Seven Hills Realty Trust Q3 Originations Hit Four-Year High

Seven Hills Realty Trust reported its highest quarterly loan origination volume in more than four years during the third quarter of 2026, while repayments and loan resolutions reduced its exposure to office properties. The commercial mortgage REIT originated three loans totaling $122.3 million and ended September with office loans representing 13% of portfolio principal, down from 19% at the start of the quarter.

The Newton, Massachusetts-based company generated third-quarter GAAP net income of $8.1 million, or $0.36 per diluted share, compared with $3.4 million, or $0.23 per share, a year earlier. Net income included a $3.6 million reversal of credit losses.

Distributable Earnings, a non-GAAP measure, were $3.8 million, or $0.17 per diluted share, compared with $4.2 million, or $0.29 per share, in the third quarter of 2025. Excluding a $1.5 million realized loss tied to a Dallas office loan, Distributable Earnings were $5.3 million, or $0.24 per share.

Net income per share and Distributable Earnings per share reflect a higher share count following the company’s December 2025 equity rights offering. Weighted-average diluted shares totaled 22.5 million in the latest quarter, up from 14.8 million a year earlier.

Lending activity reaches highest level since 2021

Seven Hills originated three floating-rate first mortgage loans during the quarter, its highest quarterly volume since the fourth quarter of 2021. The investments included a $24.3 million retail loan in Park City, Utah, a $30 million retail loan in Charlotte, North Carolina, and a $68 million multifamily loan in Chattanooga, Tennessee.

The three originations had a weighted-average coupon rate of 6.80%, an all-in yield of 7.26% and a weighted-average loan-to-value ratio of 66%. Seven Hills also had three loans with combined commitments of $121.7 million in diligence that management expected to close during the fourth quarter.

Repayments totaled $139 million, exceeding new principal fundings during the period. These included $42.7 million received on the Dallas office loan, which had $44.2 million of outstanding principal. The loan was repaid at 97% of par, producing the $1.5 million realized loss. That loss was below the $6.3 million current expected credit loss reserve allocated to the investment, resulting in a $4.8 million reversal of credit losses related to the loan.

Because the Dallas loan had been financed at a relatively low advance rate, its resolution increased Seven Hills’ estimated lending capacity by about $46.1 million. In October, the company also resolved an office loan in Carlsbad, California, after the borrower sold the collateral and repaid approximately $22.1 million. Seven Hills said that transaction increased lending capacity by another $10.7 million and reduced office exposure to 10% of portfolio principal.

Portfolio and liquidity

At September 30, Seven Hills held 26 first mortgage loans with total commitments of $744.5 million and a principal balance of $707.2 million. The entirely floating-rate portfolio had a weighted-average all-in yield of 7.80%, a 67% weighted-average LTV and an average risk rating of 3.2.

Multifamily properties accounted for 19% of principal, followed by industrial properties at 16%. Office and hotel loans each represented 13%, while student housing accounted for 11%. Geographically, 39% of the portfolio was in the South, 34% in the East, 23% in the West and 4% in the Midwest.

The company finished the quarter with $51.5 million of cash and $425.7 million of unused capacity under secured financing facilities with a combined maximum size of $865 million. Outstanding facility borrowings totaled $439.3 million and carried a weighted-average coupon rate of 5.89%. Seven Hills’ debt-to-equity ratio was 1.4 times. The company also extended the maturity of its Citibank master repurchase facility to September 2028.

Book value was $14.13 per share at quarter-end, while adjusted book value, which excludes credit-loss allowances for the loan portfolio and unfunded commitments, was $14.55 per share.

Seven Hills declared a quarterly distribution of $0.28 per common share, representing approximately $6.4 million in total payments. The distribution is expected to be paid on or about November 12 to shareholders of record as of October 19.

Outlook and risks

Management said it remained focused on deploying available capital into new lending opportunities while maintaining its underwriting standards. The expected timing and completion of loans under diligence remain uncertain, and the company’s future performance depends in part on the availability of suitable commercial real estate lending opportunities and borrowers’ ability to execute their property business plans.

Credit risk also remains present in the portfolio. At quarter-end, 19% of loan principal carried a higher-risk rating and 4% was classified as impaired or loss likely, although the impaired Carlsbad loan was subsequently repaid in October. Seven Hills cautioned that resolutions of elevated-risk loans could involve discounted payoffs or other terms that produce realized losses, potentially reducing Distributable Earnings and its capacity to sustain distributions. Interest-rate and credit-spread changes could also affect investment returns, borrowing costs and net interest margins.