Seven Hills Realty Trust (NASDAQ:SEVN) reported second-quarter distributable earnings of $5.1 million, or $0.23 per share, as loan closings occurred later in the quarter than management had anticipated. The result was at the low end of the company’s guidance range, President and Chief Investment Officer Tom Lorenzini said.
Despite the timing of loan deployments, Seven Hills said it continued to expand its portfolio and expects to have a covered dividend by the end of 2026. The company’s board declared a quarterly dividend of $0.28 per share earlier in July, which Chief Financial Officer and Treasurer Matt Brown said equated to an annualized yield of about 14% based on the prior day’s closing price.
Loan Originations and Portfolio Growth
During the second quarter, Seven Hills closed three loans totaling $75 million:
- A $36.3 million multifamily loan in Roswell, Georgia.
- A $22.7 million medical office loan in Sugar Land, Texas.
- A $16 million self-storage loan in Philadelphia.
After the end of the quarter, the company also closed a $24.3 million loan secured by a retail property in Park City, Utah. Lorenzini said the four investments demonstrate the company’s ability to originate loans across property types and markets. The Park City loan carried a spread of 3.25 percentage points over SOFR and included a 1% exit fee, which Lorenzini said could add roughly 33 basis points when amortized over three years.
The portfolio has grown by roughly $65 million year-to-date to approximately $790 million, according to management. Seven Hills said its portfolio had a weighted average all-in yield of about 7.7% at June 30 and a weighted average risk rating of 2.9. All borrowers were current on debt service, and the company reported no realized losses.
Brown said originations completed so far in 2026 have generated net interest margins of 1.86%, the highest level for the company in the past four years.
Repayments Reduce Office Exposure
Seven Hills received more than $85 million of repayments in the quarter, including full repayment of a $54.7 million multifamily loan in suburban Cleveland and a $26.5 million office loan in suburban Chicago. It also received a $4 million partial repayment tied to a one-year extension of a $37 million hotel loan in Boston.
Management said the repayments improved portfolio composition and left the company with approximately $70 million in cash and nearly $400 million of capacity under its financing facilities at quarter-end. Legacy office exposure declined to 19% of the portfolio, from 24% at the end of 2025. Lorenzini said three office loans are scheduled to mature later this year, potentially further reducing that exposure.
On one office loan maturing in August, Lorenzini said Seven Hills believes the borrower will repay the loan, though discussions remain ongoing. Management said the borrower has strong sponsorship and may refinance or otherwise recapitalize the asset. Lorenzini said banks’ return to commercial real estate lending is helping existing borrowers access refinancing options.
The company increased its CECL reserve to 190 basis points of total loan commitments, up 60 basis points from the prior quarter. Brown said a roughly $4.9 million increase in reserves was mainly attributable to two office loans with 2026 maturities, reflecting their near-term maturity risk and current collateral values. He added that all office loans remain performing and generate positive cash flow.
Market Conditions and Pipeline
Vice President Jared Lewis said commercial real estate activity was affected during the quarter by geopolitical uncertainty, energy-price concerns and Treasury-rate volatility. Interest rates ranged between 4% and 4.7%, contributing to a slowdown in transactions during April before activity improved in May and June.
Lewis said market activity is increasingly being driven by refinancings and acquisitions as lenders require more borrowers to repay maturing debt rather than grant extensions. Floating-rate financing remains attractive to borrowers because of its lower borrowing costs and flexibility relative to longer-term fixed-rate debt, he said.
Competition has increased as banks, debt funds and securitized lenders pursue lending opportunities, putting pressure on pricing and credit spreads. Lewis said multifamily lending remains particularly competitive, while Seven Hills has recently found more attractive risk-adjusted opportunities in retail, medical office, self-storage, industrial and student housing.
Seven Hills had seven outstanding term sheets representing about $300 million of potential loans at the time of the call. Management said it still expects to end the year with a portfolio of roughly $950 million to $960 million, representing about $200 million of net growth from the end of the second quarter. Much of that expected growth is anticipated to occur late in the third quarter and during the fourth quarter.
For the third quarter, the company forecast distributable earnings of $0.23 to $0.25 per share.
Separately, Lorenzini said Seven Hills’ sole real estate-owned property, Yardley, is expected to exceed 90% occupancy after a recently signed lease and another lease under letter of intent. Pending completion of those lease discussions, the company could consider marketing the property for sale toward the end of the year.
About Seven Hills Realty Trust (NASDAQ:SEVN)
Seven Hills Realty Trust is a real estate investment trust that focuses on the ownership and operation of grocery-anchored neighborhood and community shopping centers. Established in October 2018 and trading on the NASDAQ under the symbol SEVN, the company targets retail properties that are anchored by essential retailers, including leading grocery chains and national discount operators. Its strategy centers on acquiring assets with strong tenant credit profiles and stable, long-term lease agreements.
The company’s portfolio spans multiple Sun Belt and Southeastern markets, with properties located in states such as Florida, Texas, North Carolina and Georgia.
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