Seven Hills Realty Trust Announces Fourth Quarter 2022 Results

 Net Income Per Share of $0.46, a 31% Sequential Quarter Increase

Adjusted Distributable Earnings Per Share of $0.37, a 37% Sequential Quarter Increase

Aggregate Loan Commitments of $728 Million

Seven Hills Realty Trust (Nasdaq: SEVN) today announced financial results for the quarter and year ended December 31, 2022.

Tom Lorenzini, President of SEVN, made the following statement:

"We ended the year with substantial earnings growth driven by the favorable impact of rising interest rates on our floating rate loan portfolio. Based on our strong earnings momentum and the credit quality of our loan portfolio, in January we announced a 40% increase in SEVN’s quarterly distribution to $0.35 per common share. Given our balance sheet capacity and our expectation that interest rates may continue to rise, we believe that we are well positioned to further grow distributable earnings and continue to deliver attractive returns for our shareholders while at the same time taking a disciplined approach to identifying new investments."

Quarterly Results

Portfolio Summary

Recent Investment Activities

SEVN originated the following first mortgage loan during the three months ended December 31, 2022:

• During the quarter ended December 31, 2022, SEVN received $53.7 million of loan repayment proceeds, which included early repayments of $22.1 million on a loan secured by a retail property in Los Angeles, CA and $31.0 million on a loan secured by an office/industrial property in Colorado Springs, CO, in addition to $0.6 million of principal payments received on certain other loans.

• In January 2023, SEVN received $16.4 million of early repayment proceeds on a loan secured by an office/industrial property in Aurora, IL.

Recent Financing Activities

• The aggregate outstanding principal balance under SEVN's secured financing facilities was $473.6 million and $462.3 million as of December 31, 2022 and February 9, 2023, respectively.

• As of December 31, 2022, SEVN was in compliance with all covenants and other terms under its secured financing facilities.

Distributions

• On November 17, 2022, SEVN paid a quarterly distribution of $0.25 per common share, or approximately $3.7 million, to shareholders of record as of October 24, 2022.

• On January 12, 2023, SEVN declared a quarterly distribution of $0.35 per common share, or approximately $5.1 million, to shareholders of record on January 23, 2023. SEVN expects to pay this distribution on February 16, 2023.

Conference Call

At 11:00 a.m. Eastern Time on Tuesday, February 14, 2023, President, Tom Lorenzini, and Chief Financial Officer and Treasurer, Tiffany Sy, will host a conference call to discuss SEVN’s fourth quarter 2022 financial results. The conference call telephone number is (866) 739-7850. Participants calling from outside the United States and Canada should dial (412) 317-6592. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available through 11:59 p.m. Eastern Time on Tuesday, February 21, 2023. To access the replay, dial (412) 317-0088. The replay pass code is 5461657.

A live audio webcast of the conference call will also be available in a listen-only mode on SEVN’s website, which is located at www.sevnreit.com. Participants wanting to access the webcast should visit SEVN’s website about five minutes before the call. The archived webcast will be available for replay on SEVN’s website after the call. The transcription, recording and retransmission in any way of SEVN’s fourth quarter conference call are strictly prohibited without the prior written consent of SEVN.

Supplemental Data

A copy of SEVN’s Fourth Quarter 2022 Supplemental Operating and Financial Data is available for download at SEVN’s website, www.sevnreit.com. SEVN’s website is not incorporated as part of this press release.

About Seven Hills Realty Trust

Seven Hills Realty Trust (Nasdaq: SEVN) is a real estate investment trust, or REIT, that originates and invests in first mortgage loans secured by middle market and transitional commercial real estate. SEVN is managed by Tremont Realty Capital, an affiliate of The RMR Group (Nasdaq: RMR), a leading U.S. alternative asset management company with over $37 billion in assets under management and more than 35 years of institutional experience in buying, selling, financing and operating commercial real estate. For more information about SEVN, please visit www.sevnreit.com.

Non-GAAP Financial Measures

SEVN presents Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings, Adjusted Distributable Earnings per common share and Adjusted Book Value per common share, which are considered “non-GAAP financial measures” within the meaning of the applicable rules of the Securities and Exchange Commission, or SEC.

These non-GAAP financial measures do not represent net income, net income per common share or cash generated from operating activities and should not be considered as alternatives to net income or net income per common share determined in accordance with GAAP or as an indication of SEVN’s cash flows from operations determined in accordance with GAAP, a measure of SEVN’s liquidity or operating performance or an indication of funds available for SEVN’s cash needs. In addition, SEVN’s methodologies for calculating these non-GAAP financial measures may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures; therefore, SEVN’s reported Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share may not be comparable to distributable earnings, distributable earnings per common share, adjusted distributable earnings and adjusted distributable earnings per common share, as reported by other companies.

SEVN calculates Distributable Earnings and Distributable Earnings per common share as net income and net income per common share, respectively, computed in accordance with GAAP, including realized losses not otherwise included in net income determined in accordance with GAAP, and excluding: (a) the management incentive fees earned by SEVN’s manager, if any; (b) depreciation and amortization, if any; (c) non-cash equity compensation expense; (d) unrealized gains, losses and other similar non-cash items that are included in net income for the period of the calculation (regardless of whether such items are included in or deducted from net income or in other comprehensive income under GAAP), if any; and (e) one-time events pursuant to changes in GAAP and certain non-cash items, if any. Distributable Earnings are reduced for realized losses on loan investments when amounts are deemed uncollectable.

SEVN defines Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share as Distributable Earnings and Distributable Earnings per common share, respectively, excluding the effects of certain non-recurring transactions.

Management believes that Adjusted Book Value per common share is a meaningful measure of SEVN's capital adequacy because it excludes the unaccreted purchase discount resulting from the excess of the fair value of the loans TRMT then held for investment and that SEVN acquired as a result of the Merger over the consideration SEVN paid in the Merger. Adjusted Book Value per common share does not represent book value per common share or alternative measures determined in accordance with GAAP. SEVN's methodology for calculating Adjusted Book Value per common share may differ from the methodologies employed by other companies to calculate the same or similar supplemental capital adequacy measures; therefore, SEVN's Adjusted Book Value per common share may not be comparable to the adjusted book value per common share reported by other companies.

In order to maintain its qualification for taxation as a REIT, SEVN is generally required to distribute substantially all of its taxable income, subject to certain adjustments, to its shareholders. SEVN believes that one of the factors that investors consider important in deciding whether to buy or sell securities of a REIT is its distribution rate. Over time, Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share may be useful indicators of distributions to SEVN's shareholders and are measures that are considered by SEVN's Board of Trustees when determining the amount of distributions. SEVN believes that Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share provide meaningful information to consider in addition to net income, net income per common share and cash flows from operating activities determined in accordance with GAAP. These measures help SEVN evaluate its performance excluding the effects of certain transactions, the variability of any management incentive fees that may be paid or payable and GAAP adjustments that SEVN believes are not necessarily indicative of SEVN’s current loan portfolio and operations. In addition, Distributable Earnings is used in determining the amount of base management and management incentive fees payable by SEVN to its manager under SEVN’s management agreement.

Please see the pages attached hereto for a more detailed statement of SEVN’s operating results and financial condition and for a reconciliation of net income and net income per common share determined in accordance with GAAP to SEVN's calculation of Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share.

Warning Concerning Forward-Looking Statements

This press release contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Also, whenever SEVN uses words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “will”, “may” and negatives or derivatives of these or similar expressions, SEVN is making forward-looking statements. These forward-looking statements are based upon SEVN’s present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Actual results may differ materially from those contained in or implied by SEVN’s forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond SEVN’s control. For example:

• Mr. Lorenzini states that SEVN ended the year with substantial earnings growth driven by the favorable impact of rising interest rates on SEVN's floating rate loan portfolio and that, given SEVN's balance sheet capacity and its expectation that interest rates may continue to rise, SEVN believes it is well positioned to further grow distributable earnings and continue to deliver attractive returns for its shareholders. These statements may imply that SEVN will experience continued growth in future periods, including in its loan originations and investment income, and generate attractive returns for its shareholders. However, SEVN operates in a highly competitive industry and its business is subject to various risks, many of which are outside its control, including the potential negative impact on the CRE industry and lending market as a result of inflation, high interest rates, geopolitical risks and economic recession or downturn. Further, these adverse conditions may negatively impact SEVN's borrowers and their ability to fund their obligations to SEVN. In addition, interest rates may not continue to rise. These risks and other factors may prevent SEVN from successfully closing additional loans, executing its business plans and realizing its investment objectives, increasing or maintaining its current earnings and delivering shareholder returns.

• Mr. Lorenzini states that based on strong earnings momentum and the credit quality of SEVN's loan portfolio, in January 2023 SEVN announced a 40% increase in its quarterly distribution to $0.35 per common share. This statement may imply that SEVN will experience continued growth in future periods, that the credit quality of SEVN's loan portfolio will remain strong and that SEVN will maintain its increased distribution rate, or make additional increases to its distribution rate in the future. However, as discussed above, SEVN operates in a highly competitive industry and its business is subject to various risks, which may prevent SEVN from successfully closing additional loans, executing its business plans and realizing its investment objectives, increasing or maintaining its current earnings and delivering shareholder returns. In addition, SEVN's borrowers and their tenants are subject to similar risks, including risks related to current economic conditions, including inflation, high interest rates, geopolitical risks and economic recession or downturn. As a result of these or other factors, SEVN's loans may not remain current and the credit quality of its loan portfolio could decline. Additionally, the timing, amount and form of any future distributions will be determined at the discretion of SEVN's Board of Trustees and will depend on various factors that its Board of Trustees deems relevant, including SEVN's historical and projected income, its Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share, the then current and expected needs and availability of cash to pay its obligations and fund its investments, distributions which may be required to be paid to maintain SEVN's qualification for taxation as a REIT, limitations on distributions contained in SEVN's financing arrangements and other factors deemed relevant by SEVN's Board of Trustees. Accordingly, any future distributions may be increased, decreased, suspended or discontinued, and there is no assurance as to the rate at which future dividends, if any, will be paid.

• Mr. Lorenzini states SEVN's intention to continue to take a disciplined approach to identifying new investments. This may result in SEVN pursuing and completing fewer loan originations. Further, SEVN may not identify loan investments and any loans it may complete may not perform up to SEVN's expectations. Additionally, once SEVN invests or commits its remaining capital, its ability to continue to grow and fund loans will be subject to its ability to obtain additional cost-effective capital or to redeploy proceeds from repayments of its loan investments.

The information contained in SEVN's filings with the SEC, including under “Risk Factors” in SEVN's periodic reports, or incorporated therein, identifies other important factors that could cause SEVN’s actual results to differ materially from those stated in or implied by SEVN’s forward-looking statements. SEVN’s filings with the SEC are available on the SEC’s website at www.sec.gov.

You should not place undue reliance upon forward-looking statements.

Except as required by law, SEVN does not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.

A Maryland Real Estate Investment Trust with transferable shares of beneficial interest listed on the Nasdaq.

No shareholder, Trustee or officer is personally liable for any act or obligation of the Trust.

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