JonesTrading.

Jason Weaver: Hey, good morning, guys. Just a question on the $4.9 million provision with still no non-current, non-accrual, or realized losses. I have to think this is a specific reserve against an asset, and would that pertain to the Dallas multifamily property? And if so, what sort of factor drove that decision?

Again, if you have a question, please press star, then 2. Our next question comes from Jason Weaver with Jones Trading.

Hey, good morning guys. Um, just a question on the uh, 4.9 million for vision with still, no non-current, non-accrual or realized losses. I have to think this is a specific Reserve against against an asset and would that pertain to the Dallas multi family property and what sort of uh if so what sort of uh Factor drove that decision

Jared Lewis: Sure. Thanks for the question. We have three office loans that are maturing between August and the end of this year. The increase in reserve of about $4.9 million in the quarter was really driven off of two of those office loans, just given the near-term maturity, thinking about collateral values, et cetera. It's important to note that all of our office loans are performing and generating positive cash flow. We have a slide in our earnings presentation showing the details of those office properties, but it's really just a function of the near-term risk with the maturity.

Jason Weaver: Got it. Okay. Thanks for that. Can you give any detail, I didn't see anything in the deck regarding the Plano loan extension. Are there any rate changes, or is there equity injection by the sponsor?

Sure, thanks for the question. So uh, you know, we have 3 office loans that are maturing, uh, between August and the end of this year and the increase in, in reserve of about 4.9 million, in the quarter was really driven off of 2 of those office loans. Uh, just given the near-term maturity, um, thinking about collateral values, Etc. It's important to note that all of our office loans are performing and generating positive cash flow. Uh, we have a slide in our earnings presentation, showing the details of those office properties, uh but it's really just a function of the the near-term risk with the majority.

Got it. Okay, thanks for that. Um, and then, uh, can you give any detail? I didn't see anything in the deck regarding the Plano loan extension. Are there any rate changes, which are, uh, equity injection by the sponsor?

Tom Lorenzini: We did a 2-year extension on that asset. That property is performing terrific, far outperforming their budget, actually. They paid an extension fee. They acquired a new interest rate cap, they invested some capital in that regard. That's a covered loan with a debt yield that's, I think, approaching 12%, and coverage that's probably, I think it's almost approaching 1.4 times. There was no need to have a pay down on the principal balance for that loan.

Jason Weaver: Got it. All right. Thanks for the color, guys.

Um, we did a 2-year extension on that asset. Um, that property is performing terrific, um, far outperforming their budget actually. So they, they paid an extension fee, they acquired a new interest rate cap. So they invested some capital in that regard. Um, but that that's a covered loan with a debt yield. That's, I think approaching 12% and coverage. It's probably. I think it's almost approaching 1.4 times, um, so it's a very healthy loan. So there was no need to have a pay down on the principal balance for that loan.

Tom Lorenzini: Thank you.

Got it. All right, thanks for the color guy.

Thank you.

Operator 2: Our next question comes from Craig Kucera with Lucid Capital Markets.

Operator: Our next question comes from Craig Kucera with Lucid Capital Markets.

Craig Kucera: Yeah. Hey, good morning, guys. I see the coupon on the Park City, Utah assets, but can we get the all-in SOFR spread for that one?

Our next question comes from Craig Cassara with Lucid Capital markets.

Hey, good morning, guys. Um, I see the coupon on the Park City, Utah assets, but can we get the all-in SOFR spread for that one?

Tom Lorenzini: The spread on that loan was three and a quarter over. That also has an exit fee as part of the financing terms on that.

Um so the the the spread on that loan was uh was 3 and a quarter over. Um and then that also has an exit fee as part of the uh as part of the financing terms on that.

Craig Kucera: Is that roughly 40 basis points above the coupon, or how should we think about that?

Tom Lorenzini: Yeah, the exit fee just amortized over three years. 33 basis points is a way to think about a 1% exit fee. Right?

So is that roughly 40 basis points above the coupon, or how should we think about that?

Craig Kucera: Okay.

Craig Kucera: You can just tack that on to the spread.

Tom Lorenzini: You can just tack that on to the spread.

Craig Kucera: Okay, that makes sense. I'm just curious, your comments about competition and a little bit of spread compression. You look at what you originated here in Q2 versus Q4 and Q1. SOFR spreads are a little bit down. How much of that would you attribute to mix versus just the overall market?

Yeah the exit fee just advertised over 3 years so it's 33 basis points as a way to think about a 1% exit fee, right? So you can just tack that on to the tack that on the spread.

Okay, that makes sense. And, um, I'm just curious, you know your comments about, um, you know, competition and a little bit of spread compression. I mean, we were, you know, you look back at what you originated here in the second quarter versus the fourth quarter and first quarter. Um, you know, so for spreads are a little bit down. How, how much of that would you attribute to mix versus just the overall Market?

Jared Lewis: Well, I think a big part of it is mix. The assets that we originated, because they were largely commercial assets, we had additional pricing power, I think, with those. That resulted in the higher returns for those loans that we originated. I think we banked a pretty meaningful amount of net interest margin over the last two quarters, we've been selectively thinking about expanding originations in this quarter to do a little bit more in the multifamily where available. Again, market pricing for a full loan on a multifamily deal today is probably SOFR. It can range anywhere from SOFR 235 to 275, depending on who's providing the financing and the cash flow of the asset. We're generally looking at those multifamily deals in the SOFR plus 265 to 295 range, where we can achieve that type of pricing. Again, round numbers.

Um, well, I think a big part of it is is mix. Um, you know, the assets that we originated were because they were largely commercial assets. We had a different additional pricing power, I think, with those. So that gave us

You know, that resulted in the higher returns for those loans that we originated. I I think we banked um, a pretty meaningful amount of net interest margin over the last 2 quarters. And so we've been selectively thinking about expanding um you know, originations in this quarter uh to to do a little bit more on the multi family where we're available and so

Jared Lewis: It can range anywhere from SOFR 235 to 275, depending on who's providing the financing and the cash flow of the asset. We're generally looking at those multifamily deals in the SOFR plus 265 to 295 range, where we can achieve that type of pricing. Again, round numbers. I think in the next quarter or 2, we'll be able to originate a few of those loans at maybe a little bit tighter net interest margin to continue to grow the portfolio and balance the mix.

again, the pricing there, you know, market pricing for a full loan on a on a multi-family deal today is probably so for

Jared Lewis: I think in the next quarter or 2, we'll be able to originate a few of those loans at maybe a little bit tighter net interest margin to continue to grow the portfolio and balance the mix.

It can it can range anywhere from so for 235 to 275, depending on who was providing the financing and the and the cash flow of the asset, you know, we're generally looking at those multifamily deals in the sofa plus, 265 to 295 range where where we can achieve that type of pricing again round numbers. Um, but I think we'll, you know, in the next quarter of 2, we'll be able to originate a few of those, those loans, as maybe a little bit tighter, net interest margin to um, you know, continue to grow the portfolio, on balance, the mix.

Craig Kucera: Got it. I feel like earlier in the year, you thought you were going to grow your loan portfolio to maybe $950 million. Is that still the target for the year? Can you talk about what your anticipated pacing? Is that front-loaded? Is that back-loaded? Just any thoughts would be helpful.

Kind of talk about, you know, what's your anticipated pacing is that is that front-loaded is that back-loaded? Just any thoughts would be helpful.

Tom Lorenzini: I think they're still on target to end at that $950, 960 number, which would put us about $200 million net of where we ended the quarter at. Maybe about $170 million net up from where we are today. A significant part of that will be end of Q3 and into Q4. The pipeline of what we're looking at right now for Q3 closings would all be towards the end of the quarter.

Yeah, I think um, they're still on Target and that that 950 960 number um which would put us about 200 million, net of where we ended the quarter at, um, maybe about 170 million that are from where we are today. And a significant part of that will be end of end of Q3. And then and then in the Q4, I mean, that's the the pipeline that what we're looking at right now, for Q3 closings, would all be towards the end of the quarter.

Craig Kucera: Got it. Okay. That's helpful. Just one more from me. You were inside of a month from the maturation of the $44 million Dallas office loan. Based on your conversations with the borrower, can you handicap whether or not you think it'll be paid or extended?

Got it. Okay, um that's helpful, just 1 more for me um you know you have we're inside of a month from the maturation of the 44 million, Dallas office loan um based on your conversations with the borrower. Can you handicap whether or not you think because it'll be paid or or extended?

Tom Lorenzini: We believe that loan will be paid off. We have been in negotiations. What happens with these extensions and these loan mods and payoffs when we get to the situation, oftentimes it doesn't really come to a head until just prior to it needs to. We are actively in discussions with the sponsorship, but we do believe that will be a payoff.

Um, we believe that loan will be paid off. Um, we have been

In negotiations. Now,

You know, you, you know, there's what happens with these extensions and these blown mods and payoffs when we get to the situation. It'll oftentimes, it doesn't really come to a head until just prior to when it needs to. Um, so we are actively in discussions with the sponsorship, but we do believe that there will be a payoff.

Craig Kucera: Okay, that's helpful. Thank you.

Tom Lorenzini: Sure.

Okay, that's helpful. Thank you.

Operator 2: Our next question comes from Christopher Nolan with Ladenburg Thalmann.

Operator: Our next question comes from Christopher Nolan with Ladenburg Thalmann.

Christopher Nolan: Hey, guys. On the office question, is the reserve reflecting some sort of anticipation of a restructuring if these guys are short?

Our next question comes from Christopher Nolan with Ladenburg Thalmann.

Hey guys. On the office question, um, is the reserve—

Reflecting some sort of anticipation of a restructuring. Um, if these guys are short

Jared Lewis: No, it's really more just a function of the overall CECL model, and looking at the current collateral value. As part of negotiations on this one, we did get an appraisal, and I would say that the stabilized value of that appraisal would show that we have a covered loan. It's really just a function of where we are today in the maturity window of that loan.

No, it's really more just, you know, a function of the overall CECL model, and looking at, you know, kind of the current collateral value.

Christopher Nolan: Great. They're going to be, theoretically, taken out by a bank, correct?

You know, as part of negotiations on this one, we did get an appraisal, and I would say that the stabilized value of that appraisal would show that we have a covered loan. So, it's really just a function of where we are today in the maturity window of that loan.

Great, and you're going to be theoretically taken out by the bank, correct?

Tom Lorenzini: Most likely. Right. We're not 100% sure on how they're going to recapitalize it, but that's our belief.

Christopher Nolan: In that case, what's the current LTVs that banks are making for office loans these days?

Most likely, right? We're not 100% sure on how they're going to recapitalize it, but that that's our belief.

In that case, what's the current LTVs that banks are making for office loans these days?

Tom Lorenzini: You know what, Chris? We see it all over the map, or all over the board, I should say. I don't know. My guess is maybe that's a 65% number. Something along those lines.

Jared Lewis: Chris, you've got great sponsorship here too that's been supportive of the asset. We're not clear exactly on how they're going to recapitalize it, but they've been able to step up and support the asset when needed. I'm sure that will happen come the refinance.

You know what Chris, we see it all over the map, um, all over the board. I should say, I don't know, my guess is, maybe that's a 65% number. Something along those lines.

Chris, you've got great sponsorship here, too. That's been supportive of the assets. So we're not clear exactly on how they're going to recapitalize it, but—

Christopher Nolan: Great. Follow-up is on the paid-in capital. I saw a quarter-over-quarter increase to $340 from $304. What was that related to, please?

They've been able to, you know, step up and support the asset when needed. So I'm sure that will happen come time to refinance, right? Um, and the follow-up is on the Padding Capital. So, quarter-over-quarter increase to $340 from $304, um, what was that related to, please?

Jared Lewis: I'm not sure I follow your question.

Christopher Nolan: Oh, I'm looking on balance sheet, paid-in capital. Maybe I missed it. I confuse it. I can take it offline. It's no big deal. Okay. Thank you.

Christopher Nolan: I'm looking on balance sheet, paid-in capital. Maybe I missed it. I confuse it. I can take it offline. It's no big deal. Okay. Thank you.

I'm not sure I follow your question. Oh, I'm looking on the balance sheet. Paid-in capital—maybe I missed it. I confused it; I didn't take it offline. It's no big deal. Um, okay, thank you.

Operator 2: Our next question comes from Chris Muller with Citizens Capital Markets.

Operator: Our next question comes from Chris Muller with Citizens Capital Markets.

Chris Muller: Hey, guys. Thanks for taking the questions. I see the comment in the deck on deploying the rights offering still ongoing. I guess the question is, how much of a drag on earnings in Q2 was that capital not being fully deployed? I'm just trying to get a sense of run rate earnings ex that drag.

Our next question comes from Chris Mueller, with Citizens Capital Markets.

Hey guys, thanks for taking the questions. Um, so I see the comment in the deck on deploying the rights offering, uh, still ongoing. I guess the question is, how much of a drag on earnings in the second quarter was, uh, that capital not being fully deployed? I'm just trying to get a sense of run rate earnings, uh, ex that drag.

Jared Lewis: Yeah. Thanks for the question, Chris. I would say it's a little bit of a drag, right? For the quarter, we were a net reduction of $10 million when you take the $75 million of production offset by the $85 million of repayments. We're probably lagging a little bit behind our overall production forecast, but we still remain confident in hitting our numbers by the end of this year, and that's consistent with the messaging we've been providing. Tom mentioned about a net portfolio growth of about $200 million, and a lot of that's going to come September through Q4. We still feel really good. Jared commented we have about $300 million of term sheets outstanding currently. We remain very committed and supportive of our year-end forecast.

Chris Muller: Got it. Then maybe shifting gears a little bit. On repayments, what was the timing of repayments in the quarter? I'm just looking at the $70 million of cash and wondering if there were late repayments that elevated that number at all.

Yeah, thanks for the question, Chris. Um, you know, I would say it's a, it's a little bit of a drag right for the quarter. We were uh, net reduction of 10 million when you take the 75 million of production offset by the 85 million or repayments. So, you know, we're, we're probably lagging a little bit behind our overall production forecasts but we still remain confident in hitting our numbers, by the end of this year. And you know, that's consistent with the messaging we've been providing. Um, you know, Tom mentioned about a net portfolio, growth of about 200 million. Uh, and a lot of that's going to come, you know, September through Q4. Uh, so, you know, we still feel really good, uh, Jared Jared commented, we have about hundred million dollars of term sheets outstanding currently. Uh, so we we remain very, uh, committed, uh, and um, supportive of our year, end forecast.

Got it and then maybe shifting gears a little bit. So on repayments what was the the timing of repayments in the quarter? And I'm just looking at the 70 million of cash and wondering if there were late repayments that elevated that number at all?

Jared Lewis: Yeah. A lot of it was really the $55 million loan was repaid in early April, I think it was. From an earnings perspective, we didn't replace a lot of that until later in the quarter. That's why we saw a penny decline from Q1. We were just sitting on that excess cash. We also had proactively repaid the repo associated with that loan in Q1, just because of the surety of closing. We received more cash as part of that repay.

Chris Muller: Got it. That makes a lot of sense. Appreciate you guys taking the questions today.

Yeah. So a lot of it was really the um, the 55 million loan was repaid in early, April. I think it was. Um, so you know, from an earnings perspective, we didn't replace a lot of that until uh, later in the quarter. Um, so that's why we we saw a penny decline from from q1. Um, we were just sitting on that excess cash. Uh, we also had uh proactively repay the repo associated with that loan and q1 just because of the shity of closing. Um, so we received more cash um as part of that repay.

Got it. It makes a lot of sense. Appreciate you guys taking the questions today.

Tom Lorenzini: Thank you.

Thank you.

Operator 2: This concludes our question and answer session. I would like to turn the conference back over to Tom Lorenzini, President and Chief Investment Officer, for any closing remarks.

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

This concludes our question and answer session, I would like to turn the conference back over to Tom, lorenzini president and chief investment officer for any closing remarks.

Tom Lorenzini: Thank you everyone for joining today's call. Please reach out to Investor Relations if you are interested in scheduling a meeting with Seven Hills. Operator, that concludes our call.

Thank you, everyone, for joining today's call. Please reach out to Investor Relations if you are interested in scheduling a meeting with a 7 Hills operator. That concludes our call.

Operator 2: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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

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

Q2 2026 Seven Hills Realty Trust Earnings Call

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