Seven Hills Realty Trust (SEVN) 2021 Q1 法說會逐字稿

Good morning and welcome to RMR Mortgage Trust's first-quarter 2021 financial results conference call. (Operator Instructions). Please note, this conference is being recorded.

I would now like to turn the conference over to Kevin Barry, Manager of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Thanks for joining us today. With me on the call are President Tom Lorenzini and Chief Financial Officer and Treasurer Doug Lanois. In just a moment, they will provide details about our business and our performance for the first quarter of 2021, as well as details about our proposed merger with Tremont Mortgage Trust. Please note that we will not be taking questions on this call, but we hope to do so on future calls.

RMR Mortgage Trust recently transitioned to a commercial mortgage REIT and currently does not have sell-side research coverage. But we do hope a few firms pick up coverage of the Company in the future.

I would like to note that the recording and retransmission of today's conference call is strictly prohibited without RMRM's prior written consent.

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 RMRM's beliefs and expectations as of today, Wednesday, May 5, 2021, and actual results may differ materially from those that we project. RMRM undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call.

A number of risks and uncertainties exist that could cause RMRM's actual results to differ materially from those expressed or implied. 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, our discussion regarding the proposed merger of RMRM and TRMT does not constitute an offer to sell or the solicitation of an offer to buy any securities, or a solicitation of any vote or approval. RMRM expects to file with the SEC a registration statement on Form S-4 containing a joint proxy statement prospectus and other documents with respect to the merger and other transactions with respect to both RMRM and TRMT. Investors are urged to read the joint proxy statement prospectus including all amendments and supplements, if and when they become available, and any other documents to be filed with the SEC in connection with the merger or incorporated by reference in the joint proxy statement prospectus because they will contain important information about the merger. Information regarding potential participants in any proxy solicitation of RMRM and TRMT shareholders and a description of their direct and indirect interests by security holdings or otherwise will be contained in the joint proxy statement prospectus filed in connection with the proposed merger.

Finally, we will be discussing non-GAAP numbers during this call, including distributable earnings. Please note that there were no non-GAAP adjustments between net income determined in accordance with GAAP and distributable earnings during the first quarter of 2021. Please see our quarterly earnings release, which is available on our website.

I will now turn the call over to Tom.

Thank you, Kevin. Good morning, everyone, and thank you for joining us for RMR Mortgage Trust's first earnings call. I'll begin with an overview of RMRM's business activity during the first quarter and will provide some commentary about the proposed merger with Tremont Mortgage Trust. I'll then turn the call over to Doug to discuss our recent investment activity and first-quarter financial results.

In early January, we reached a key milestone in transitioning RMRM to a commercial mortgage REIT. The SEC issued an order granting RMRM's request to deregister as an investment company under the Investment Company Act of 1940, which enabled us to proceed with full implementation of our new business mandate.

Our investment objective is to balance capital preservation with generating attractive risk-adjusted returns for our shareholders. To that end, we will primarily originate first mortgage whole loans generally between $10 million and $50 million secured by middle market and transitional commercial real estate.

We are off to a strong start executing on our business plan. At the end of the first quarter, we had already closed seven loans with an aggregate loan commitment of $177 million, generating a weighted average coupon of 5% and an all-in yield of 5.7%.

Our momentum continued subsequent to the quarter end with the closing of two additional loans, increasing our portfolio of committed capital to more than $250 million. Our portfolio of nine whole loans is diversified geographically and across asset classes with investments in multifamily, industrial, office, lab and retail collateral. In aggregate, the portfolio has a weighted average loan-to-value of 65% and a weighted average maximum maturity of 4.2 years when including extension options.

During the quarter, we closed on a master repurchase agreement with UBS. The facility has a three-year term and permits advancements of up to 75% of a whole loan investment amount. We plan to use this facility to leverage our investments and further drive increased returns to our shareholders.

We look forward to building on our investment momentum, expanding our portfolio. Our manager, Tremont Realty Advisors LLC, under their trade name Tremont Realty Capital, is active in the market with a robust pipeline of potential investment opportunities. We currently have more than $600 million of transactions in various stages of review, underwriting and diligence. This includes five term sheets outstanding for prospective financing opportunities with an aggregate loan amount of approximately $135 million.

These are opportunities that have quoted financing terms, with an effort to win the business and convert them to loan applications. In addition to the outstanding term sheets, Tremont Realty Capital has more than 20 potential transactions totaling over $450 million in various stages of review for possible investment.

From an asset class perspective, the top product types currently in our pipeline include multifamily, medical office, industrial and office. We are also seeing strong deal flow in life science properties, self-storage and manufactured housing.

Based on our momentum and the size of our active pipeline, in April, we declared a distribution to our shareholders of $0.15 per share payable on May 20. As we look ahead to the back half of 2021, assuming we execute on our plans to close additional loans and ramp up the portfolio, we expect to generate distributable earnings that will be more than sufficient to support RMRM's current distribution rate on a quarterly basis.

Additionally, we were thrilled about our announcement last week that we have entered into a definitive agreement to merge with Tremont Mortgage Trust. As you may know, we hosted a conference call to discuss the merger in detail. A replay of the call and a copy of the presentation we referenced can be found on RMRM's website. We encourage you to review the presentation as it contains important information about the merger, including warnings regarding forward-looking statements and other disclaimers.

This combination provides a tremendous opportunity to build on our growth momentum and provides compelling benefits to our shareholders.

First, the merger presents a unique opportunity to quickly achieve needed scale and create a more diversified commercial mortgage REIT. By coming together, the transaction is expected to immediately position the combined Company to approach $1 billion in assets when fully invested.

Second, we expect this transaction to be accretive to distributable earnings and will help us grow our financial strength. We will generate savings by eliminating redundant public company costs with the potential to further drive operating efficiencies as we scale the business.

Third, following the close of the transaction, we believe shareholders will benefit from an increase in trading liquidity and investor base diversity with an expanded public common share float. We also expect our expanded capital base to improve our ability to access the capital markets with additional and more efficient sources of financing to fund our growth as we leverage the combined Company's liquidity and debt capacity. This merger represents a compelling opportunity to address this challenge and potentially lower our cost of capital to further enhance our return on equity.

The combined company will not only have greater scale but also broader investment diversity amongst loans, across geographies and asset classes. The investments of the combined Company will be more evenly balanced across commercial real estate nationwide and secured by property types that have performed relatively well through the pandemic, including industrial, multifamily, life science and office properties.

And finally, we believe this proposed merger will provide greater market visibility and increased deal flow as we become a more significant player in the commercial mortgage market. We anticipate strong demand for bridge loans over the next several years and believe that this opportunity positions the merged Company to pursue its focus on commercial mortgage lending, driving earnings growth, and ultimately maximizing long-term value for our shareholders.

And with that, I'll turn it over to Doug.

Thank you, Tom, and good morning, everyone. I'll begin with an update on our recent loan investments and then discuss our financial results.

During the first quarter, we closed two loans with an aggregate capital commitment of approximately $65 million. The first is a $10.9 million bridge loan to finance the acquisition of a nine-story multi-tenant office building containing 83,000 square feet in Miami, Florida.

We also closed a $54.6 million loan to refinance two manufactured-housing communities comprised of approximately 1,200 homesites located in Ohio. This is our largest loan to date and includes an initial funding of approximately $44.6 million and a future funding allowance of approximately $10 million for capital improvements to further enhance these communities.

Following the end of the quarter, we continued our investment activity with two additional new loans. We closed a $39.2 million loan financing the acquisition of two Class-A cold-storage industrial buildings located in Londonderry, New Hampshire. An initial advance of approximately $34.2 million was funded at closing, with future advances of up to $5 million are available for tenant improvement, leasing commissions and capital expenditures.

Most recently, we closed a $34.3 million loan to refinance a property comprised of 191,000-square-foot office building and a 97,000-square-foot industrial building located in Colorado Springs, Colorado. An initial advance of approximately $29 million was funded at closing, with future advances of up to $5.3 million. This marked RMRM's ninth closing, increasing our committed capital to more than $250 million.

Turning now to our financial results for the first quarter, due to our business transition in early January, a comparison of RMR Mortgage Trust's first-quarter earnings to the prior-year period would not be meaningful. Today, we will focus on our results of the quarter ended March 31, 2021.

Let's begin with the statement of operations. Our first-quarter net income and distributable earnings came in at $0.03 per common share. There were no non-GAAP adjustments between net income and distributable earnings in the quarter.

Interest earned on our investments amounted to $2 million. As presented in our supplemental financial package, our weighted average all-in yield on our investments as of March 31 was 5.7%. This includes our weighted average LIBOR floor of 77 basis points, a weighted average spread of 422 basis points, plus the amortization of our loan fees.

Our expenses in the first quarter totaled $1.6 million. This includes management fees of $715,000, general and administrative expenses of $592,000, and shared services expense reimbursement of $326,000.

As Tom mentioned, we recently entered into a master repurchase facility with UBS, which we will use to leverage our investments. The facility has a three-year term and no maximum facility amount. We expect advancements under the facility to not exceed our equity amount, which was approximately $193 million at the end of the first quarter.

We had no outstanding balance as of March 31, 2021. In April, we drew $23 million in connection with the recent two loan closings.

Turning to our balance sheet, at the end of the first quarter we had $47 million in cash. Our loans held for investment, net, totaled $147 million. We had total loan commitments of approximately $177 million, of which $29 million was unfunded. The book value of our common shares at quarter end was $18.94.

This concludes our presentation for today. Thank you all for joining us. We look forward to updating you on our progress on future calls.

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