What changed in this filing

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Item 1. Financial Statements

2024-07-29 compared with 2024-04-29 · 119 added, 62 removed, 374 unchanged (33% of the section changed)

3 unchanged sentences

(dollars in thousands, except per share data)

March 31, December 31,

June 30, December 31,

Cash and cash equivalents $ 69,603 $ 87,855

26 unchanged sentences

(amounts in thousands, except per share data)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

INCOME FROM INVESTMENTS:

10 unchanged sentences

Reimbursement of shared services expenses 691 628 1,382 1,271

Provision for (reversal of) credit losses 697 ( 987 )

Provision for credit losses 1,315 1,026 2,012 39

Expenses from real estate owned 599 218 1,244 218

16 unchanged sentences

Balance at March 31, 2024 14,805 15 239,704 76,893 ( 45,054 ) 271,558

Share grants 29 — 497 — — 497

Share repurchases ( 1 ) — ( 13 ) — — ( 13 )

Net income — — — 4,229 — 4,229

Distributions — — — — ( 5,182 ) ( 5,182 )

Balance at June 30, 2024 14,833 $ 15 $ 240,188 $ 81,122 $ ( 50,236 ) $ 271,089

Balance at December 31, 2022 14,709 $ 15 $ 238,505 $ 52,290 $ ( 19,231 ) $ 271,579

6 unchanged sentences

Balance at March 31, 2023 14,707 15 238,612 53,498 ( 24,378 ) 267,747

Share grants 42 — 579 — — 579

Share repurchases ( 3 ) — ( 24 ) — — ( 24 )

Share forfeitures ( 1 ) — — — — —

Net income — — — 4,644 — 4,644

Distributions — — — — ( 5,148 ) ( 5,148 )

Balance at June 30, 2023 14,745 $ 15 $ 239,167 $ 58,142 $ ( 29,526 ) $ 267,798

See accompanying notes.

2 unchanged sentences

(dollars in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

2 unchanged sentences

Accretion of purchase discount ( 1,927 ) ( 2,232 )

Provision for (reversal of) credit losses 697 ( 987 )

Provision for credit losses 2,012 39

Amortization of loan origination and exit fees ( 1,283 ) ( 1,767 )

10 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES:

Origination of loans held for investment ( 35,571 ) ( 37,016 )

Additional funding of loans held for investment ( 1,697 ) ( 3,790 )

Repayment of loans held for investment 57,690 69,469

Cash assumed from transfer of loans held for investment to real estate owned — 1,742

Real estate owned improvements ( 7 ) ( 1,228 )

Net cash provided by investing activities 20,415 29,177

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from secured financing facilities 10,197 28,125

Repayments under secured financing facilities ( 47,024 ) ( 47,275 )

4 unchanged sentences

( 47,636 ) ( 29,806 )

Increase in cash and cash equivalents 5,443 13,241

(Decrease) increase in cash and cash equivalents ( 18,252 ) 10,977

Cash and cash equivalents at beginning of period 87,855 71,067

3 unchanged sentences

Income taxes (refunded) paid $ ( 28 ) $ 125

NON-CASH INVESTING ACTIVITIES:

Transfer of loans held for investment to real estate owned $ — $ 14,060

SEVEN HILLS REALTY TRUST

36 unchanged sentences

See Note 5 for further information regarding our secured financing agreements.

The table below provides overall statistics for our loan portfolio as of March 31, 2024 and December 31, 2023:

As of March 31, 2024 As of December 31, 2023

The table below provides overall statistics for our loan portfolio as of June 30, 2024 and December 31, 2023:

As of June 30, 2024 As of December 31, 2023

Number of loans 22 24

13 unchanged sentences

(3) Maximum maturity assumes all borrower loan extension options have been exercised, which options are subject to the borrower meeting certain conditions.

The tables below represent our loan activities during the three months ended March 31, 2024 and 2023:

The tables below represent our loan activities during the three months ended June 30, 2024 and 2023:

Principal Balance Deferred Fees and Other Items Amortized Cost

Balance at December 31, 2023 $ 629,892 $ ( 3,430 ) $ 626,462

Balance at March 31, 2024 $ 590,632 $ ( 1,997 ) $ 588,635

Additional funding 811 — 811

Originations 36,017 ( 446 ) 35,571

Repayments ( 17,250 ) — ( 17,250 )

1 unchanged sentence

Purchase discount accretion — 782 782

Balance at March 31, 2024 $ 590,632 $ ( 1,997 ) $ 588,635

Balance at June 30, 2024 $ 610,210 $ ( 960 ) $ 609,250

Principal Balance Deferred Fees and Other Items Amortized Cost

Balance at December 31, 2022 $ 678,555 $ ( 8,626 ) $ 669,929

Balance at March 31, 2023 $ 628,696 $ ( 6,626 ) $ 622,070

Additional funding 2,140 — 2,140

Originations 37,500 ( 484 ) 37,016

Repayments ( 17,551 ) — ( 17,551 )

Transfer to real estate owned ( 15,865 ) ( 95 ) ( 15,960 )

Net amortization of deferred fees — 763 763

Purchase discount accretion — 1,047 1,047

Balance at March 31, 2023 $ 628,696 $ ( 6,626 ) $ 622,070

Balance at June 30, 2023 $ 634,920 $ ( 5,395 ) $ 629,525

SEVEN HILLS REALTY TRUST

1 unchanged sentence

(dollars in thousands, except per share data)

The tables below detail the property type and geographic location of the properties securing the loans in our portfolio as of March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

The tables below represent our loan activities during the six months ended June 30, 2024 and 2023:

Principal Balance Deferred Fees and Other Items Amortized Cost

Balance at December 31, 2023 $ 629,892 $ ( 3,430 ) $ 626,462

Additional funding 1,855 ( 158 ) 1,697

Originations 36,017 ( 446 ) 35,571

Repayments ( 57,554 ) ( 136 ) ( 57,690 )

Net amortization of deferred fees — 1,283 1,283

Purchase discount accretion — 1,927 1,927

Balance at June 30, 2024 $ 610,210 $ ( 960 ) $ 609,250

Principal Balance Deferred Fees and Other Items Amortized Cost

Balance at December 31, 2022 $ 678,555 $ ( 8,626 ) $ 669,929

Additional funding 4,024 ( 14 ) 4,010

Originations 37,500 ( 484 ) 37,016

Repayments ( 69,294 ) ( 175 ) ( 69,469 )

Transfer to real estate owned ( 15,865 ) ( 95 ) ( 15,960 )

Net amortization of deferred fees — 1,767 1,767

Purchase discount accretion — 2,232 2,232

Balance at June 30, 2023 $ 634,920 $ ( 5,395 ) $ 629,525

The tables below detail the property type and geographic location of the properties securing the loans in our portfolio as of June 30, 2024 and December 31, 2023:

June 30, 2024 December 31, 2023

Property Type Number of Loans

9 unchanged sentences

22 $ 609,250 100 % 24 $ 626,462 100 %

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Geographic Location Number of Loans

6 unchanged sentences

22 $ 609,250 100 % 24 $ 626,462 100 %

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Credit Quality Information and Allowance for Credit Losses

2 unchanged sentences

See our 2023 Annual Report for more information regarding our loan risk ratings.

As of March 31, 2024 and December 31, 2023, the amortized cost of our loan portfolio within each internal risk rating by year of origination was as follows:

March 31, 2024

Risk Rating Number of Loans Percentage of Portfolio 2024 2023 2022 2021 Prior Total

As of June 30, 2024 and December 31, 2023, the amortized cost of our loan portfolio within each internal risk rating by year of origination was as follows:

June 30, 2024

Risk Rating Number of Loans Percentage of Portfolio 2024 2023 2022 2021 2020 Total

1 1 6 % $ — $ 37,458 $ — $ — $ — $ 37,458

4 unchanged sentences

22 100 % $ 35,644 $ 115,432 $ 196,043 $ 232,533 $ 29,598 $ 609,250

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

December 31, 2023

Risk Rating Number of Loans Percentage of Portfolio 2023 2022 2021 2020 Prior Total

Risk Rating Number of Loans Percentage of Portfolio 2023 2022 2021 2020 Total

1 — — % $ — $ — $ — $ — $ —

16 unchanged sentences

We evaluate the estimated allowance for each of our loans individually and we consider our internal loan risk rating as the primary credit quality indicator underlying our assessment.

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

We have elected to exclude accrued interest receivable from amortized cost and not to measure an allowance for credit losses on accrued interest receivable.

4 unchanged sentences

See Note 2 to our Consolidated Financial Statements included in Part IV, Item 15 of our 2023 Annual Report for further information regarding our measurement of our allowance for credit losses.

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

The tables below represent the changes to the allowance for credit losses during the three months ended March 31, 2024 and 2023:

The tables below represent the changes to the allowance for credit losses during the three months ended June 30, 2024 and 2023.

Loans Held for Investment, net Unfunded Loan Commitments Total

Balance at December 31, 2023 $ 4,376 $ 1,452 $ 5,828

Provision for (reversal of) credit losses

773 ( 76 ) 697

Balance at March 31, 2024 $ 5,149 $ 1,376 $ 6,525

Provision for credit losses 574 741 1,315

Balance at June 30, 2024 $ 5,723 $ 2,117 $ 7,840

Loans Held for Investment, net Unfunded Loan Commitments Total

Balance at March 31, 2023 $ 4,135 $ 1,473 $ 5,608

Provision for credit losses 774 252 1,026

Write offs ( 708 ) — ( 708 )

Balance at June 30, 2023 $ 4,201 $ 1,725 $ 5,926

The tables below represent the changes to the allowance for credit losses during the six months ended June 30, 2024 and 2023:

Loans Held for Investment, net Unfunded Loan Commitments Total

Balance at December 31, 2023 $ 4,376 $ 1,452 $ 5,828

Provision for credit losses 1,347 665 2,012

Balance at June 30, 2024 $ 5,723 $ 2,117 $ 7,840

Loans Held for Investment, net Unfunded Loan Commitments Total

Balance at December 31, 2022 $ — $ — $ —

Cumulative effect adjustment upon adoption of the CECL model 4,893 1,702 6,595

4,893 1,702 6,595

Reversal of credit losses ( 758 ) ( 229 ) ( 987 )

Balance At March 31, 2023 $ 4,135 $ 1,473 $ 5,608

The increase in the allowance for credit losses during the three months ended March 31, 2024 is primarily attributable to a negative outlook in CRE pricing forecasts.

The decrease in the allowance for credit losses during the three months ended March 31, 2023, compared to the January 1, 2023 cumulative-effect adjustment upon adoption of the CECL model, was primarily attributable to a favorable macroeconomic outlook as of March 31, 2023, most notably in near-term CRE pricing, and loan repayments.

Provision for credit losses 16 23 39

Write offs ( 708 ) — ( 708 )

Balance at June 30, 2023 $ 4,201 $ 1,725 $ 5,926

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

The increase in the allowance for credit losses during the three and six months ended June 30, 2024 is primarily attributable to declining values for CRE and unfavorable CRE pricing forecasts used in our CECL model and increased provisions for certain of our office loans.

The increase in the allowance for credit losses during the three months ended June 30, 2023 is primarily attributable to unfavorable changes in the macroeconomic outlook, most notably in CRE pricing forecasts, partially offset by a write off related to the loan transferred to real estate owned in June 2023.

The decrease in the allowance for credit losses during the six months ended June 30, 2023, compared to the January 1, 2023 cumulative-effect adjustment upon adoption of the CECL model, is primarily attributable to a write off related to the loan transferred to real estate owned in June 2023 and loan repayments, partially offset by the unfavorable changes in CRE pricing forecasts.

We may enter into loan modifications that include, among other changes, extensions of maturity dates, repurposing or required replenishment of reserves, increases or decreases in loan commitments and required pay downs of principal amounts outstanding.

Loan modifications are evaluated to determine whether a modification results in a new loan or a continuation of an existing loan under ASC 310.

There were no modifications to our loan portfolio for borrowers experiencing financial difficulties during the three months ended March 31, 2024.

We did not have any outstanding past due loans or nonaccrual loans as of March 31, 2024 or December 31, 2023.

As of March 31, 2024 and April 25, 2024, all of our borrowers had paid their debt service obligations owed and due to us.

There were no modifications to our loan portfolio for borrowers experiencing financial difficulties during the six months ended June 30, 2024.

We did not have any outstanding past due loans or nonaccrual loans as of June 30, 2024 or December 31, 2023.

As of June 30, 2024 and July 25, 2024, all of our borrowers had paid their debt service obligations owed and due to us.

See our 2023 Annual Report for more information regarding our nonaccrual policy.

8 unchanged sentences

The table below presents the assets and liabilities of real estate owned in our condensed consolidated balance sheets:

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Land, building and improvements

8 unchanged sentences

Total liabilities

(1) As of March 31, 2024, the weighted average amortization period of acquired real estate leases was 7.2 years.

(2) Includes $ 925 and $ 647 and of straight line rent receivables as of March 31, 2024 and December 31, 2023, respectively.

(1) As of June 30, 2024, the weighted average amortization period of acquired real estate leases was 7.1 years.

(2) Includes $ 1,032 and $ 647 of straight line rent receivables as of June 30, 2024 and December 31, 2023, respectively.

Revenue from real estate owned represents rental income from operating leases with tenants and is recognized on a straight line basis over the lease term.

We increased revenue from real estate owned to record revenue on a straight line basis by $ 278 for the three months ended March 31, 2024.

We increased revenue from real estate owned to record revenue on a straight line basis by $ 107 and $ 385 for the three and six months ended June 30, 2024.

Expenses from real estate owned represents costs related to the acquisition of the property, costs to operate the property and depreciation and amortization expense.

6 unchanged sentences

Secured Financing Agreements

Our secured financing agreements at March 31, 2024 consisted of agreements that govern:

Our secured financing agreements at June 30, 2024 consisted of agreements that govern:

our master repurchase facility with Wells Fargo, National Association, or Wells Fargo, or the Wells Fargo Master Repurchase Facility;

7 unchanged sentences

(dollars in thousands, except per share data)

The table below summarizes our Secured Financing Facilities as of March 31, 2024 and December 31, 2023:

The table below summarizes our Secured Financing Facilities as of June 30, 2024 and December 31, 2023:

Debt Obligation

4 unchanged sentences

Principal Balance

March 31, 2024:

June 30, 2024:

Citibank Master Repurchase Facility $ 215,000 $ 68,090 $ 67,902 7.48 % 0.4 3/15/2025 $ 116,790

12 unchanged sentences

The weighted average remaining maturity of the BMO Facility is determined using the underlying loan investment maturity date.

As of March 31, 2024, we were in compliance with the covenants and other terms of the agreements that govern our Secured Financing Facilities.

As of March 31, 2024, our outstanding borrowings under our Secured Financing Facilities had the following remaining maturities:

As of June 30, 2024, we were in compliance with the covenants and other terms of the agreements that govern our Secured Financing Facilities.

As of June 30, 2024, our outstanding borrowings under our Secured Financing Facilities had the following remaining maturities:

Year Principal Payments on

11 unchanged sentences

The table below provides information regarding financial assets and liabilities not carried at fair value in our condensed consolidated balance sheets:

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Carrying Value Fair Value Carrying Value Fair Value

3 unchanged sentences

Secured Financing Facilities $ 417,939 $ 417,958 $ 454,422 $ 454,620

There were no transfers of financial assets or liabilities within the fair value hierarchy during the three months ended March 31, 2024.

There were no transfers of financial assets or liabilities within the fair value hierarchy during the six months ended June 30, 2024.

Shareholders' Equity

Common Share Awards

On May 30, 2024, in accordance with our Trustee compensation arrangements, we awarded to each of our six Trustees 4,735 of our common shares, valued at the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq on that day.

The aggregate value of common shares awarded was $ 360 .

Common Share Purchases

During the three months ended March 31, 2024, we purchased 5,916 of our common shares from certain current and former officers of The RMR Group LLC, or RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares, valued at the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq on the applicable purchase date.

During the six months ended June 30, 2024, we purchased 6,838 of our common shares from certain current and former officers of The RMR Group LLC, or RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares, valued at the closing price of our common shares on Nasdaq on the applicable purchase date.

The aggregate value of common shares purchased was $ 88 .

Distributions

For the three months ended March 31, 2024, we declared and paid regular quarterly distributions to common shareholders, using cash on hand, as follows:

For the six months ended June 30, 2024, we declared and paid regular quarterly distributions to common shareholders, using cash on hand, as follows:

Record Date Payment Date Distribution per Share Total Distribution

2 unchanged sentences

$ 0.35 $ 5,184

On April 11, 2024, we declared a quarterly distribution of $ 0.35 per common share, or $ 5,182 , to shareholders of record on April 22, 2024.

We expect to pay this distribution on or about May 16, 2024, using cash on hand.

April 22, 2024 May 16, 2024 0.35 5,182

$ 0.70 $ 10,366

On July 11, 2024, we declared a quarterly distribution of $ 0.35 per common share, or $ 5,190 , to shareholders of record on July 22, 2024.

We expect to pay this distribution on or about August 15, 2024, using cash on hand.

Management Agreement with Tremont

5 unchanged sentences

We include these amounts in incentive fees in our condensed consolidated statements of operations.

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Tremont, and not us, is responsible for the costs of its employees who provide services to us, unless any such payment or reimbursement is specifically approved by a majority of our Independent Trustees, is a shared services cost or relates to awards made under any equity compensation plan adopted by us.

5 unchanged sentences

See our 2023 Annual Report for further information regarding our management agreement with Tremont.

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Related Person Transactions

14 unchanged sentences

See Note 8 for further information regarding our management agreement.

As of March 31, 2024, Tremont owned 1,708,058 of our common shares, and Mr.

As of June 30, 2024, Tremont owned 1,708,058 of our common shares, and Mr.

Portnoy beneficially owned (including through Tremont and ABP Trust) 13.5 % of our outstanding common shares.

5 unchanged sentences

No termination fee would be payable as a result of terminating the agreement.

We recognized property management and construction supervision fees of $ 9 for the three months ended March 31, 2024, related to real estate owned.

We recognized property management and construction supervision fees of $ 22 and $ 31 for the three and six months ended June 30, 2024, respectively, related to real estate owned.

For further information about these and other such relationships and certain other related person transactions, refer to our 2023 Annual Report.

11 unchanged sentences

The calculation of net income per common share - basic and diluted is as follows (amounts in thousands, except per share data):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Net income $ 4,229 $ 4,644 $ 9,462 $ 12,447

5 unchanged sentences

Commitments and Contingencies

As of March 31, 2024, we had unfunded loan commitments of $ 38,259 related to our loans held for investment that are not reflected in our condensed consolidated balance sheets.

These unfunded loan commitments had a weighted average initial maturity of 1.0 years as of March 31, 2024.

As of June 30, 2024, we had unfunded loan commitments of $ 41,988 related to our loans held for investment that are not reflected in our condensed consolidated balance sheets.

These unfunded loan commitments had a weighted average initial maturity of 0.9 years as of June 30, 2024.

See Note 3 for further information related to our loans held for investment.

As of March 31, 2024, we had estimated unspent lease related costs of $ 361 .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements