Good morning. And welcome to the Seven Hills Realty Trust Third Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Kevin Barry, Director 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 third quarter of 2021. We will then open the call to a question-and-answer session with sell-side analysts. First, I would like to note that the recording and retransmission of today's conference call is strictly prohibited without Seven Hills Realty Trust'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 SEVN's beliefs and expectations as of today, Wednesday, November 3, 2021, and actual results may differ materially from those that we project. The company 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 SEVN'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, we will be discussing non-GAAP numbers during this call, including distributable earnings. For a reconciliation of net income determined in accordance with GAAP to distributable earnings, please see our quarterly earnings release which is available on our website. With that, I will now turn the call over to Tom.

Thank you, Kevin. Good morning, everyone. And welcome to the [Technical Difficulty] for Seven Hills Realty Trust, which is the culmination of the merger between RMR Mortgage Trust and Tremont Mortgage Trust. We're excited to have successfully closed the merger and to be moving forward as a larger, more diversified commercial mortgage REIT with an expanded capital base, improved access to capital and greater financial strength. On today's call, I will begin with an overview of our strategy and an update on our third quarter investment activities deal pipeline. I will then turn the call over to Doug to review our financial results and balance sheet. But before I begin, I would like to highlight that due to the merger closing on the last business day of the quarter, our third quarter results reflect the combined balance sheets of TRMT and SEVN, with only SEVN's operating results. To help clarify this, in our earnings release and supplemental financial package, we've provided pro forma consolidated results as if the merger had closed on July 1. Turning to our strategy and recent investment activities, as a mortgage REIT, Seven Hills' primary investment objective remains the balanced capital preservation with generating attractive risk adjusted returns for our shareholders. We aim to achieve this objective by originating floating rate loans generally between $15 million and $60 million, with stabilized loan to value ratios of 75% or less with terms up to five years. Today, shares of SEVN trade at a meaningful discount to book value. We believe that Seven Hills is an attractive position to reduce this gap as we continue to execute on our business plan, further ramp up loan production and demonstrate the strength of our lending platform to the investment community. To that end, during the third quarter, our manager trim,…

Thank you, Tom. And good morning, everyone. To begin, I want to reiterate that the assets acquired and the liabilities assumed from TRMT in the merger are included in Seven Hills' consolidated balance sheet as of September 30. However, TRMT's results of operations are not included in Seven Hills historical consolidated statements of operations. I'd also like to highlight that the acquisition of TRMT's loans generated a purchase discount. This occurred because of fair value of the loans acquired exceeded the purchase price of the loans when accounting for the merger. The purchase discount will be accretive into income over the remaining term of the individual loans. We will recognize this accretion in net income. However, we intend to deduct this non-cash item in our calculation of distributable earnings. To be clear, this discount of approximately $36 million is not due to any loan impairment. We continue to expect full repayment of all principal and interest on these loans. Additionally, the book value of our common shares will increase as the purchase discount is accreted. At the end of the third quarter, Seven Hills book value per common share was $16.32. After adding back future accretion of $2.51 per common share, Seven Hills adjusted book value was $18.83 per share, which we believe more clearly represents the value of our investments. Our supplemental financial package contains further detail on our estimate of purchase discount accretion in upcoming quarters. Turning now to our financial performance in the third quarter. As a result of the timing of the merger and the impact to overall results, I plan to focus the discussion on Q3 2021 pro forma results, which are presented in our earnings release as if the merger had occurred on July 1. Our results reflect solid earnings generated by our diversified…

[Operator Instructions]. Our first question is from Steve Delaney with JMP Securities.

Congratulations on getting the merger accomplished. We look forward to covering a larger company here and I'm sure you feel the same way about your – as managers. I guess where I'd like to start is on the decision to do, I guess, purchase accounting or at least fair value accounting on the acquired portfolio. When you look at that portfolio, do you still view it as held for investment or are any of those loans – now that they have been mark-to-market, do you view any of the acquired loans from TRMT to be held for sale?

We hold these loans for investment and expect that we'll hold them throughout the investment cycle. And the accounting treatment was really driven by GAAP requirements where it was not a business combination under the GAAP requirements. So, we had to go to purchase accounting.

Okay, so you have that discount. Were there any intangibles or goodwill or identifiable intangibles that also came out? I'm just curious whether those are in or not in your book value figure that you reflect?

No. No, intangibles in this accounting. And we expect the accretion to occur fairly rapidly because it's mostly associated with…

As the loans pay off, right? There's somewhat seasoned, some of them. Yeah.

Exactly.

So, a little noisy now. We'll certainly want to focus on the adjusted figure. As you say, that reflects distributable. And that's the basis that we should look out for coverage of your $0.15 dividend going forward.

Yeah, absolutely.

When I look at the originations in the quarter, it's heavily weighted, not predominantly, but 40-some-percent in multifamily. And would you say going forward that you would like to keep somewhere between 40% and 50% of the portfolio in the very strong multifamily asset class?

I think on a combined basis, Steve, between office and multifamily, we're probably about 60%. We certainly would like to keep multifamily as a significant contributor to the balance sheet. That space is, as you know, is incredibly competitive. There's quite a bit of yield compression there. I think our portfolio might be – I don't believe we're quite at 40% on multis. I think we might be something less than that currently. But we would like to, on an opportunistic basis, put more multis on to the balance sheet. We'd also like to round that out with additional industrial, obviously. And given that the markets have stabilized and somewhat at retail, we see opportunities there. We're also seeing opportunities in student housing. We were a little bit shy before because we thought that was going to be more impacted by COVID than it was and it seems to have come off pretty well. So, we're excited with that product as well. Hopefully, with the – or we will, with the increased scale that we have here, we're going to be able to broaden the product types that we're going to have on the balance sheet.

My final question, it sounds like you will, maybe in the fourth quarter, next time we have a call and get together, you may have some additional comments to share about credit facilities beyond your existing Citi and UBS facilities. But looking ahead even farther out into 2022, how large would your portfolio have to be before you feel you would be in a position to possibly execute a small CLO transaction? I know they're normally over $500 million and your portfolio is about $430 million. But is that something that you think about or aspire to do at some point in the next year or two?

We absolutely think about it. That market, as you're aware, is extremely robust right now and the increased leverage that you can get there as well as the more efficient cost of capital is terrific. And I think you're right. I think you need to be at about $500 million for that to be efficient for the issuer. So, it is something that we discuss it and we think about it. And long-term, as the portfolio grows, it will certainly be taken into consideration.

[Operator Instructions]. Showing no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Tom Lorenzini for any closing remarks.

Thanks, Gary. 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 is now concluded. Thank you for attending today's presentation. You may now disconnect