Seven Hills Realty Trust (SEVN) Q4 2021 earnings summary

Executive summary

• 2021 marked a shift to originating and investing in first mortgage loans backed by middle-market and transitional commercial real estate (CRE); the September 30 merger with TRMT expanded the portfolio to 26 loans and $648.3M in commitments.

• FY21 net income was $24.7M, or $2.18 per share; Distributable Earnings were $6.3M, or $0.56 per share, and Adjusted Distributable Earnings were $7.2M, or $0.64 per share.

Financial highlights

• FY21 interest income was $16.8M, with $18.9M of non-cash purchase discount accretion; net income was $24.7M after $2.3M of interest and related expenses and $8.5M of other expenses.

• Adjusted Distributable Earnings of $7.2M exclude $589K of merger-related transaction costs and $282K of income tax expense on realized securities gains; Distributable Earnings include $627K of non-cash equity compensation and exclude $18.9M of purchase discount accretion.

• Year-end shareholders’ equity was $257.7M; GAAP book value was $17.65 per share and Adjusted Book Value was $18.85, excluding $1.20 per share of unaccreted merger purchase discount.

• FY21 operating, investing and financing cash flows were $0.8M, $(283.9)M and $205.8M, respectively; year-end cash, cash equivalents and restricted cash totaled $26.3M.

Outlook and guidance

• Available liquidity was $173.7M at year-end, including cash and unused capacity under secured facilities; management expected funding to cover operations, debt service and distributions for the next 12 months and foreseeable future, subject to pandemic and borrower impacts.

• The Board declared a $0.25-per-share quarterly distribution in January 2022, payable February 17, using cash on hand; the 2021 distribution was $0.45 per share.

• Strong demand for alternative CRE debt financing was expected to continue into 2022, with opportunities for flexible lending, while inflation, rate increases and LIBOR transition remained uncertainties.