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    SEVN
    Earnings call· Jun 2026(Q2 FY26)

    Seven Hills Realty Trust Q2 FY26 earnings call SEVN

    Jul 29, 2026 Source

    Executive summary

    Seven Hills Realty Trust Q2 FY26 — Capital Deployment and Portfolio Strengthening Amidst Market Competition

    Seven Hills Realty Trust continued to deploy capital and grow its portfolio in Q2 FY26, despite distributable earnings landing at the low end of guidance due to delayed loan closings. Management remains committed to covering the dividend by year-end, supported by a strong pipeline of potential lending opportunities and a reduced office exposure. The company navigates increased market competition by focusing on selective opportunities and bespoke financing solutions.

    Highlights

    5

    • Portfolio grown by approximately $65 million year-to-date to roughly $790 million.

    • Weighted average all-in yield of approximately 7.7% at quarter end.

    • Weighted average risk rating of 2.9, with no realized losses and all borrowers current on debt service.

    • Legacy office exposure reduced from 24% at year-end to 19% today.

    • Closed three new loans totaling $75 million in Q2, and one $24.3 million loan subsequent to quarter end.

    Concerns

    3

    • Distributable earnings of $0.23 per share came in at the lower end of guidance due to several loan closings later than initially expected.

    • Rights offering continued to impact distributable earnings, resulting in the dividend not being covered over the past two quarters.

    • CECL reserve increased by 60 basis points from last quarter, driven by increased reserves on two office loans with 2026 maturities.

    Guidance & targets

    4
    CategoryTargetConfidence
    Distributable Earnings per Share
    $0.23 to $0.25 per share
    high materiality
    High
    Dividend Coverage
    covered
    high materiality
    High
    Quarterly Dividend Level
    $0.28 per share
    high materiality
    High
    Net Portfolio Growth
    about $200 million
    high materiality
    High

    Operational metrics

    14
    Distributable Earnings
    $5.1 millionlower end of guidance
    Q2 FY26

    Primarily due to several loans closing later in the quarter than initially expected.

    Distributable Earnings per Share
    $0.23lower end of guidance
    Q2 FY26

    Primarily due to several loans closing later in the quarter than initially expected.

    All-in Yield (Weighted Average)
    7.7%
    Q2 FY26 end

    Weighted average all-in yield of the portfolio.

    Risk Rating (Weighted Average)
    2.9stable
    Q2 FY26

    Reflects stable credit performance of the portfolio.

    Office Exposure
    19%down from 24% at year-end
    Q2 FY26

    Legacy office exposure continues to trend downward.

    Cash on Hand
    $70 million
    Q2 FY26 end

    Cash balance at the end of the quarter.

    Available Financing Capacity
    $400 million
    Q2 FY26 end

    Available capacity across financing facilities.

    Net Interest Margins (originations)
    1.86%highest level over past four years
    YTD 2026

    Originations so far in 2026 have been executed at this margin.

    CECL Reserve
    190 basis points60 basis point increase from last quarter
    Q2 FY26

    Increase largely driven by increased reserves on two office loans with 2026 maturities.

    Average Loan Size
    $30 million
    current

    Average loan size where the company plays in the middle market.

    SOFR Spread
    3.25%
    Q2 FY26

    Spread for the $24.3 million loan secured by a retail property in Park City, Utah.

    Debt Yield
    approaching 12%
    current

    Debt yield for the Plano asset, which is performing terrific.

    Coverage
    almost 1.4 times
    current

    Coverage for the Plano asset, which is performing terrific.

    Net Portfolio Reduction
    $10 million
    Q2 FY26

    Result of $75 million of production offset by $85 million of repayments in the quarter.

    Industry KPIs

    4
    MetricValueDetails
    Occupancy rateover 90%%
    Disposition volume$85 millionUSD
    Investment volume closed$75 millionUSD
    Ffo core ffo normalized ffo per share$0.23per share

    Orderbook & backlog

    1
    Potential Lending Opportunities (Term Sheets)$300 millionQ2 FY26

    Represents seven outstanding term sheets, providing a strong foundation for continued portfolio growth.

    Deals & partnerships

    7
    Not namedLoan origination for multifamily property$36.3 million

    Loan secured by a multifamily property in Roswell, Georgia, closed in Q2 FY26.

    Not namedLoan origination for medical office property$22.7 million

    Loan secured by a medical office property in Sugar Land, Texas, closed in Q2 FY26.

    Not namedLoan origination for self-storage facility$16 million

    Loan secured by a self-storage facility in Philadelphia, closed in Q2 FY26.

    Not namedLoan origination for retail property$24.3 million

    Loan secured by a retail property in Park City, Utah, closed subsequent to Q2 FY26.

    Not namedFull repayment of multifamily loan$54.7 million

    Full repayment of a loan secured by a multifamily property in suburban Cleveland, received in Q2 FY26.

    Not namedFull repayment of office loan$26.5 million

    Full repayment of a loan secured by an office building in suburban Chicago, received in Q2 FY26.

    Not namedPartial repayment and extension of hotel loan$4 millionone-year extension

    Partial repayment received in conjunction with a one-year extension of a $37 million loan secured by a hotel in Boston, in Q2 FY26.

    Risks & headwinds

    5
    Loan closing delaysQ2 FY26

    Distributable earnings at lower end of guidance ($0.23/share)

    Mitigation: Continued focus on deploying available capital.

    Impact of rights offering on distributable earningsQ1 and Q2 FY26

    Dividend not covered over the past two quarters.

    Mitigation: Expect to cover dividend by year-end 2026.

    Increased CECL reserve on office loansQ2 FY26, related to 2026 maturities.

    60 basis point increase from last quarter, $4.9 million provision.

    Mitigation: All office loans performing, disciplined underwriting and asset management; appraisal showed covered loan at stabilized value.

    Geopolitical uncertainty and interest rate volatilityQ2 FY26

    Transaction activity slowed noticeably in April.

    Mitigation: Focus on floating rate financing and bespoke solutions for borrowers.

    Competitive dynamics and spread tighteningCurrent market conditions

    Credit spreads tightening across many property types, especially multifamily.

    Mitigation: Remaining selective, focusing on opportunities where pricing, structure, and sponsorship align with underwriting standards.

    What to watch in Q3 FY26

    5

    Distributable Earnings per Share

    Q3 FY26
    Current$0.23
    Target$0.23 to $0.25

    Why it matters

    Verifies management's ability to deploy capital and achieve earnings targets, crucial for dividend coverage.

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

    Q&A highlights

    8

    Is the company directly seeing increased competition in its deal process?

    Yes, competition has increased, particularly from local/regional banks and the securitization market for multifamily loans. While this impacts pricing, it also provides more refinancing options for existing borrowers, which is healthy for the business.

    “Yes, we're absolutely seeing more competition. Where we play in the middle market, borrowers have a lot of options.”

    asked by Marissa Lobo · answered by Jared Lewis

    2 min read6 chapters

    Detailed Narrative

    01

    Q2 Performance and Capital Deployment

    Seven Hills generated distributable earnings of $5.1 million, or $0.23 per share, in Q2 FY26, which was at the lower end of guidance due to several loan closings occurring later than initially expected. Despite these delays, the company made meaningful progress in deploying capital, closing three new loans totaling $75 million during the quarter. This included a $36.3 million multifamily loan in Roswell, GA, a $22.7 million medical office loan in Sugar Land, TX, and a $16 million self-storage loan in Philadelphia.

    02

    Portfolio Composition and Credit Quality

    The company's portfolio has grown by approximately $65 million year-to-date, reaching roughly $790 million. 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 remained stable with a weighted average risk rating of 2.9, reflecting that over 80% of the portfolio was originated post-2022 under current market conditions.

    03

    Office Exposure Reduction and Liquidity

    Seven Hills successfully reduced its legacy office exposure from 24% at year-end to 19% today, with expectations for further decreases as three office loans mature later in the year. The company ended June with $70 million of cash on hand and nearly $400 million of available capacity across its financing facilities, providing ample liquidity for future originations and growth.

    04

    Market Conditions and Competition

    Market activity in Q2 was influenced by geopolitical uncertainty🌐 and interest rate volatility, leading to a noticeable slowdown in transaction activity in April before accelerating in May and June. The market is characterized by increased competition from banks, debt funds, and an active securitization market, which has led to credit spreads tightening across many property types, particularly multifamily.

    05

    Investment Strategy and Pipeline

    Given the competitive dynamics, Seven Hills remains selective in multifamily opportunities, favoring sectors like retail, medical office, self-storage, industrial, and student housing where returns are more compelling relative to risk. The company maintains a healthy pipeline with seven outstanding term sheets representing approximately $300 million of potential lending opportunities, providing a strong foundation for continued portfolio growth in Q3 and Q4.

    06

    CECL Reserve and Office Loans

    The CECL reserve increased by 60 basis points from last quarter, reaching 190 basis points of total loan commitments, primarily due to increased reserves on two office loans with 2026 maturities. Despite this, all office loans are performing and generating positive cash flow, and an appraisal for one of the loans indicated it is covered at its stabilized value, reflecting a disciplined underwriting process.

    AI-generated summary of the company’s earnings call. Not investment advice.