SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Note ~~11.~~9. Income Taxes

We ~~intend to elect~~have elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the ~~IRC, effective for our 2020 taxable year.~~IRC. Accordingly, we generally are not, and will not be, subject to U.S. federal income tax, provided that we meet certain distribution and other requirements. We are subject to certain state and local taxes, certain of which amounts are or will be reported as income taxes in our condensed consolidated statements of operations.

Note 10. Weighted Average Common Shares

We calculate net income per common share - basic using the two class method. We calculate net income per common share - diluted using the more dilutive of the two class or treasury stock method. Unvested share awards are considered participating securities and the related impact on earnings are considered when calculating net income per common share - basic and net income per common share - diluted.

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,
	2023		2022
Numerators:
Net income	$	7,803	$	11,126
Net income attributable to unvested share awards	(67)		(70)
Net income used in calculating net income per common share - basic and diluted	$	7,736	$	11,056

Denominators
Weighted average common shares outstanding - basic	14,582		14,505
Effect of dilutive securities: unvested share awards	—		14
Weighted average common shares outstanding - diluted	14,582		14,519

Net income per common share - basic and diluted	$	0.53	$	0.76

Note ~~12.~~11. Commitments and Contingencies

~~Unfunded Loan Commitments~~

As of March 31, ~~2021,~~2023, we had unfunded loan commitments of ~~$28,613~~$45,779 related to our loans held for investment that are not reflected in our condensed consolidated balance ~~sheet.~~sheets. These unfunded loan commitments had a weighted average initial maturity of ~~2.6~~1.4 years as of March 31, ~~2021.~~2023. See Note 53 for further information related to our loans held for investment.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form ~~10-Q.~~10-Q and in our 2022 Annual Report.

OVERVIEW (dollars in thousands, except share data)

We are a Maryland ~~statutory trust. We were previously registered under the 1940 Act, as a closed-end management investment company.~~REIT. Our ~~investment objective while we operated as a registered investment company was investing in equity securities of real estate companies.~~

On January 5, 2021, the SEC issued an order granting our request to deregister as an investment company under the 1940 Act. As a result, we changed our SEC registration to a reporting company under the Exchange Act. The issuance of the deregistration order enabled us to proceed with full implementation of our new business ~~mandate to operate as a real estate investment trust that focuses primarily~~strategy is focused on originating and investing in floating rate first mortgage ~~whole~~ loans ~~secured by middle market and transitional CRE. As a result of these changes~~in the $15,000 to our business, we have not provided a comparison of our financial condition, any changes to financial conditions and results of operations to prior periods in which we were operating as a registered investment company because it would not be useful to our shareholders. The discussion herein is principally limited to our operations during the period following the SEC’s issuance of the deregistration order on January 5, 2021 to March 31, 2021. The results of operations from January 1, 2021 through January 4, 2021 were not material to our condensed consolidated financial statements and have not been presented or discussed separately, but they are included in our results of operations for the three months ended March 31, 2021.

~~Under our new business strategy of originating and investing in first mortgage whole loans~~$75,000 range, secured by middle market and transitional CRE ~~we define middle market CRE as commercial~~ properties that have values up to ~~$100,000 and~~$100,000. We define transitional CRE as commercial properties subject to redevelopment or repositioning activities that are expected to increase the value of the properties. ~~These assets~~Our mortgage loans are classified as loans held for investment in our condensed consolidated balance ~~sheet. Loans held for investment are reported at cost, net of any unamortized loan fees and origination costs as applicable, unless the assets are deemed impaired.~~sheets.

~~Our Manager~~Tremont is registered with the Securities and Exchange Commission, or SEC, as an investment adviser under the Investment Advisers Act of 1940, as amended. We believe that ~~our Manager~~Tremont provides us with significant experience and expertise in investing in middle market and transitional CRE.

We operate our business in a manner that is consistent with our qualification for taxation as a REIT under the IRC. As such, we generally are not subject to U.S. federal income tax, provided that we meet certain distribution and other requirements. We also operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act of 1940, ~~Act.~~

As noted earlier in this Quarterly Report on Form 10-Q, on April 26, 2021, we entered into the Merger Agreement with TRMT pursuant to which we have agreed, on the terms and subject to the conditions set forth therein, to consummate the Merger and the other Transactions, subject to the satisfaction or waiver of certain conditions. Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the Effective Time, each of TRMT's common shares issued and outstanding immediately prior to the Effective Time will be converted into the right to receive the Exchange Ratio of one newly issued RMRM Common Share, subject to adjustment as described in the Merger Agreement, with cash paid in lieu of fractional shares. Under the Merger Agreement, the Exchange Ratio is fixed and will not be adjusted to reflect changes in the market price of our common sharesamended, or the TRMT Common Shares prior to the Effective Time. Pursuant to the Merger Agreement, at the Effective Time, any unvested common share awards outstanding under TRMT's equity compensation plan generally will be converted into our unvested Common Share award under our equity compensation plan, subject to substantially similar vesting requirements and other terms and conditions, determined by multiplying the number of TRMT's unvested common shares subject to such award by the Exchange Ratio (rounded down to the nearest whole number). Pursuant to the Merger Agreement, effective upon consummation of the Merger, our Declaration of Trust will be amended to, among other things, change our name to "Seven Hills Realty Capital” and provide our board of trustees authority to effect the conversion of us into a Maryland real estate investment trust without shareholder approval. Following the consummation of the Merger, our common shares will continue to trade on Nasdaq under the new ticker symbol “SHRC”.

The completion of the Merger is subject to the satisfaction or waiver of various conditions, including, among other things: (1) approval of the Merger and the other Transactions to which TRMT is a party by at least a majority of all the votes entitled to be cast by holders of its outstanding common shares at the special meeting of its shareholders held for that purpose;

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(2) approval of the issuance of our Common Shares to be issued in the Merger, or the Merger Share Issuance, by at least a majority of all the votes cast by the holders of outstanding of our Common Shares entitled to vote at the special meeting of our shareholders at which a quorum is present and held for that purpose; (3) the absence of any law or order by any governmental authority prohibiting, making illegal, enjoining or otherwise restricting, preventing or prohibiting the consummation of the Merger and the other Transactions; (4) the effectiveness of the registration statement on Form S-4, or the Form S-4, to be filed by us with the SEC to register our Common Shares to be issued in the Merger; (5) Nasdaq’s approval of the listing of our Common Shares to be issued in the Merger, subject to official notice of issuance; and (6) the receipt of certain tax opinions from each party’s tax counsel. The Merger is expected to close in the third quarter of 2021, and the Merger Agreement provides that either party may terminate the agreement if the Merger is not consummated by December 31, 2021. The Merger is intended to qualify as a tax-free reorganization under the Internal Revenue Code of 1986, as amended, and to provide a tax-free exchange for TRMT's shareholders for our Common Share consideration TRMT receives in the Merger, except that TRMT's shareholders generally may recognize gain or loss with respect to cash received in lieu of fractional shares of our Common Shares.

The Merger Agreement contains certain customary representations, warranties and covenants, including, among others, covenants with respect to the conduct of our and TRMT’s respective businesses prior to closing, subject to certain consent rights by us and TRMT, respectively, and covenants prohibiting us and TRMT from soliciting, providing information or entering into discussions concerning TRMT competing proposals (generally defined as proposals for 20% or more of the assets, revenues or earnings or equity of the applicable party), subject to certain exceptions.

The Merger Agreement contains certain termination rights for both us and TRMT, including that under specified circumstances, either party is entitled to terminate the Merger Agreement to accept a superior proposal (generally defined as proposals for 75% or more of the assets, revenues or earnings or equity of such party, which proposal such party’s board of trustees (or an authorized committee thereof) has determined in good faith, after consultation with outside financial advisors and outside legal counsel, (1) would, if consummated, result in a transaction that is more favorable to the shareholders of such party from a financial point of view than the Merger and the other Transactions, (2) for which the third party has demonstrated that the financing for such superior proposal is fully committed or is reasonably likely to be obtained, and (3) which is reasonably likely to receive all required approvals from any governmental authority and otherwise reasonably likely to be consummated on the terms proposed); provided that TRMT may only terminate the Merger Agreement after it has held a special meeting of its shareholders for the purpose of approving the Merger. Each party is required to pay the other party a termination fee of $2,156 plus the other party’s reasonable fees and expenses under certain circumstances related to such party’s change in recommendation, breach or termination in connection with a superior proposal. Except with respect to the foregoing, all fees and expenses incurred in connection with the Merger and the other Transactions will be paid by the party incurring those expenses, except that we and TRMT will share equally any filing fees incurred in connection with the filing of the Form S-4 and the related joint proxy statement/prospectus.

The Merger, the Merger Share Issuance and the other Transactions and the terms thereof were evaluated, negotiated and recommended, as applicable, to each of our and TRMT’s board of trustees by special committees of our and TRMT’s board of trustees, respectively, each comprised solely of our and TRMT’s disinterested, independent trustees, respectively, and were separately unanimously approved and adopted by our and TRMT’s independent trustees and by our and TRMT’s board of trustees, with independent trustees unanimously approving the Merger, the Merger Share Issuance and the other Transactions, as applicable. UBS Securities LLC acted as financial advisor to the special committee of our board of trustees and Citigroup Global Markets Inc. acted as financial advisor to the special committee of TRMT's Board of Trustees.

For further information regarding the Merger and the other Transactions, see Notes 1, 9 and 10 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investment and Financing Liquidity and Resources” of this Quarterly Report on Form 10-Q.

~~COVID-19 Pandemic~~

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, the United States declared a national emergency concerning this pandemic and several states and municipalities have declared public health emergencies.

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We and our Manager are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including the ability of our borrowers to withstand the current economic conditions and continue to fund their debt service obligations owed and due to us and the status of our operations, liquidity and capital needs and resources. We are also conducting financial modeling and sensitivity analyses regularly, actively communicating with our borrowers, our lender and other key constituents and stakeholders in order to help assess market conditions, opportunities, best practices and mitigate risks and potential adverse impacts, and continuously monitoring, with the assistance of counsel and other specialists, possible government relief funding sources and other programs that may be available to us or our borrowers to enable us and them to operate through the current economic conditions and enhance their ability to fund their debt service obligations owed and due to us.

The U.S. economy has been growing as COVID-19 vaccinations are increasingly administered, commercial activities increasingly return to pre-pandemic practices and operations, and as a result of recent and expected future government spending on COVID-19 pandemic relief, infrastructure and other matters. However, there remains uncertainty as to the ultimate duration and severity of COVID-19 pandemic on commercial activities, including risks that may arise from mutations or related strains of the virus, the ability to successfully administer vaccinations to a sufficient number of persons or attain immunity to the virus by natural or other means to achieve herd immunity, and the impact on the U.S. economy that may result from the inability of other countries to administer vaccinations to their citizens or their citizens’ ability to otherwise achieve immunity to the virus.

There are extensive uncertainties surrounding the COVID-19 pandemic and its aftermath and, as a result, we are unable to determine what the ultimate impact will be on our borrowers’ and other stakeholders’ businesses, operations, financial results and financial position. For further information and risks relating to the COVID-19 pandemic on us and our business, and the various actions our Manager has taken in response to the COVID-19 pandemic, see our "Summary of Principal Risk Factors" included in our Current Report on Form 8-K filed on March 24, 2021.

~~Book Value per Common Share~~

~~The table below calculates our book value per common share:~~


	~~March 31, 2021~~
~~Shareholders' equity~~	$	~~193,244~~
~~Total outstanding common shares~~	~~10,202~~
~~Book value per common share~~	$	~~18.94~~

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~~Our Loan Portfolio~~

~~The table below details overall statistics for our loan portfolio as of March 31, 2021 and December 31, 2020:~~

As of March 31, 2021 (Successor Basis) As of December 31, 2020 (Predecessor Basis)
Number of loans 7 5
Total loan commitments $ 177,195 $ 111,720
Unfunded loan commitments (1)(2)
$ 28,613 $ 18,857
Principal balance (2)
$ 148,652 $ 92,863
Unamortized net deferred origination fees $ (1,405) $ (984)
Carrying value $ 147,247 $ 91,879
Weighted average coupon rate 4.99 % 5.08 %
Weighted average all in yield (3)
5.65 % 5.71 %
Weighted average maximum maturity (years) (4)
4.3 4.2
Weighted average risk rating 3.0 3.0
Weighted average LTV (5)
67 % 68 %

~~(1) Unfunded loan commitments are primarily used to finance property and building improvements and leasing capital and are generally funded over the term of the loan.~~

~~(2) The principal balance at March 31, 2021 includes $69 of capitalized interest that does not reduce the amount of unfunded loan commitments.~~

~~(3) All in yield represents the yield on a loan, excluding any repurchase debt funding applicable to the loan and including amortization of deferred fees over the initial term of the loan.~~

~~(4) Maximum maturity assumes all borrower loan extension options have been exercised, which options are subject to the borrower meeting certain conditions.~~

~~(5) LTV represents the initial loan amount divided by the underwritten in-place value of the underlying collateral at closing.~~

~~Loan Portfolio Details~~

~~The table below details our loan portfolio as of March 31, 2021:~~

Location Property Type Origination Date Committed Principal Amount Principal
Balance Coupon Rate
All in
Yield (1)
Maximum Maturity(2)
(date)
LTV(3)
Risk Rating
First mortgage whole loans
Downers Grove, IL Office 09/25/2020 $ 30,000 $ 29,500 L + 4.25% L + 4.69% 11/25/2024 67 % 3
Durham, NC Lab 12/17/2020 21,500 13,500 L + 4.35% L + 5.20% 12/17/2025 57 % 3
Los Angeles, CA Retail 12/17/2020 24,600 17,429 L + 4.25% L + 5.09% 12/17/2024 67 % 3
Aurora, IL Office / Industrial 12/18/2020 16,500 14,710 L + 4.35% L + 5.04% 12/18/2024 73 % 3
Berkeley, CA Lab 12/30/2020 19,120 17,998 L + 4.35% L + 4.85% 12/30/2025 75 % 3
Miami, FL Office 01/19/2021 10,900 10,900 L + 4.50% L + 5.47% 01/19/2025 68 % 3
Olmstead Falls, OH Multifamily 01/28/2021 54,575 44,615 L + 4.00% L + 4.65% 01/28/2026 63 % 3
Total/weighted average $ 177,195 $ 148,652 L + 4.22% L + 4.88% 67 % 3

~~(1)All in yield represents the yield on a loan, excluding any repurchase debt funding applicable to the loan and including amortization of deferred fees over the initial term of the loan.~~

~~(2)Maximum maturity assumes all borrower loan extension options have been exercised, which options are subject to the borrower meeting certain conditions.~~

~~(3) LTV represents the initial loan amount divided by the underwritten in-place value of the underlying collateral at closing.~~

As of March 31, 2021, we had $177,195 in aggregate loan commitments, consisting of a diverse portfolio, geographically and by property type, of 7 first mortgage whole loans. All of the loans in our portfolio are structured with risk mitigation mechanisms, such as cash flow sweeps or interest reserves, to help protect us against investment losses. In addition, we continue to actively engage with our borrowers regarding their execution of the business plan for the underlying collateral, among other things.

~~As of April 30, 2021, all of our borrowers had paid all of their debt service obligations owed and due to us and none of the loans included in our investment portfolio were in default.~~

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In April 2021, we originated a first mortgage whole loan of $34,275 to refinance an office/industrial property with 288,275 square feet located in Colorado Springs, Colorado. This loan requires the borrower to pay interest at the floating rate of LIBOR plus a premium of 450 basis points per annum. This floating rate loan includes an initial funding of $28,970 and a future funding allowance of $5,305 for tenant improvements, leasing commissions and capital expenditures and has a three year initial term with one one-year extension option, subject to the borrower meeting certain conditions.

Also in April 2021, we originated a first mortgage whole loan of $39,240 to finance the acquisition of two cold storage industrial buildings located in Londonderry, NH. This loan requires the borrower to pay interest at the floating rate of LIBOR plus a premium of 400 basis points per annum. This floating rate loan includes an initial funding of $34,200 and a future funding allowance of $5,040 for tenant improvements, leasing commissions and capital expenditures and has a three year initial term with two one-year extension options, subject to the borrower meeting certain conditions.

We did not have any impaired loans, non-accrual loans or loans in default as of March 31, 2021; thus, we did not record a reserve for loan loss as of that date. For further information regarding our risk rating policy, see Notes 3 and 5 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. However, depending on the duration and severity of the COVID-19 pandemic and the current economic downturn, our borrowers' businesses, operations and liquidity may be materially adversely impacted. As a result, they may become unable to pay their debt service obligations owed and due to us, which may result in the impairment of those loans, and our recording loan loss reserves with respect to those loans and recording of any income with respect to those loans on a nonaccrual basis. For further information regarding the risks associated with our loan portfolio, see the risk factors identified in our "Summary of Principal Risk Factors" included in our Current Report on Form 8-K filed on March 24, 2021.

~~Financing Activities~~

On February 18, 2021, one of our wholly owned subsidiaries entered into our Master Repurchase Agreement with UBS. As of March 31, 2021, we had no outstanding balance under our Master Repurchase Facility and, as of April 30, 2021, we had a $23,172 aggregate outstanding principal balance under our Master Repurchase Facility. See Note 6 to the Notes to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

~~RESULTS OF OPERATIONS~~

As a result of the changes to our business, we have not provided a comparison of our financial statements to prior periods in which we were operating as a registered investment company because it would not be useful to our shareholders. The discussion herein is principally limited to our operations during the period following the SEC's issuance of the deregistration order on January 5, 2021 to March 31, 2021.

~~For the three months ended March 31, 2021, our net income was $350, or $0.03 per share.~~

1940 Act.

Non-GAAP Financial Measures

We present Distributable Earnings, Distributable Earnings per common share and Adjusted Book Value per common share, which isare considered a “non-GAAP financial ~~measure”~~measures” within the meaning of the applicable SEC rules. ~~Distributable Earnings does~~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 ~~an alternative~~alternatives to net income or net income per common share determined in accordance with GAAP or as an indication of our cash flows from operations determined in accordance with GAAP, a measure of our liquidity or operating performance or an indication of funds available for our cash needs. In addition, our ~~methodology~~methodologies for calculating ~~Distributable Earnings~~these non-GAAP financial measures may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures; therefore, our reported Distributable Earnings, Distributable Earnings per common share may not be comparable to distributable earnings and distributable earnings per common share as reported by other companies.

We believe that Adjusted Book Value per common share is a meaningful measure of our capital adequacy because it excludes the impact of certain non-cash estimates or adjustments, including the unaccreted purchase discount resulting from the excess of the fair value of the loans Tremont Mortgage Trust, or TRMT, then held for investment and that we acquired as a result of our merger with TRMT on September 30, 2021, or the Merger, over the consideration we paid in the Merger and our allowance for credit losses for our loan portfolio and unfunded loan commitments. Adjusted Book Value per common share does not represent book value per common share or alternative measures determined in accordance with GAAP. Our 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, our Adjusted Book Value per common share may not be comparable to the ~~distributable earnings as~~adjusted book value per common share reported by other companies.

In order to maintain our qualification for taxation as a REIT, we are generally required to distribute substantially all of our taxable income, subject to certain adjustments, to our shareholders. We believe 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 and Distributable Earnings per common share may be a useful ~~indicator~~indicators of distributions to our shareholders and ~~is a measure~~are measures that isare considered by our Board of Trustees when determining the amount of ~~such~~ distributions. We believe that Distributable Earnings ~~provides~~and 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. ~~This measure helps~~These measures help us to evaluate our performance excluding the effects of certain transactions, the variability of any management incentive fees that may be paid or payable and GAAP adjustments that we believe are not necessarily indicative of

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our current loan portfolio and operations. In addition, Distributable Earnings is used in determining the amount of base management and management incentive fees payable by us to ~~our Manager~~Tremont under our management agreement.

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Distributable Earnings

We calculate 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 ~~our Manager,~~Tremont, if any; (b) depreciation and amortization, if any; (c) non-cash equity compensation ~~expense, if any;~~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. This is generally at the time a loan is repaid, or in the case of foreclosure, when the underlying asset is sold, but may also be when, in our determination, it is nearly certain that all amounts due will not be collected. The realized loss amount reflected in Distributable Earnings will equal the difference between the cash received or expected to be received and the carrying value of the asset.

Adjusted Book Value per Common Share

The table below calculates our book value per common share:


	March 31, 2023		December 31, 2022
Shareholders' equity	$	267,747	$	271,579
Total outstanding common shares	14,707		14,709
Book value per common share	18.21		18.46
Unaccreted purchase discount per common share (1)	0.38		0.46
Allowance for credit losses per common share (2)	0.38		—
Adjusted Book Value per common share	$	18.97	$	18.92

(1)Excludes the impact of the unaccreted purchase discount resulting from the excess of the fair value of the loans TRMT then held for investment and that we acquired as a result of our Merger over the consideration we paid in the Merger. The purchase discount of $36,443 was allocated to each acquired loan and is being accreted into income over the remaining term of the respective loan. As of March 31, 2023 and December 31, 2022, the unaccreted purchase discount was $5,519 and $6,703, respectively.

(2)Excludes the impact of our allowance for credit losses. As of March 31, 2023, our allowance for credit losses for our loan portfolio and unfunded loan commitments was $5,608. As of December 31, 2022, we did not have an allowance for credit losses. For further information on our adoption of ASU No. 2016-13, see Notes 2 and 3 to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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Our Loan Portfolio

The table below details overall statistics for our loan portfolio as of March 31, 2023 and December 31, 2022:


	As of March 31, 2023			As of December 31, 2022
Number of loans	25			27
Total loan commitments	$	674,475		$	727,562
Unfunded loan commitments (1)	$	45,779		$	49,007
Principal balance	$	628,696		$	678,555


Carrying value	$	617,935		$	669,929
Weighted average coupon rate	8.57		%	8.07		%
Weighted average all in yield (2)	9.06		%	8.57		%
Weighted average floor	0.65		%	0.62		%
Weighted average maximum maturity (years) (3)	3.1			3.3
Weighted average risk rating	2.9			2.9
Weighted average LTV (4)	67		%	68		%

(1)Unfunded loan commitments are primarily used to finance property improvements and leasing capital, and are generally funded over the term of the loan.

(2)All in yield represents the yield on a loan, including amortization of deferred fees over the initial term of the loan and excluding any purchase discount accretion.

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

(4)LTV represents the initial loan amount divided by the underwritten in-place value of the underlying collateral at closing.

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Loan Portfolio Details

The table below details our loan portfolio as of March 31, 2023:


#	Location	Property Type	Origination Date	Committed Principal Amount		Principal Balance		Coupon Rate	All in Yield (1)	Maximum Maturity (date) (2)	LTV (3)		Risk Rating
	First mortgage loans
1	Olmsted Falls, OH	Multifamily	01/28/2021	$	54,575	$	46,084	L + 4.00%	L + 4.64%	01/28/2026	63	%	3
2	Dallas, TX	Office	08/25/2021	50,000		43,450		L + 3.25%	L + 3.61%	08/25/2026	72	%	4
3	Passaic, NJ	Industrial	09/08/2022	47,000		38,440		S + 3.85%	S + 4.22%	09/08/2027	69	%	3
4	Brandywine, MD	Retail	03/29/2022	42,500		42,200		S + 3.85%	S + 4.25%	03/29/2027	62	%	2
5	West Bloomfield, MI	Retail	12/16/2021	42,500		37,594		L + 3.85%	L + 4.66%	12/16/2024	59	%	3
6	Starkville, MS	Multifamily	03/22/2022	37,250		36,787		S + 4.00%	S + 4.32%	03/22/2027	70	%	4
7	Farmington Hills, MI	Multifamily	05/24/2022	31,520		28,859		S + 3.15%	S + 3.50%	05/24/2027	75	%	3
8	Downers Grove, IL	Office	09/25/2020	30,000		29,500		L + 4.25%	L + 4.69%	11/25/2024	67	%	2
9	Las Vegas, NV	Multifamily	06/10/2022	28,950		24,729		S + 3.30%	S + 4.03%	06/10/2027	60	%	3
10	St. Louis, MO	Office	12/19/2018	28,866		28,866		L + 3.25%	L + 3.74%	06/20/2023	72	%	3
11	Plano, TX	Office	07/01/2021	27,385		26,307		L + 4.75%	L + 5.16%	07/01/2026	78	%	3
12	Carlsbad, CA	Office	10/27/2021	24,750		23,825		L + 3.25%	L + 3.58%	10/27/2026	78	%	3
13	Fontana, CA	Industrial	11/18/2022	24,355		22,000		S + 3.75%	S + 4.28%	11/18/2026	72	%	3
14	Downers Grove, IL	Office	12/09/2021	23,530		23,530		L + 4.25%	L + 4.57%	12/09/2026	72	%	3
15	Dublin, OH	Office	02/18/2020	22,507		22,507		S + 4.25%	S + 4.75%	08/16/2023	33	%	2
16	Bellevue, WA	Office	11/05/2021	21,000		20,000		L + 3.85%	L + 4.19%	11/05/2026	68	%	3
17	Portland, OR	Multifamily	07/09/2021	19,687		19,687		L + 3.57%	L + 3.97%	07/09/2026	75	%	3
18	Ames, IA	Multifamily	11/15/2021	18,000		17,820		L + 3.80%	L + 4.13%	11/15/2026	71	%	2
19	Yardley, PA	Office	12/19/2019	16,500		15,865		L + 4.58%	L + 5.97%	12/19/2024	75	%	4
20	Sandy Springs, GA	Retail	09/23/2021	16,489		15,287		L + 3.75%	L + 4.10%	09/23/2026	72	%	3
21	Delray Beach, FL	Retail	03/18/2022	16,000		15,362		S + 4.25%	S + 4.91%	03/18/2026	56	%	3
22	Westminster, CO	Office	05/25/2021	15,750		14,739		L + 3.75%	L + 4.25%	05/25/2026	66	%	2
23	Portland, OR	Multifamily	07/30/2021	13,400		13,400		L + 3.57%	L + 3.98%	07/30/2026	71	%	3
24	Seattle, WA	Multifamily	08/16/2021	12,500		12,397		L + 3.55%	L + 3.89%	08/16/2026	70	%	3
25	Allentown, PA	Industrial	01/24/2020	9,461		9,461		S + 3.50%	S + 4.03%	01/24/2025	67	%	1

	Total/weighted average			$	674,475	$	628,696	+ 3.80%	+ 4.28%		67	%	2.9

(1)All in yield represents the yield on a loan, including amortization of deferred fees over the initial term of the loan and excluding any purchase discount accretion.

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

(3) LTV represents the initial loan amount divided by the underwritten in-place value of the underlying collateral at closing.

As of March 31, 2023, we had $674,475 in aggregate loan commitments, consisting of a diverse portfolio, geographically and by property type, of 25 first mortgage loans. As of March 31, 2023, we had three loans representing approximately 15% of the amortized cost of our loan portfolio with a loan risk rating of “4” or “higher risk”.

All of the loans in our portfolio are structured with risk mitigation mechanisms, such as cash flow sweeps or interest reserves, to help protect us against investment losses. In addition, we actively engage with our borrowers regarding their execution of the business plans for the underlying collateral, among other things.

As of March 31, 2023 and April 20, 2023, all of our borrowers had paid all of their debt service obligations owed and due to us.

We did not have any past due loans or nonaccrual loans as of March 31, 2023. However, our borrowers' businesses, operations and liquidity may be materially adversely impacted by current inflationary pressures, rising or sustained high interest rates, supply chain issues or a prolonged economic slowdown or recession could amplify those negative impacts. As a result, they may become unable to pay their debt service obligations owed and due to us, which may result in an increased allowance for credit losses and/or recognition of income on a nonaccrual basis. For further information regarding our loan portfolio and risk rating policy, see Note 3 to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, "—Factors Affecting our Operating Results" and "Warning Concerning Forward-Looking Statements" elsewhere in this Quarterly Report on Form 10-Q and the risk factors identified in Part I, Item 1A, “Risk Factors”, of our 2022 Annual Report.

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Financing Activities

The table below is an overview of our Secured Financing Facilities as of March 31, 2023:


Facility	Maturity Date	Principal Balance		Unused Capacity		Maximum Facility Size		Collateral Principal Balance

Citibank Master Repurchase Facility	03/15/2025	$	150,101	$	64,899	$	215,000	$	205,380
UBS Master Repurchase Facility	02/18/2024	133,108		58,892		192,000		182,530

BMO Facility	Various	84,855		65,145		150,000		113,745
Wells Fargo Master Repurchase Facility	03/11/2025	67,426		57,574		125,000		89,177
Total		$	435,490	$	246,510	$	682,000	$	590,832

The table below details our Secured Financing Facilities activities during the three months ended March 31, ~~2021,~~2023:


	Carrying Value
Balance at December 31, 2022	$	471,521

Repayments	(38,125)
Deferred fees	(318)
Amortization of deferred fees	307

Balance at March 31, 2023	$	433,385

As of March 31, 2023, outstanding advancements under our Secured Financing Facilities had a weighted average interest rate of 6.76% per annum, excluding associated fees and expenses. As of March 31, 2023 and April 20, 2023, we had a $435,490 and $426,340, respectively, aggregate outstanding principal balance under our Secured Financing Facilities.

As of March 31, 2023, we were in compliance with all covenants and other terms under our Secured Financing Facilities.

For further information regarding our Secured Financing Facilities, see Note 4 to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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RESULTS OF OPERATIONS (amounts in thousands, except per share data)

Three Months Ended March 31, 2023 Compared to Three Months Ended December 31, 2022:


	Three Months Ended
	March 31, 2023		December 31, 2022		Change		% Change
INCOME FROM INVESTMENTS:
Interest and related income	$	15,856	$	15,205	$	651	4.3	%
Purchase discount accretion	1,185		1,522		(337)		(22.1	%)
Less: interest and related expenses	(7,694)		(7,439)		(255)		3.4	%
Income from investments, net	9,347		9,288		59		0.6	%

OTHER EXPENSES:
Base management fees	1,072		1,070		2		0.2	%
General and administrative expenses	796		719		77		10.7	%
Reimbursement of shared services expenses	643		733		(90)		(12.3	%)
Reversal of credit losses	(987)		—		(987)		n/m

Total other expenses	1,524		2,522		(998)		(39.6	%)
Income before income taxes	7,823		6,766		1,057		15.6	%
Income tax expense	(20)		(6)		(14)		n/m
Net income	$	7,803	$	6,760	$	1,043	15.4	%

Weighted average common shares outstanding - basic and diluted	14,582		14,579		3		—	%


Net income per common share - basic and diluted	$	0.53	$	0.46	$	0.07	15.2	%

n/m - not meaningful

Interest and related income. The increase in interest and related income was primarily the result of higher benchmark interest rates, partially offset by loan repayments. The weighted average benchmark interest rate was 4.77% as of March 31, 2023 as compared to 4.29% as of December 31, 2022.

Purchase discount accretion. The decrease in purchase discount accretion was primarily the result of less amounts outstanding on acquired loans during the three months ended March 31, 2023 as compared to the three months ended December 31, 2022.

Interest and related expenses. The increase in interest and related expenses was primarily the result of higher benchmark interest rates. The weighted average benchmark interest rate was 4.75% as of March 31, 2023 as compared to 4.33% as of December 31, 2022, partially offset by loan repayments.

General and administrative expenses. The increase in general and administrative expenses was primarily due to increases in professional fees during the three months ended March 31, 2023 as compared to the three months ended December 31, 2022.

Reimbursement of shared services expenses. Reimbursement of shared services expenses represents reimbursement of the costs for the services that Tremont arranges on our behalf from RMR. The decrease in reimbursement of shared services expenses was primarily the result of an adjustment recognized during the three months ended December 31, 2022 to increase our estimate of costs for the usage of shared services from RMR for the year ended December 31, 2022 to reflect actual costs incurred.

Reversal of credit losses. The reversal of credit losses represents the decrease in the allowance for credit losses on our loan portfolio and unfunded commitments. The decrease in the allowance for credit losses during the three months ended March 31, 2023 was primarily attributable to favorable changes in the current macroeconomic outlook, most notably in near-term CRE pricing forecasts, and loan repayments.

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Income tax expense. Income tax expense represents income taxes paid or payable by us in certain jurisdictions where we are subject to state income taxes.

Net income. The increase in net income was due to the changes noted above.

Reconciliation of Net Income to Distributable Earnings ~~was equal~~

The table below demonstrates how we calculate Distributable Earnings and Distributable Earnings per common share and provides a reconciliation of these non-GAAP measures to net ~~income.~~income:


	Three Months Ended
	March 31, 2023		December 31, 2022

Net income	$	7,803	$	6,760



Non-cash equity compensation expense	120		129
Non-cash accretion of purchase discount	(1,185)		(1,522)
Reversal of credit losses	(987)		—

Distributable Earnings	$	5,751	$	5,367




Weighted average common shares outstanding - basic and diluted	14,582		14,579


Net income per common share - basic and diluted	$	0.53	$	0.46
Distributable Earnings per common share - basic and diluted	$	0.39	$	0.37

Factors Affecting Operating Results

Our results of ~~our~~ operations are impacted by a number of factors and primarily depend on the interest income from our investments and the financing and other costs associated with our business. Our operating results are also impacted by general CRE market conditions generally and in the sectors relating to our loans and unanticipated defaults by our ~~borrowers.~~

borrowers, if any. For further information regarding the risks associated with our loan portfolio, see Note 3 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 and elsewhere in this Management Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q and Part I, Item 1A, "Risk Factors" of our 2022 Annual Report.

Credit Risk. We are subject to the credit risk of our borrowers in connection with our investments. We seek to mitigate this risk by utilizing a comprehensive underwriting, diligence and investment selection process and by ongoing monitoring of our investments. Nevertheless, unanticipated credit losses could occur that ~~could~~may adversely impact our operating results.

Changes in Fair Value of our Assets. We generally intend to hold our investments for their contractual terms, unless repaid earlier by the ~~borrower.~~borrowers. We evaluate the credit quality of each of our ~~investments for impairment~~loans at least quarterly. ~~Impairments occur when it is probable that we will not be able to collect all amounts due according to the applicable contractual terms.~~ If ~~we determine that~~ a loan is ~~impaired,~~determined to be collateral dependent (because the repayment of the loan is expected to be provided substantially through the operation or sale of the underlying collateral property) and the borrower is experiencing financial difficulties, but foreclosure is not probable, we will record an allowance for credit losses by comparing the collateral's fair value to ~~reduce~~ the ~~carrying value~~amortized cost basis of the ~~loan to an amount that takes into account both~~loan. For collateral-dependent loans for which foreclosure is probable, the ~~present value of expected future cash flows discounted at the loan's contractual effective interest rate and~~related allowance for credit losses is determined using the fair value of ~~any available~~the collateral ~~net of any costs we expect~~compared to ~~incur to realize that value.~~

~~Although we intend to generally hold our investments for their contractual terms or until repaid earlier by~~ the ~~borrower, we may occasionally classify some of our investments as held for sale. Investments held for sale will be carried at the lower of their~~loan's amortized cost or fair value within loans held for sale on our condensed consolidated balance sheet, with changes in fair value recorded through earnings. Fees received from our borrowers on any loans held for sale will be recognized as part of the gain or loss on sale. We do not currently expect to hold any of our investments for trading purposes.

cost.

For further information regarding the risks associated with our loan portfolio, see the risk factors identified in "Summary of Principal Risk Factors" included in our Current Report on Form 8-K filed on March 24, 2021.

Availability of Leverage and Equity. We use leverage to make additional investments that may increase our returns. We may not be able to obtain the expected amount of leverage we desire or its cost may exceed our expectation and, consequently, the returns generated from our investments may be reduced. Our ability to further grow our loan portfolio over time will depend, to a significant degree, upon our ability to obtain additional capital. However, our access to additional capital depends on many factors including the price at which our common shares trade relative to their book value and market lending conditions. See ~~" —Market~~"—Market Conditions" below.

~~Market Conditions.~~ Prior to the COVID-19 pandemic, CRE transaction volumes were increasing, driving demand for CRE loans, and alternative lenders, like us, had gained market share. The outbreak of the COVID-19 pandemic in the first quarter of 2020 led to a sharp decline in economic activity over the first half of 2020. The closing of non-essential businesses, "shelter-in-place" orders, restrictions on travel, cancellations of events and gatherings and limitations on building occupancies implemented to stop or slow the spread of the virus had a substantial negative impact on the CRE market. Many property owners granted lease forbearance to tenants unable or, in some cases, unwilling to make rent payments which, in turn, increased the number of loan forbearance requests by the property owners. In addition, volatility in the capital markets resulted in a substantial widening of credit spreads of commercial mortgage-backed securities, or CMBS, contributing to increased overall borrowing costs for banks and alternative lenders. Uncertainty surrounding the depth and duration of the economic downturn

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~~resulted~~Market Conditions. In response to inflationary pressures the Federal Open Market Committee of the U.S. Federal Reserve has increased the federal funds rate by 450 basis points since March 2022 and has indicated that there may be additional increases. These inflationary pressures and interest rate increases have contributed and continue to contribute to macroeconomic uncertainty and volatility in ~~a severe decline~~the United States and in ~~overall~~the CRE ~~transaction volume and margin calls imposed on lenders, as a result of~~debt markets. Additionally, increased borrowing costs and ~~declining collateral values, contributed to~~concerns of a possible economic recession have resulted in tighter underwriting standards and an overall decline in ~~new loan originations.~~

CRE transactions.

~~The~~Many CRE debt providers have become less willing, or able, to extend credit to borrowers, and those that are extending credit are doing so at lower leverage levels and often with higher credit spreads. Market volatility and the increase in interest rates has not affected all lenders equally. Banks and life insurance companies have reduced their leverage ratios and increased credit spreads, but continued to originate new loans. However, concerns about the capital adequacy and liquidity of the banking sector caused by recent failures of certain banks in March 2023 may result in decreased lending activity from such traditional sources. Lenders that rely on secondary markets ~~began~~ to ~~rebound~~finance their lending activities have also experienced challenges. Credit spreads in the ~~third quarter of 2020. In June 2020, the~~secondary market for commercial mortgage-backed securities, or CMBS, loan delinquency rate was near highs experienced in 2010, but has since steadily declined as defaults have been "cured" by borrowers investing additional capital to support their loans or through loan forbearance. With historically low interest rates across much of the world, investors’ appetite for higher returns has resulted in improvement to the CMBS market. CMBS credit spreads have declined such that newly issued AAA rated, investment grade bonds for conservatively underwritten loan pools with high quality collateral are currently expected to trade at credit spreads at or near those seen prior to the COVID-19 pandemic. Lower rated tranches of CMBS bonds continue to trade with wider yields than prior to the COVID-19 pandemic; however, overall volatility has subsided which we expect to positively impact the alternative lending market. In addition, issuance ofand CRE collateralized loan obligations, or ~~CLOs (financial instruments secured by~~CLO, bonds have widened substantially due to competing demand for alternative fixed income investments and a ~~pool of~~corresponding decrease in the demand for CRE CLO bonds. As a result, some lenders who originate and sell loans ~~and used by lenders~~into the CRE CLO market as a ~~source~~means of ~~funding), has increased while CLO~~financing have chosen to wait to issue bonds until market volatility subsides and credit spreads ~~have declined, providing additional liquidity~~stabilize.

In addition to tighter underwriting standards and increased overall borrowing costs, lenders may experience certain challenges from increasing interest rates on floating rate loan portfolios. While rising interest rates generally result in increased income on floating rate portfolios, the borrowers of floating rate loans may find it more difficult to service their debt. Floating rate lenders often require borrowers to obtain interest rate caps or swaps to help mitigate this risk. While interest rate caps and swaps on loans protect lenders in periods of rising interest rates, the cost to borrowers to obtain new or replace existing interest rate caps or swaps may be prohibitive. These challenges could cause floating rate portfolio amounts overall to decrease and/or losses to be incurred if borrowers are unable to obtain interest rate caps or swaps or service their debt and, as a result, could offset the increase in interest income generated from higher benchmark rates.

Despite the current market conditions and headwinds experienced in the overall CRE lending market, we believe certain alternative lenders, like ~~us.~~

~~The decline in property transaction volume and increased liquidity available~~us, are uniquely positioned to ~~lenders has caused greater competition to fund new loans.~~face these challenges. We believe there will be significant opportunities for alternative lenders that ~~this increased competition amongst~~do not finance their lending activities through the use of CMBS or CRE CLOs, and with available liquidity, to capitalize on challenges that traditional lenders ~~along with significant declines~~may experience. Capital remains available for investment in ~~the LIBOR~~CRE assets, and ~~U.S. treasury index rates has benefited borrowers seeking loans~~certain favored assets, such as multifamily and industrial, continue to refinance high quality properties, particularly multifamily, industrial, life science or research and development/laboratory properties, that are either stabilized or near stabilization. Alternative lenders, like us, can provide flexible, shorter term financing to borrowers that may not be seeking longer term financing options because of economic uncertainty caused by the COVID-19 pandemic. However, despite the improvement of the securitization markets and the increase in lending activity,transact. Additionally, we believe ~~challenges remain.~~

~~The hospitality~~overall CRE transaction activity will improve once market uncertainty and ~~retail sectors~~volatility subside and there are, ~~among those sectors that have been most negatively impacted by the economic downturn. It is unclear how consumer~~ and ~~travel habits will be impacted over the long term during and after the COVID-19 pandemic; if consumer and travel activity do not substantially rebound, we believe that this uncertainty~~ will continue to burden these sectors and lenders with significant exposure to these property types will continue to face challenges. It is still unclear how the shift to flexible work-from-home schedules will impact the office sector and demand for office space going forward. As such, lenders will continue to face underwriting challenges with respect to assumptions related to new leasing, tenant renewal probabilities and occupancy rates for office properties, especially assets located in downtown or central business district markets. Multifamily properties are expected to continue to be, a preferred asset class by most lenders and investors for the near term due to the stability of cash flows and the liquidity available from government sponsored enterprises, such as Fannie Mae or Freddie Mac; however, it is unclear what the impact of the U.S. Centers for Disease Control and Prevention moratorium on tenant evictions will have on the sector and how rent collections will be impacted. Lastly, industrial properties have performed well throughout the downturn and continue to benefit from the shift in consumers’ behavior to increased levels of e-commerce, which has accelerated during the COVID-19 pandemic.

~~The longer-term impact of the COVID-19 pandemic is still uncertain. However, we believe that as the U.S. economy improves and returns to a more stable state, there will be significant~~ opportunities for alternative lenders, like us, to provide creative, flexible debt capital for a wide array of circumstances and business plans.

Changes in ~~Market~~ Interest ~~Rates~~Rates.. With respect to our business operations, increases in interest rates, in general, may cause: (a) the ~~interest expense associated with our variable rate borrowings, if any, to increase; (b) the value of our fixed rate investments, if any, to decline; (c) the~~ coupon rates on our variable rate investments ~~if any,~~ to reset, perhaps on a delayed basis, to higher rates; ~~and (d)~~(b) it to become more difficult and costly for our borrowers, which may negatively impact their ability to repay our ~~investments.~~investments; and (c) the interest expense associated with our variable rate borrowings to increase. See ~~" —Market~~"—Market Conditions" above for a discussion of the current market including interest rates.

Conversely, decreases in interest rates, in general, may cause: (a) the ~~interest expense associated with our variable rate borrowings, if any, to decrease; (b) the value of our fixed rate investments, if any, to increase; (c) the~~ coupon rates on our variable rate investments ~~if any,~~ to reset, perhaps on a delayed basis, to lower rates; ~~and (d)~~(b) it to become easier and more affordable for our borrowers to refinance, and as a result, repay our loans, but may negatively impact our future returns if any such repayment proceeds were to be reinvested in lower yielding ~~investments.~~investments; and (c) the interest expense associated with our variable rate borrowings to decrease.

The interest income on our loans and interest expense on our borrowings float with ~~one month LIBOR.~~benchmark rates, such as LIBOR and SOFR. Because we generally intend to leverage approximately 75% of the amount of our investments, as ~~LIBOR increases,~~benchmark rates increase above the floors of our loans, our income from investments, net of interest and related expenses, will increase. ~~LIBOR decreases~~Decreases in benchmark rates are mitigated by interest rate floor provisions in all but one of our loan agreements with ~~borrowers;~~borrowers, ranging from 0.10% to 3.87%; therefore, changes to income from investments, net, may not move proportionately with the increase or decrease in ~~LIBOR. Based on our loan portfolio at~~benchmark rates. As of March 31, ~~2021,~~2023, the London Interbank Offered Rate, or LIBOR, ~~was 0.11%~~ and ~~would have to~~SOFR were 4.86% and 4.80%, respectively, both of which exceed the ~~floor~~floors established by ~~any~~all of our loans, ~~which~~and as a result none of our loan investments currently ~~range from 0.50% to 1.00%, for us to realize an increase in~~have active interest ~~income.~~rate floors.

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Certain of our loan agreements entered into prior to January 1, 2022 required the borrowers to pay us interest at floating rates based upon LIBOR. LIBOR ~~is currently expected to be~~was phased out for new contracts byas of December 31, 2021 and ~~for pre-existing contracts~~is expected to no longer be available by June 30, 2023. ~~Our Master Repurchase Agreement, with UBS states that at such time as LIBOR shall no longer be made available or used for determining the interest rate~~As of loans, the replacement base rate shall be an alternative benchmark rate (including any mathematical or other adjustments to the benchmark rate (if any) incorporated therein so that the resulting rate approximates LIBOR as close as reasonably possible) as determined by UBS under similar facilities for the financingApril 20, 2023, all of ~~similar assets and is consistent with the pricing index of similarly situated counterparties. We also currently expect that, as a result of any phase out of LIBOR, the interest rates under~~ our ~~loan agreements with borrowers would be~~pre-existing contracts have been amended to replace LIBOR for an alternative benchmark rate (which may include the Secured Overnight Financing Rate, or SOFR or another rate based on SOFR) that will approximate the existing interest rate as calculated in accordance with ~~LIBOR.~~

SOFR.

Size of Portfolio. The size of our loan portfolio, as measured both by the aggregate principal balance and the number of our CRE loans and our other investments, is also an important factor in determining our operating results. Generally, if the size of our loan portfolio grows, the amount of interest income we receive would increase and we may achieve certain economies of scale and diversify risk within our loan portfolio. A larger portfolio, however, may result in increased expenses; for example, we may incur additional interest expense or other costs to finance our investments. Also, if the aggregate principal balance of our loan portfolio grows but the number of our loans or the number of our borrowers does not grow, we could face increased risk by reason of the concentration of our investments.

Prepayment Risk. We are subject to risk that our loan investments will be repaid at an earlier date than anticipated, which may reduce the returns realized on those loans as less interest income may be received over time. Additionally, we may not be able to reinvest the principal repaid at a similar or higher yield of the original loan investment. We seek to limit this risk by structuring our loan agreements with fees required to be paid to us upon prepayment of a loan within a specified period of time before the loan’s maturity; however, unanticipated prepayments could negatively impact our operating results.

LIQUIDITY AND CAPITAL RESOURCES (dollars in thousands, except per share ~~amounts)~~

Under the Merger Agreement, we have agreed to conduct our business in all material respects in the ordinary course of business consistent with past practice. The Merger Agreement contains certain operating covenants that could affect our liquidity and capital resources, but we do not expect any material changes to our liquidity and capital resources prior to consummation of the Merger or, if applicable, the termination of the Merger Agreement, other than those which may occur in the ordinary course of our business. See Note 1 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding the Merger Agreement.

data)

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to fund our lending commitments, repay or meet margin calls resulting from our borrowings, if any, fund and maintain our assets and operations, make distributions to our shareholders and fund other business operating requirements. We require a significant amount of cash to originate, purchase and invest in our target investments, make additional unfunded loan commitment payments, repay principal and interest on our borrowings, make distributions to our shareholders and fund other business operating requirements. The long-term impact of the COVID-19 pandemic and its aftermath on financial markets is uncertain. To the extent that impact is significant, negative and sustained for an extended period, we expect that we may be challenged in accessing capital. Our sources of cash flows include cash on hand, payments of principal, interest and fees we receive on our investments, other cash we may generate from our business and operations and any unused borrowing capacity, including under our ~~Master Repurchase Facility~~Secured Financing Facilities or other repurchase agreements or financing arrangements ~~and~~we may obtain, which may also include bank loans or public or private issuances of debt or equity securities. We believe that these sources of funds will be sufficient to meet our operating and capital expenses, ~~and~~ pay our debt service obligations owed and make any distributions to our shareholders for the next 12 months and for the foreseeable ~~future, subject to the duration and severity of the COVID-19 pandemic and economic impact on our borrowers and their ability to fund their debt service obligations owed to us.~~future. For further information regarding the risks associated with our loan portfolio, see ~~the risk factors identified in "Summary of Principal Risk Factors"~~Note 3 to our Unaudited Condensed Consolidated Financial Statements included in ~~our Current~~Part I, Item 1 and elsewhere in this Management Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form ~~8-K filed on March 24, 2021.~~

10-Q and Part I, Item 1A, "Risk Factors" of our 2022 Annual Report.

Pursuant to the terms of our UBS Master Repurchase Facility, our Citibank Master Repurchase Facility and Wells Fargo Master Repurchase Facility, we may sell to, and later repurchase from, UBS, Citibank and Wells Fargo, the ~~Purchased Assets.~~purchased assets related to the applicable facility. The initial purchase price paid by UBS ~~for~~or Citibank of each ~~Purchased Asset~~purchased asset is up to 75% of the lesser of the market value of the purchased asset or the unpaid principal balance of such purchased asset, subject to UBS’s or Citibank's approval. The initial purchase price paid by Wells Fargo for each purchased asset is up to 75% or 80%, depending on the property type of the purchased asset’s real estate collateral, of the lesser of the market value of the purchased asset or the unpaid principal balance of such purchased asset, and subject to Wells Fargo’s approval. Upon the repurchase of a ~~Purchased Asset,~~purchased asset, we are required to pay UBS, Citibank or Wells Fargo, as applicable, the outstanding purchase price of the ~~Purchased Asset,~~purchased asset, accrued interest and all accrued and unpaid expenses of UBS, Citibank or Wells Fargo, as applicable, relating to such purchased asset.

The ~~pricing rate (or~~ interest ~~rate) relating~~rates related to ~~a Purchased Asset is equal to one month LIBOR~~our Citibank, UBS and Wells Fargo purchased assets are calculated at SOFR plus a ~~customary~~ premium within a fixed range, determined by the debt yield and property type of the ~~Purchased Asset’s~~purchased asset’s real estate collateral. UBS and Citibank each has the discretion to make advancements at margins higher than 75% and Wells Fargo has discretion to make advancements higher than 80%.

Loans issued under the BMO Facility are coterminous with the corresponding pledged mortgage loan investments, are not subject to margin calls and allow for up to an 80% advance rate, subject to certain loan to cost and LTV limits. Interest on advancements under the BMO Facility are calculated at SOFR plus a premium. Loans issued under the BMO Facility are secured by a security interest and collateral assignment of the underlying loans to our borrowers which are secured by real property underlying such loans. We are required to pay an upfront fee equal to a percentage of the aggregate amount of the facility loan, such percentage to be determined at the time of approval of the separate facility loan agreements with BMO, or the BMO Facility Loan Agreements.

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For further information regarding our ~~Master Repurchase Facility,~~Secured Financing Facilities, see Note 64 to ~~the Notes to~~our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, of this Quarterly Report on Form ~~10-Q and "—Overview-Financing Activities" above.~~

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10-Q.

The ~~following~~table below is a summary of our sources and uses of cash flows for the ~~period~~periods presented:


	Three Months Ended March 31, 2021
~~Cash, cash equivalents and restricted cash at beginning of period~~	$	~~103,564~~
~~Net cash used in:~~
~~Operating activities~~	~~(1,385)~~
~~Investing activities~~	~~(55,044)~~
~~Financing activities~~	~~(76)~~
~~Cash, cash equivalents and restricted cash at end of period~~	$	~~47,059~~


	Three Months Ended March 31,
	2023		2022
Cash, cash equivalents and restricted cash at beginning of period	$	71,067	$	26,295
Net cash provided by (used in):
Operating activities	6,577		3,085
Investing activities	50,267		(44,612)
Financing activities	(43,603)		24,194
Cash, cash equivalents and restricted cash at end of period	$	84,308	$	8,962

The increase in cash provided by operating activities for the 2023 period compared to the 2022 period was primarily the result of higher benchmark interest rates, partially offset by the impact of loan repayments. The increase in cash provided by investing activities is primarily due to higher loan repayments in the 2023 period. The increase in cash used in financing activities is primarily due to decreased proceeds received from our Secured Financing Facilities during the 2023 period, repayments on our Secured Financing Facilities and an increase in distributions to our common shareholders for the 2023 period.

Distributions

During the three months ended March 31, 2021, our cash used in operating activities consisted of unfavorable changes in working capital. During the three months ended March 31, 2021, our cash used in investing activities consisted of loan originations, net of deferred fees,2023, we declared and ~~additional fundings on our loans held for investment. During the three months ended March 31, 2021, our cash used in financing activities consisted of deferred financing cost payments related~~paid regular quarterly distributions to our ~~Master Repurchase Facility.~~

~~Distributions~~common shareholders totaling $5,147, or $0.35 per common share, using cash on hand.

On April ~~15, 2021,~~13, 2023, we declared a regular quarterly distribution of ~~$0.15~~$0.35 per common share, ~~for the first quarter of 2021,~~ or ~~approximately $1,530,~~$5,147, to shareholders of record on April ~~26, 2021.~~24, 2023. We expect to pay this distribution to our common shareholders on or about May ~~20, 2021.~~18, 2023 using cash on hand.

For further information regarding distributions, see Note 6 to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Contractual Obligations and Commitments

Our contractual obligations and commitments as of March 31, ~~2021~~2023 were as follows:

Payment Due by Period
Total Less than 1 Year 1 - 3 Years 3 - 5 Years More than 5 years
Unfunded loan commitments (1)
$ 28,613 $ — $ 28,613 $ — $ —


	Payment Due by Period
	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 years
Unfunded loan commitments (1)	$	45,779	$	15,170	$	30,609	$	—	$	—
Principal payments on Secured Financing Facilities (2)	435,490		215,442		220,048		—		—
Interest payments (3)	38,677		26,258		12,419		—		—
	$	519,946	$	256,870	$	263,076	$	—	$	—

(1)The allocation of our unfunded loan commitments is based on the current loan maturity date to which the ~~individuals~~individual commitments relate.

(2)The allocation of outstanding advancements under our Secured Financing Facilities is based on the earlier of the current maturity date of each loan investment with respect to which the individual borrowing relates or the maturity date of the respective Secured Financing Facilities.

~~Off-Balance Sheet Arrangements~~(3)Projected interest payments are attributable only to our debt service obligations at existing rates as of March 31, 2023 and are not intended to estimate future interest costs which may result from debt prepayments, additional borrowings, new debt issuances or changes in interest rates.

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Debt Covenants

Our principal debt obligations as of March 31, 2023 were the outstanding balances under our Secured Financing Facilities. The agreements governing our Master Repurchase Facilities, or our Master Repurchase Agreements, provide for acceleration of the date of repurchase of any then purchased assets and the liquidation of the purchased assets by UBS, Citibank or Wells Fargo, as applicable, upon the occurrence and continuation of certain events of default, including a change of control of us, which includes Tremont ceasing to act as our sole manager or to be a wholly owned subsidiary of RMR. Our Master Repurchase Agreements also provide that upon the repurchase of any then purchased asset, we are required to pay UBS, Citibank or Wells Fargo the outstanding purchase price of such purchased asset and accrued interest and any and all accrued and unpaid expenses of UBS, Citibank or Wells Fargo, as applicable, relating to such purchased asset.

In connection with our Master Repurchase Agreements, we entered into our guarantees, or the Master Repurchase Guarantees, which require us to guarantee 25% of the aggregate repurchase price and 100% of losses in the event of certain bad acts, as well as any costs and expenses of UBS, Citibank and Wells Fargo, as applicable, related to our Master Repurchase Agreements. The Master Repurchase Guarantees contain financial covenants, which require us to maintain a minimum tangible net worth, a minimum liquidity and a minimum interest coverage ratio and to satisfy a total indebtedness to stockholders' equity ratio.

In connection with our facility loan program agreement and the security agreement with BMO Harris Bank N.A., or the BMO Loan Program Agreement, we have agreed to guarantee certain of the obligations under the BMO Loan Program Agreement and the BMO Facility Loan Agreements pursuant to a limited guaranty from us to and for the benefit of the administrative agent for itself and such other lenders, or the BMO Guaranty. Specifically, the BMO Guaranty requires us to guarantee 25% of the then current outstanding principal balance of the facility loans and 100% of losses or the entire indebtedness in the event of certain bad acts as well as any costs and expenses of the administrative agent or lenders related to the BMO Loan Program Agreement. In addition, the BMO Guaranty contains financial covenants that require us to maintain a minimum tangible net worth and a minimum liquidity and to satisfy a total indebtedness to stockholders’ equity ratio.

As of March 31, ~~2021,~~2023, we had ~~no off-balance sheet arrangements that have had or that we expect would be reasonably likely to have~~ a ~~material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.~~

~~Debt Covenants~~

~~On February 18, 2021, one of our wholly owned subsidiaries entered into~~$350,635 aggregate outstanding principal balance under our Master Repurchase ~~Agreement~~Facilities. Our Master Repurchase Agreements are structured with ~~UBS.~~ risk mitigation mechanisms, including a cash flow sweep, which would allow UBS, Citibank and Wells Fargo, as applicable, to control interest payments from our borrowers under our loans that are financed under our respective Master Repurchase Facilities, and the ability to accelerate dates of repurchase and institute margin calls, which may require us to pay down balances associated with one or more of our loans that are financed under our Master Repurchase Facilities.

As of March 31, ~~2021,~~2023, we had noa $84,855 aggregate outstanding ~~balances~~principal balance under ~~and believe~~the BMO Facility.

As of March 31, 2023, we were in compliance with ~~the~~all covenants and other terms ofunder our Master Repurchase Facility. For more information regarding our Master Repurchase Facility, see Note 6 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.Secured Financing Facilities.

Related Person Transactions

We have relationships and historical and continuing transactions with ~~our Manager,~~Tremont, RMR, ~~LLC,~~ RMR Inc. and others related to them. For example, as noted earlier in this Quarterly Report on Form 10-Q, we entered into the Merger Agreement with TRMT pursuant to which we have agreed, on the terms and subject to the conditions set forth therein, to consummate the Merger and the Other Transactions, subject to the satisfaction or waiver of certain conditions. For further information about these and other such relationships and related person transactions, see Notes ~~1, 9~~7 and 108 to ~~the Notes to~~our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our ~~Current~~2022 Annual Report, ~~on Form 8-K dated April 26, 2021,~~our definitive Proxy Statement for our ~~2021~~2023 Annual Meeting of Shareholders and our other filings with the SEC. In addition, see the section captioned “Risk Factors” of ~~this Quarterly~~our 2022 Annual Report ~~on Form 10-Q or “Summary of Principal Risk Factors” included in our Current Report on Form 8-K filed on March 24, 2021~~ for a description of risks that may arise as a

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result of these and other related person transactions and relationships. We may engage in additional transactions with related persons, including businesses to which RMR, ~~LLC~~Tremont or ~~its~~their respective subsidiaries provide management services.

Critical Accounting Policies

A summary of our critical accounting policies is included in Part II, Item 7 of our 2022 Annual Report. There have been no material changes to our critical accounting policies described in our 2022 Annual Report other than the adoption of ASU No. 2016-13, as described in Note 2 to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of our Managing Trustees, our President and our Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Managing Trustees, our President and our Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective.

During the first quarter of fiscal 2021, we began to proceed with full implementation of the Business Change, resulting in changes to certain of our existing internal controls over financial reporting. ReviewsThere have been ~~and will continue to be conducted by management to ensure that internal controls surrounding the implementation of the Business Change are properly designed. We will continue to evaluate~~no changes in our internal ~~controls~~control over financial reporting ~~as we continue this implementation~~.during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Warning Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q 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 we use~~These statements include words such as “believe”, “expect”, “anticipate”, ~~“intend��~~“intend”, “plan”, “estimate”, “will”, “may” and negatives or derivatives of these or similar ~~expressions, we~~expressions.

Forward-looking statements reflect our current expectations, are ~~making~~based on judgments and assumptions, are inherently uncertain and are subject to risks, uncertainties and other factors, which could cause our actual results, performance or achievements to differ materially from expected future results, performance or achievements expressed or implied in any forward-looking statements. ~~These forward-looking statements are based upon our present intent, beliefs or expectations,~~Examples of these risks, uncertainties and other factors include, but ~~forward-looking statements~~ are not ~~guaranteed~~limited to, ~~occur and may not occur. Forward-looking statements in this Quarterly Report on Form 10-Q relate to various aspects of our business, including:~~

•~~The likelihood that we will complete~~ the ~~Merger,~~

following:

•Our ~~expectation that our shareholders will benefit from the Merger,~~

borrowers’ ability to successfully execute their business plans;

•The duration and severity of the economic downturn resulting from the COVID-19 pandemic and its impact on us and our borrowers and their ability and willingness to fund their debt service obligations owed to us,

•~~The likelihood and extent to which our borrowers will be negatively impacted by the COVID-19 pandemic and its aftermath and be able and willing to fund their debt service obligations owed to us,~~

•~~Our expectations about our borrowers’ business plans and their abilities to successfully execute them,~~

•~~Our expectations regarding~~Whether the diversity and other characteristics of our loan ~~investment~~ portfolio will benefit us to the extent we expect;

•Our ability to carry out our business strategy and take advantage of opportunities for our business that we believe ~~exist,~~exist;

•~~Our expectations~~The impact of inflation, geopolitical instability, interest rates and economic recession or downturn on the CRE industry generally and specific CRE sectors applicable to our investments and lending markets, us and our borrowers;

•Fluctuations in interest rates and credit spreads may reduce the returns we may receive on our investments and increase our borrowing costs;

•Fluctuations in market demand for CRE debt and the volume of transactions and available opportunities ~~that will exist~~ in the CRE debt market, including the middle ~~market, when the U.S. economy improves and returns to a more stable state for a sustained period,~~market;

•Dislocations and volatility in the capital markets;

•Our ability to utilize our Secured Financing Facilities and to obtain additional capital ~~and to realize our expected extent of leverage,~~ to enable us to attain our target leverage, to make additional investments orand to increase our potential returns, ~~including by using available leverage,~~

and the cost of that capital;

•Our ability to pay distributions to our shareholders and tosustain or increase ~~and sustain~~ the amount of such ~~distributions,~~

distributions;

•Our ability to successfully execute, achieve and benefit from our operating and investment targets, investment and financing strategies and leverage ~~policies,~~

•~~Our expected operating results,~~policies;

•The amount and timing of cash flows we receive from our ~~investments,~~investments;

•The ability of ~~our Manager~~Tremont to ~~locate~~make suitable investments for us, to monitor, service and administer our existing investments and to otherwise implement our investment strategy and successfully manage us;

•Our ability to maintain and ~~increase the~~improve a favorable net interest spread between the interest we earn on our investments and the interest we pay on our ~~borrowings,~~

borrowings;

•The extent to which we earn and receive origination, extension, exit, prepayment or other fees we may earn from our ~~investments,~~investments;

•Yields that may be available to us from mortgages on middle market and transitional ~~CRE,~~CRE;

•The duration and other terms of our loan agreements with ~~borrowers,~~borrowers;

•The credit qualities of our ~~borrowers,~~borrowers;

•The ability and willingness of our borrowers to repay our investments in a timely manner or at ~~all,~~

•~~Our projected leverage,~~all;

•The ~~cost and availability of additional advancements under~~extent to which our ~~Master Repurchase Facility,~~borrowers' sponsors provide support to our borrowers or ~~other debt financing under additional repurchase or bank facilities we may obtain from time to time, and~~us regarding our ~~ability to obtain such additional debt financing,~~loans;

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•Our qualification for taxation as a ~~REIT,~~REIT;

•Our ability to maintain our exemption from registration under the 1940 ~~Act,~~Act;

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•Events giving rise to increases in our credit loss reserves;

•Our ~~understanding of the competitive nature of our industry~~ability to identify and ~~our~~execute loan investments;

•Our ability to successfully ~~compete under such circumstances,~~compete;

•Market trends in our industry or with respect to interest rates, real estate values, the debt securities markets or the economy ~~generally,~~generally;

•Regulatory requirements and the effect they may have on us or our ~~competitors, and~~

•~~Other matters.~~

Our actual results may differ materially from those contained in or implied by our forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. Risks, uncertainties and other factors that could have a material adverse effect on our forward-looking statements and upon our business, financial condition, liquidity, results of operations, cash flow, prospects and ability to make distributions include, but are not limited to:

•~~The impact of conditions in the economy, the CRE industry and the capital markets on us and our borrowers,~~competitors;

•Competition within the CRE lending ~~industry,~~industry;

•Changes in the availability, sourcing and structuring of CRE ~~lending,~~lending;

•Defaults by our ~~borrowers,~~borrowers;

•Compliance with, and changes to, federal, state or local laws or regulations, accounting rules, tax laws or similar ~~matters,~~matters;

•Limitations imposed on our business and our ability to satisfy complex rules in order for us to ~~qualify~~maintain our qualification for taxation as a REIT for U.S. federal income tax ~~purposes,~~purposes;

•Actual and potential conflicts of interest with our related parties, including our Managing Trustees, ~~our Manager,~~Tremont, RMR, ~~LLC,~~ and others affiliated with ~~them,~~them;

•Acts of ~~terrorism,~~God, earthquakes, hurricanes, outbreaks or continuation of pandemics, ~~including the COVID-19 pandemic,~~ or other ~~manmade~~public health safety events or conditions, supply chain disruptions, climate change and other man-made or natural disasters ~~beyond our control,~~or acts of war, terrorism, social unrest or civil disturbances; and

•~~Additional~~Other matters.

These risks, uncertainties and other factors ~~including, but~~are not ~~limited to, those set forth~~exhaustive and should be read in ~~Exhibit 99.1 "Risk Factors"~~conjunction with other cautionary statements that are included in our ~~Form 8-K filed on March 24, 2021.~~

~~For example:~~

•We have a limited operating history originating and investing in first mortgage whole loans secured by middle market and transitional CRE and we may not be able to operate our business successfully or generate sufficient revenue to make or sustain distributions to our shareholders,

•To make additional investments and continue to grow our business, we will need to obtain additional cost-effective capital. We cannot be sure that we will be successful in obtaining any such additional capital. If we are unable to obtain such additional capital, we may not be able to further grow our business by making additional investments,

•~~Our distributions and distribution rate are set from time to time by our Board of Trustees.~~periodic filings. The timing, amount and form of future distributions will be determined at the discretion of our Board of Trustees and will depend upon various factors that our Board of Trustees deems relevant, including our historical and projected income, our Distributable Earnings, the then-current and expected needs and availability of cash to pay our obligations and fund our investments, distributions which may be required to be paid by us to qualify for taxation as a REIT, limitations on distributionsinformation contained in our financing arrangements and other factors deemed relevant by our Board of Trustees in its discretion. Accordingly, future distribution rates may be increased or decreased and there is no assurance as tofilings with the ~~rate at which future distributions will be paid.~~

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•~~Competition may limit our ability to identify and make desirable investments,~~

•~~Our belief that there will be strong demand for alternative sources of CRE debt capital when the U.S. economy improves and returns to a more stable state for a sustained period may not be correct,~~

•The value of our loans depends upon our borrowers’ ability to generate cash flows from operating the underlying collateral for our loans. Our borrowers may not have sufficient cash flows to repay our loans according to their terms, which may result in delinquency and foreclosure on our loans,

•Our investments contain certain risk mitigation mechanisms that may help protect us against investment losses by mitigating the impact from our borrowers being unable to pay their debt service obligations owed to us as scheduled for a temporary period. However, these mechanisms may not adequately cover the debt service amount and will likely not be able to fully fund the debt service obligations owed to us if the tenants’ businesses fail or they default on their debt service obligations owed to us,

•~~The impact of the COVID-19 pandemic is affecting all parts of the economy~~SEC, including our borrowers who are experiencing the negative impact of current economic conditions. As a result, we may not have sufficient capital to meet commitments from actions that UBS takes if our borrowers default or the value of our collateral declines below required levels,

•~~Prepayment of our loans may adversely affect the value of our loan portfolio and our ability to make or sustain distributions to our shareholders,~~

•~~Loans secured by properties in transition involve a greater risk of loss than loans secured by stabilized properties,~~

•~~Our Manager and RMR LLC have limited historical experience managing or servicing mortgage REITs,~~

•~~We may incur significant debt, and our governing documents contain no limit on the amount of debt we may incur,~~

•Continued availability of additional advancements under our Master Repurchase Facility is subject to us identifying suitable loans to invest in and our satisfying certain financial covenants and other conditions, as applicable, that we may be unable to satisfy,

•Financing for floating rate mortgages and other related assets that we may seek to sell pursuant to our Master Repurchase Facility is subject to approval by the lender under our Master Repurchase Facility, whose approval we may not obtain,

•~~Actual costs under our Master Repurchase Facility will be higher than LIBOR plus a premium because of fees and expenses associated with our debt,~~

•~~Any phase out of LIBOR may have an impact on our investments and our debt financing arrangements,~~

•~~We are dependent upon our Manager, its affiliates and their personnel. We may be unable to find suitable replacements if our management agreement is terminated,~~

•We believe that our relationships with our related parties, including our Managing Trustees, our Manager, RMR LLC and others affiliated with them may benefit us and provide us with competitive advantages in operating and growing our business. However, the advantages we believe we may realize from these relationships may not materialize,

•~~Our intention to remain exempt from registration~~ under the ~~1940 Act imposes limits on~~caption “Risk Factors” in our ~~operations, and we may fail to remain exempt~~periodic reports, or incorporated therein, identifies important factors that could cause differences from ~~registration under~~ the ~~1940 Act,~~

•~~Our failure to qualify for taxation as a REIT could have significant adverse consequences,~~

•We have entered into a Merger Agreement with TRMT and that the Merger is expected to close in the third quarter of 2021. The closing of the Merger is subject to the satisfaction or waiver of conditions, including the receipt of requisite approvals by our and TRMT’s shareholders. We cannot be sure that these conditions will be satisfied or waived. Accordingly, the Merger may not close by the end of the third quarter of 2021 or at all, or the terms of the Merger and the other Transactions may change,

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•The Merger will require approval of TRMT's shareholders and the Merger Share Issuance will require approval of our shareholders. Such approvals will be solicited by a joint proxy statement/prospectus to be included in the Form S-4 which must be filed with and declared effective by the SEC. The process of preparing the Form S-4 and related joint proxy statement/prospectus is time consuming and the time before the SEC declares the registration statement effective is beyond our and TRMT’s control. Accordingly, we cannot be sure that the Merger and the other Transactions will be consummated within a specified time period or at all, and

•This Quarterly Report on Form 10-Q states that the Merger, the Merger Share Issuance and the other Transactions and the terms thereof were evaluated, negotiated and recommended to each of our and TRMT’s board of trustees by special committees of our and TRMT’s board of trustees, respectively, each comprised solely of our and TRMT’s disinterested, independent trustees, respectively, and were separately unanimously approved and adopted by our and TRMT’s independent trustees and by our and TRMT’s board of trustees, and that UBS Securities LLC and Citigroup Global Markets Inc. acted as a financial advisor to each of the special committees of our and TRMT’s board of trustees, respectively. Despite this process, we could be subject to claims challenging the Merger or the other Transactions or our entry into the Merger and related agreements because of the multiple relationships among us, TRMT, TRA, RMR LLC, RMR Inc. and their related persons and entities or other reasons, and defending even meritless claims could be expensive and distracting to management.

Currently unexpected results could occur due to many different circumstances, some of which are beyond our control, such as acts of terrorism, the COVID-19 pandemic, natural disasters or changes in capital markets or the economy generally.

~~The information contained elsewhere~~forward-looking statements in this Quarterly Report on Form 10-Q, in our “Summary of Principal Risk Factors” included in our Current Report on Form 8-K filed on March 24, 2021 or in our other filings with the SEC identifies other important factors that could cause our actual results to differ materially from those stated in or implied by our forward looking statements.10-Q. Our filings with the SEC are available on the SEC’s website at www.sec.gov.

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

Except as required by law, we ~~do not intend~~undertake no obligation to update or change any forward-looking statements as a result of new information, future events or otherwise.

Statement Concerning Limited Liability

~~Our Amended and Restated Agreement and~~The Declaration of Trust ~~provides~~of Seven Hills Realty Trust, a copy of which, together with any amendments or supplements thereto, is duly filed with the State Department of Assessments and Taxation of Maryland, provide that nothe name Seven Hills Realty Trust refers to the trustees collectively as trustees, but not individually or personally. No trustee, officer, shareholder, employee or agent of ~~the~~Seven Hills Realty Trust shall be held to any personal liability, jointly or severally, for any obligation of, or claim against, ~~the~~Seven Hills Realty Trust. All persons or entities dealing with ~~the~~Seven Hills Realty Trust, in any way, shall look only to the assets of ~~the~~Seven Hills Realty Trust for the payment of any sum or the performance of any obligation.

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Part II. Other Information

Item 1A. Risk Factors

~~Our business is subject~~There have been no material changes to ~~a number of risks and uncertainties, a number of which are described in "Summary of Principal Risk Factors" included~~the risk factors previously disclosed in our ~~Current Report on Form 8-K filed on~~2022 Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer purchases of equity securities. The table below provides information about our purchases of our equity securities during the quarter ended March ~~24, 2021. The Merger may subject us~~31, 2023.


Calendar Month	Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 2023	1,255	$	9.14	—	$	—
March 2023	248	10.04		—		—
Total/weighted average	1,503	$	9.59	—	$	—

(1)These common share withholdings and purchases were made to ~~additional risks that are described below. The risks described in~~satisfy the ~~"Summary of Principal Risk Factors" included in our Current Report on Form 8-K filed on March 24, 2021~~tax withholding and below may not be the only risks we face but are risks we believe may be material at this time. Other risks of which we are not yet aware, or that we currently believe are not material, may also materially and adversely impact our business operations or financial results. If any of the events or circumstances described below occurs, our business, financial condition, results of operations or ability to make distributions to our shareholders could be adversely affected and the value of an investment in our securities could decline. Investors and prospective investors should consider the risks described in "Summary of Principal Risk Factors" included in our Current Report on Form 8-K filed on March 24, 2021 and below and the information contained under the caption “Warning Concerning Forward-Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q before deciding whether to invest in our securities.

~~Risks Relating to the Merger~~

~~The Exchange Ratio is fixed and will not be adjusted for any changes in the market price of either our common shares or the TRMT Common Shares.~~

~~At the Effective Time, each TRMT Common Share outstanding immediately prior to the Effective Time will be converted into the right to receive 0.52~~payment obligations of a ~~newly issued RMRM Common Share,~~former officer of ours and a former officer of RMR in connection with ~~cash paid in lieu~~the vesting of ~~fractional shares, or the Merger Consideration. The Exchange Ratio is fixed in the Merger Agreement and will not be adjusted for changes in the market price~~awards of our common shares. We withheld and purchased these shares ~~or the TRMT Common Shares. Changes in the market price of the RMRM Common Shares prior to the consummation of the Merger will affect the~~at their fair market value ofbased upon the Merger Consideration. The market price of our common shares and the TRMT Common Shares may change as a result of a variety of factors (many of which are beyond our and TRMT’s control), including the following:

•~~market reaction to the announcement of the Merger, approval by our shareholders of the Merger Share Issuance and other Transactions and the prospects of the combined company;~~

•~~changes in our or TRMT’s respective businesses, operations, assets, liabilities, financial position and prospects, or in the market’s assessments thereof;~~

•~~changes in the operating performance of us or TRMT, or similar companies;~~

•~~changes in market valuations of similar companies;~~

•~~market assessments of the likelihood that the Merger and other Transactions will be completed;~~

•~~the possibility that persons may engage in short sales of our common shares or the TRMT Common Shares;~~

•~~interest rates, general market and economic conditions and other factors generally affecting the price of our common shares and the TRMT Common Shares;~~

•~~federal, state and local legislation, governmental regulation and legal developments in the businesses in which we and TRMT operate;~~

•~~dissident shareholder activity;~~

•~~changes that affect the commercial real estate lending market generally;~~

•~~changes in the United States or global economy or capital, financial or securities markets generally; and~~

•~~other factors beyond our or TRMT’s control, including those described and referred to above under this “Risk Factors” section.~~

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~~The market~~trading price of our common shares at the ~~consummation~~close of ~~the Merger may vary from the price~~trading on Nasdaq on the date the Merger Agreement was executed, on the date of the Proxy Statement and on the date of our special meeting and our special meeting. As a result, the market value of the Merger Consideration represented by the Exchange Ratio will also vary. Because the Merger will be completed after the date of the special meetings, at the time of the applicable special meeting, the exact market price of RMRM Common Shares that TRMT shareholders will receive upon consummation of the Merger will not be known. You should therefore consider that:

purchase date.

•if the market price of RMRM Common Shares increases between the date the Merger Agreement was signed or the date of our special meeting or the TRMT special meeting and the closing of the Merger, TRMT shareholders will receive RMRM Common Shares that have a market value upon consummation of the Merger that is greater than, as applicable, the market value of such shares calculated pursuant to the Exchange Ratio on the date the Merger Agreement was signed or on the date of our special meeting or the TRMT special meeting, respectively; and

•if the market price of RMRM Common Shares declines between the date the Merger Agreement was signed or the date of our special meeting or the TRMT special meeting and the closing of the Merger, TRMT shareholders will receive a number of common shares that have a market value upon consummation of the Merger that is less than, as applicable, the market value of such shares calculated pursuant to the Exchange Ratio on the date the Merger Agreement was signed or on the date of our special meeting or the TRMT special meeting, respectively.

The Merger is subject to the satisfaction or waiver of conditions which may not be satisfied or completed on a timely basis, if at all. Failure to complete the Merger could have material and adverse effects on us.

The consummation of the Merger is subject to the satisfaction or waiver of conditions, including, among others, the receipt of the approval by our shareholders and the receipt of the approval by TRMT’s shareholders. These conditions make the completion and the timing of the completion of the Merger uncertain. Also, either we or TRMT may terminate the Merger Agreement if the Merger is not completed by December 31, 2021, except that this right to terminate the Merger Agreement will not be available to a party if that party failed to fulfill its obligations under the Merger Agreement and that failure was a principal cause of, or resulted in, the failure of the Merger to be completed on or before such date.

We cannot provide assurance that the Merger will be consummated on the terms or timeline currently contemplated, or at all. If the Merger is not completed on a timely basis, or at all, we may be adversely affected and subject to a number of risks, including the following:

•~~we will be required to pay our costs relating to the Merger, such as legal, accounting, financial advisory and printing fees, whether or not the Merger is completed;~~

•~~if the Merger is terminated under certain circumstances, we may be required to pay a termination fee to TRMT;~~

•~~the time and resources committed by our management to matters relating to the Merger could otherwise have been devoted to pursuing other opportunities; and~~

•~~the market price of our common shares could decline to the extent that the current market price reflects, and is positively affected by, a market assumption that the Merger will be completed.~~

~~We or TRMT may waive one or more of the conditions to the Merger without re-soliciting shareholder approval.~~

We or TRMT may determine to waive, in whole or in part, one or more of the conditions to our or TRMT’s obligations to consummate the Merger (other than the conditions that we and TRMT each receive opinions of counsel (i) that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the IRC and (ii) that we and TRMT will each be a party to that reorganization within the meaning of Section 368(b) of the IRC). Any determination whether to waive any condition to the Merger and whether to re-solicit shareholder approval or amend the Proxy Statement as a result of a waiver will be made by us or TRMT, as applicable, at the time of such waiver based on the facts and circumstances as they exist at that time.

The Merger Agreement contains provisions that could discourage a potential competing acquirer of either us or TRMT, or could result in any competing proposal being at a lower price than it might otherwise be.

The Merger Agreement contains provisions that, subject to certain exceptions, restrict our ability and the ability of TRMT to initiate, solicit, propose, knowingly encourage or knowingly facilitate competing third-party proposals to effect, among other things, a merger, reorganization, share exchange, consolidation or the sale of 20% or more of the shares or

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consolidated net revenues, net income or total assets of us or TRMT. In addition, we and TRMT generally each have an opportunity to offer to modify the terms of the Merger Agreement in response to any competing superior proposal (as defined in the Merger Agreement) that may be made to the other party before our or TRMT’s board of trustees, as the case may be, may withdraw or modify its recommendation in response to such superior proposal or terminate the Merger Agreement to enter into a definitive agreement with respect to such superior proposal, provided that TRMT may only terminate the Merger Agreement after it has held a special meeting of its shareholders for the purpose of approving the Merger. Upon termination of the Merger Agreement under certain circumstances relating to an acquisition proposal, we may be required to pay to TRMT, or TRMT may be required to pay to us, a termination fee of $2.2 million plus reasonable fees and expenses.

These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of us or TRMT from considering or proposing such an acquisition, even if it were prepared to pay consideration with a higher per share value or implied premium to our shareholders than the value proposed to be received or realized in the Merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee and expense reimbursement that may become payable in certain circumstances under the Merger Agreement.

Our and TRMT’s management agreement with TRA contain provisions that could discourage a potential competing acquirer of either us or TRMT, or could result in any competing proposal being at a significantly lower price than it might otherwise be.

The termination of our or TRMT’s management agreements with TRA may require us or TRMT, as applicable, to pay a substantial termination fee to TRA. TRA has agreed to waive its right to receive payment of the termination fee under its management agreement with TRMT upon the termination of TRMT's management agreement when the Merger is consummated. This waiver by TRA applies only in respect of the Merger and does not apply in respect of any competing proposal, superior proposal or other transaction or arrangement. The termination provisions of our or TRMT’s management agreements with TRA substantially increase the cost to us and TRMT of terminating these agreements, which may discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of us or TRMT from considering or proposing such an acquisition or could result in any competing proposal being at a significantly lower price than it might otherwise be.

~~The pendency of the Merger could adversely affect our and TRMT’s business and operations.~~

During the pendency of the Merger, due to operating covenants in the Merger Agreement, we and TRMT may each be unable to undertake or pursue certain strategic transactions or significant capital projects, financing transactions or other actions that are not in the ordinary course of business, even if such actions may be beneficial to us or TRMT. In addition, some borrowers may delay or defer decisions related to their business dealings with us and TRMT during the pendency of the Merger, which could negatively impact the revenues, earnings, cash flows or expenses of us and/or TRMT, regardless of whether the Merger is completed.

~~Our and TRMT’s shareholders will be diluted by the consummation of the Merger.~~

The consummation of the Merger will dilute the ownership position of our existing shareholders and result in TRMT shareholders having an ownership stake in us that is smaller than their current stake in TRMT. Upon consummation of the Merger, based upon the number of our common shares and the TRMT Common Shares outstanding as of the date of the Merger Agreement, we estimate that the our shareholders immediately prior to the Merger (in their capacities as such) will own approximately 70% of the combined company as a result of the Merger and TRMT shareholders immediately prior to the Merger (in their capacities as such) will own approximately 30% of the combined company as a result of the Merger, in each case without taking into account whether any of our or TRMT’s shareholders were also shareholders of TRMT or us, respectively, at that time. Consequently, our shareholders may have less influence over the management and policies of the combined company after the Effective Time than they currently exercise over our management and policies.

Our Trustees and executive officers and TRMT’s trustees and executive officers and our and TRMT’s manager, TRA, have interests in the Merger that are different from, or in addition to, the interests of our and TRMT’s shareholders generally. This may create potential conflicts of interest or the appearance thereof, which may lead to increased dissident shareholder activity, including litigation.

The interests of our Trustees and executive officers and TRMT’s trustees and executive officers and our and TRMT’s manager, TRA, include, among other things, the continued service as a trustee or executive officer of the combined company following the Merger, as applicable, certain rights to continuing indemnification and directors’ and officers’ liability insurance

~~Table of Contents~~

for TRMT's trustees and executive officers, continuation of our management agreement with TRA following the Merger and the potential for increased fees payable to TRA in connection with the Merger. There is a risk that these interests may influence the trustees and executive officers and TRA to support the Merger.

These interests of TRA and our Trustees and executive officers and TRMT’s trustees and executive officers in the Merger may increase the risk of litigation intended to enjoin or prevent the Merger and the risk of other dissident shareholder activity related thereto. In the past, and in particular following the announcement of a significant transaction, periods of volatility in the overall market or declines in the market price of a company’s securities, shareholder litigation and dissident shareholder proposals have often been instituted against companies alleging conflicts of interest in business dealings with affiliated or related persons and entities. The relationships described above may precipitate such activities by dissident shareholders and, if instituted against us or TRMT or our Trustees or executive officers or TRMT’s trustees or executive officers, such activities could result in substantial costs, a material delay or prevention of the Merger and a diversion of management’s attention, even if the shareholder action is without merit or unsuccessful.

~~Lawsuits may be commenced seeking to enjoin or prevent the Merger or seeking other relief which may delay or prevent the completion of the Merger and result in us or TRMT incurring substantial costs.~~

Public company merger and acquisition transactions are often subject to lawsuits initiated by plaintiff’s counsel seeking to enjoin or prevent the transaction or obtain other relief. We, our Trustees, officers and advisors and TRMT, its trustees, officers and advisors may become subject to similar litigation with respect to the Merger. Any such lawsuit could seek, among other things, injunctive or other equitable relief including a request to rescind parts of the Merger Agreement and to otherwise enjoin the parties from consummating the Merger, as well as require payment of fees and other costs by the defendants. We, TRMT and any other defendant may incur substantial costs defending any such lawsuit, including the distraction of management’s attention, even if such lawsuits are without merit or unsuccessful. No assurance can be made as to the outcome of any such lawsuits. If the plaintiffs were successful in obtaining an injunction prohibiting the parties from completing the Merger or in obtaining other relief, the completion of the Merger may be prevented or delayed or their terms could change.

~~Risks Relating to Taxation~~

~~We may incur adverse tax consequences if TRMT has failed or fails to qualify for taxation as a REIT for United States federal income tax purposes.~~

If TRMT has failed or fails to qualify for taxation as a REIT for United States federal income tax purposes and the Merger is completed, we may inherit significant tax liabilities and could lose our qualification for taxation as a REIT should TRMT's disqualifying activities continue after the Merger. Even if we retain our qualification for taxation as a REIT, if TRMT does not qualify for taxation as a REIT for a taxable year before the Merger or the taxable year that includes the Merger and if no relief is available, we will face serious tax consequences that could substantially reduce our cash available for distribution to our shareholders because:

•~~we, as successor by merger to TRMT, will inherit any of TRMT’s corporate income tax liabilities, including penalties and interest;~~

•~~we would be subject to tax on the built-in gain on each asset of TRMT existing at the Effective Time if we were to dispose of a TRMT asset during the five year period following the Effective Time; and~~

•we, as successor by merger to TRMT, will inherit any TRMT earnings and profits and could be required to pay a special distribution and/or employ applicable deficiency dividend procedures (including interest payments to the United States Internal Revenue Service, or the IRS) to eliminate any earnings and profits accumulated by TRMT for taxable periods for which TRMT did not qualify for taxation as a REIT.

As a result of these factors, TRMT's failure before the Merger to qualify for taxation as a REIT could impair our ability after the Merger to expand our business and raise capital, and could materially adversely affect the value of our common shares.

Finally, if there is an adjustment to TRMT's real estate investment trust taxable income or dividends paid deductions, we could elect to use the deficiency dividend procedure in respect of preserving TRMT's REIT qualification. That deficiency dividend procedure could require us to make significant distributions to our shareholders and to pay significant interest to the IRS.

~~Table of Contents~~

~~REITs are subject to a range of complex organizational and operational requirements.~~

As REITs, we and TRMT must distribute to our respective shareholders with respect to each taxable year at least 90% of our REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), without regard to the deduction for dividends paid and excluding net capital gain. A REIT must also meet certain requirements with respect to the nature of its income and assets and the ownership of its shares. For any taxable year that we or TRMT fail to qualify for taxation as a REIT, we or TRMT, as applicable, will not be allowed a deduction for distributions paid to our or TRMT’s shareholders, as applicable, in computing taxable income, and thus would become subject to United States federal income tax as if we or TRMT were a regular taxable corporation. In such an event, we or TRMT, as the case may be, could be subject to potentially significant tax liabilities. Unless entitled to relief under certain statutory provisions, we or TRMT, as the case may be, would also be disqualified from treatment as a REIT for the four taxable years following the year in which we or TRMT lost our qualification, and dispositions of assets within five years after requalifying as a REIT could give rise to gain that would be subject to corporate income tax. If we or TRMT failed to qualify for taxation as a REIT, the market price of our common shares may decline, and we may need to reduce substantially the amount of distributions to our shareholders because of our potentially increased tax liability.

~~Risks Relating to an Investment in our Common Shares Following the Merger~~

~~The market price of our Common Shares may decline as a result of the Merger.~~

The market price of our common shares may decline as a result of the Merger if we do not achieve the perceived benefits of the Merger or the effect of the Merger on our financial results is not consistent with the expectations of financial or industry analysts.

In addition, upon consummation of the Merger, our shareholders and TRMT shareholders will own our common shares, and we will operate an expanded business with a different mix of assets, risks and liabilities. Our current shareholders and current TRMT shareholders may not wish to continue to invest in us as the combined company, or for other reasons may wish to dispose of some or all of our common shares that they own. If, following the Effective Time, large amounts of our common shares are sold, the price of our common shares could decline.

~~Table of Contents~~

Item 6. Exhibits

Exhibit
Number

Description

3.1

~~2.1~~

~~Agreement and Plan~~Declaration of ~~Merger,~~Trust of the Company, dated ~~as of April 26, 2021, between The Company and Tremont Mortgage Trust.~~December 21, 2021. (Incorporated by reference to Exhibit 3.1 of the ~~Company’s~~ Current Report on Form 8-K filed by the Company on ~~April 27,~~December 22, 2021.)

~~3.1~~3.2

~~Amended and Restated Agreement and Declaration of Trust~~Bylaws of the Company, ~~effective January 5,~~dated December 22, 2021. (Incorporated by reference to Exhibit 3.2 of the ~~Company’s~~ Current Report on Form 8-K filed by the Company on ~~January 6,~~December 22, 2021.)

~~3.2~~4.1

~~Amended and Restated Bylaws of the Company, adopted March 23, 2021. (Filed herewith.)~~

~~4.1~~

Form of Common Share Certificate. ~~(Filed herewith.~~(Incorporated by reference to Exhibit 4.1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.)

~~10.1~~

Management Agreement, dated January 5, 2021, by and between the Company and Tremont Realty Advisors LLC, and, solely in respect to Section 29 thereof, The RMR Group Inc.(+) (Incorporated by reference to the Company’s Current Report on Form 8-K filed on January 6, 2021.)

~~10.2~~

~~Form of Amended and Restated Indemnification Agreement.(+) (Incorporated by reference to the Company’s Current Report on Form 8-K filed on January 6, 2021.)~~

~~10.3~~

~~Summary of Trustee Compensation.(+) (Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 24, 2021.)~~

~~10.4~~

~~Master Repurchase Agreement, dated February 18, 2021, by and between RMTG Lender LLC and UBS AG. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 22, 2021.)~~

~~10.5~~

~~Limited Guaranty, dated February 18, 2021, by the Company, in favor of UBS AG. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 22, 2021.)~~

~~10.6~~31.1

Letter Agreement, dated as of April 26, 2021, among RMR Mortgage Trust, Tremont Mortgage Trust and Tremont Realty Advisors LLC. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 27, 2021.)

~~10.7~~

Voting Agreement, dated as of April 26, 2021, between RMR Mortgage Trust and Tremont Realty Advisors LLC. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 27, 2021.)

~~21.1~~

~~Subsidiaries of the Company. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 24, 2021.)~~

~~99.1~~

~~Summary of Principal Risk Factors. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 24, 2021.)~~

~~31.1~~

Rule 13a-14(a) Certification. (Filed herewith.)

31.2

Rule 13a-14(a) Certification. (Filed herewith.)

31.3

Rule 13a-14(a) Certification. (Filed herewith.)

31.4

Rule 13a-14(a) Certification. (Filed herewith.)

32.1

Section 1350 Certification. (Furnished herewith.)

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

XBRL Taxonomy Extension Schema Document. (Filed herewith.)

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.)

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.)

101.LAB

XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.)

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.)

104

Cover Page Interactive Data File. (Formatted as Inline XBRL and contained in Exhibit 101.)

~~(+) Management contract or compensatory plan or arrangement.~~

4028

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


			~~RMR MORTGAGE~~SEVEN HILLS REALTY TRUST


			By:			/s/ Thomas J. Lorenzini
						Thomas J. Lorenzini President
						Dated: ~~May 4, 2021~~April 24, 2023

			By:			/s/ ~~G. Douglas Lanois~~Tiffany R. Sy
						~~G. Douglas Lanois~~Tiffany R. Sy Chief Financial Officer and Treasurer (principal financial and accounting officer)
						Dated: ~~May 4, 2021~~April 24, 2023

4129


Maryland			20-4649929
(State of Organization)			(IRS Employer Identification No.)


	~~December 31, 2020~~
~~ASSETS~~
~~Cash and cash equivalents~~	$	~~103,314~~
~~Loans held for investment (cost $91,879)~~	~~91,879~~
~~Restricted cash~~	~~250~~
~~Dividends and interest receivable~~	~~139~~
~~Prepaid expenses~~	~~345~~
~~Other assets~~	~~128~~
~~Total assets~~	~~196,055~~
~~LIABILITIES~~
~~Accrued income taxes~~	~~2,386~~
~~Accrued expenses and other liabilities~~	~~491~~
~~Advisory fee payable~~	~~141~~
~~Deferred revenue~~	82
~~Compliance and internal audit costs payable~~	31
~~Administrative fee payable~~	30
~~Total liabilities~~	~~3,161~~
~~Net assets attributable to common shares~~	$	~~192,894~~
~~Composition of net assets attributable to common shares~~
~~Common shares, $0.001 par value per share; unlimited number of shares authorized~~	$	10
~~Additional paid in capital~~	~~192,884~~
~~Net assets attributable to common shares~~	$	~~192,894~~
~~Common shares outstanding~~	~~10,202~~
~~Net asset value per share attributable to common shares~~	$	~~18.91~~


	March 31,		December 31,
	2023		2022
ASSETS
Cash and cash equivalents	$	84,300	$	71,057
Restricted cash	8		10
Loans held for investment	622,070		669,929
Allowance for credit losses	(4,135)		—
Loans held for investment, net	617,935		669,929

Accrued interest receivable	3,346		3,354
Prepaid expenses and other assets	1,176		2,497
Total assets	$	706,765	$	746,847

LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued liabilities and other liabilities	$	3,262	$	1,903
Secured financing facilities, net	433,385		471,521

Due to related persons	2,371		1,844
Total liabilities	439,018		475,268

Commitments and contingencies

Shareholders' equity:
Common shares of beneficial interest, $0.001 par value, 25,000,000 shares authorized; 14,706,862 and 14,709,165 shares issued and outstanding, respectively	15		15
Additional paid in capital	238,612		238,505
Cumulative net income	53,498		52,290
Cumulative distributions	(24,378)		(19,231)
Total shareholders' equity	267,747		271,579
Total liabilities and shareholders' equity	$	706,765	$	746,847


	~~Three Months Ended March 31, 2020~~
~~INVESTMENT INCOME:~~
~~Dividend income~~	$	~~4,129~~
~~Interest income~~	21
~~Other income~~	15
~~Total investment income~~	~~4,165~~
~~EXPENSES:~~
~~Advisory~~	~~705~~
~~Legal~~	37
~~Compliance and internal audit~~	34
~~Shareholder reporting~~	18
~~Custodian~~	24
~~Administrative~~	24
~~Preferred share remarketing and auction fees~~	18
~~Audit~~	12
~~Trustees' fees and expenses~~	15
~~Other~~	53
~~Total expenses before interest expense~~	~~940~~
~~Interest expense~~	~~554~~
~~Total expenses~~	~~1,494~~
~~Net investment income~~	~~2,671~~
~~Realized and change in unrealized gain (loss) on investments~~
~~Net realized gain on investments~~	~~915~~
~~Net change in unrealized losses on investments~~	~~(123,346)~~
~~Net realized and change in unrealized losses on investments~~	~~(122,431)~~
~~Net decrease in net assets before preferred distributions resulting from operations~~	~~(119,760)~~
~~Distributions to preferred shareholders from net investment income~~	~~(126)~~
~~Net decrease in net assets attributable to common shares resulting from operations~~	$	~~(119,886)~~


	Three Months Ended March 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	7,803	$	11,126
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion of purchase discount	(1,185)		(5,935)
Reversal of credit losses	(987)		—
Amortization of loan origination and exit fees	(1,004)		(1,298)
Amortization of deferred financing costs	307		209
Share based compensation	120		82
Changes in operating assets and liabilities:
Accrued interest receivable	8		(133)
Prepaid expenses and other assets	1,101		(387)
Accounts payable, accrued liabilities and other liabilities	(113)		(594)
Due to related persons	527		15
Net cash provided by operating activities	6,577		3,085

CASH FLOWS FROM INVESTING ACTIVITIES:
Origination of loans held for investment	—		(90,036)
Additional funding of loans held for investment	(1,651)		(3,219)
Repayment of loans held for investment	51,918		48,643
Net cash provided by (used in) investing activities	50,267		(44,612)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from secured financing facilities	—		130,160
Repayments under secured financing facilities	(38,125)		(101,597)




Payments of deferred financing costs	(318)		(720)

Repurchase of common shares	(13)		—
Distributions	(5,147)		(3,649)
Net cash (used in) provided by financing activities	(43,603)		24,194

Increase (decrease) in cash, cash equivalents and restricted cash	13,241		(17,333)
Cash, cash equivalents and restricted cash at beginning of period	71,067		26,295
Cash, cash equivalents and restricted cash at end of period	$	84,308	$	8,962

SUPPLEMENTAL DISCLOSURES:
Interest paid	$	7,408	$	1,584
Income taxes paid	$	3	$	47


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


		Page
PART I	Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance ~~Sheet~~Sheets — March 31, ~~2021~~2023 and December 31, 2022	1
	Condensed Consolidated ~~Statement~~Statements of ~~Assets~~Operations — Three Months Ended March 31, 2023 and ~~Liabilities — December 31, 2020~~2022	2
	Condensed Consolidated ~~Statement~~Statements of ~~Operations~~Shareholders’ Equity — Three Months Ended March 31, ~~2021~~2023 and 2022	3
	~~Consolidated Statement of Statement of Operations — Three Months Ended March 31, 2020~~	4
	Condensed Consolidated ~~Statement of Shareholders’ Equity — Three Months Ended March 31, 2021~~	5
	~~Consolidated Statement of Changes in Net Assets — Three Months Ended March 31, 2020~~	6
	~~Condensed Consolidated Statement~~Statements of Cash Flows — Three Months Ended March 31, ~~2021~~2023 and 2022	7
	~~Consolidated Statement of Cash Flows — Three Months Ended March 31, 2020~~	8
	~~Consolidated Portfolio of Investments — December 31, 2020~~	94
	Notes to Unaudited Condensed Consolidated Financial Statements	106
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2014
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3025
Item 4.	Controls and Procedures	3025
	Warning Concerning Forward-Looking Statements	3126
PART II	Other Information	3528
Item 1A.	Risk Factors	3528
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

Item 6.	Exhibits	4028
	Signatures	4129


	Number of			Additional
	Common	Common		Paid In		Cumulative		Cumulative
	Shares	Shares		Capital		Net Income		Distributions		Total
Balance at December 31, 2022	14,709	$	15	$	238,505	$	52,290	$	(19,231)	$	271,579
Cumulative-effect adjustment upon adoption of ASU No. 2016-13 (Note 2)	—	—		—		(6,595)		—		(6,595)
Share grants	—	—		121		—		—		121
Share repurchases	(1)	—		(13)		—		—		(13)
Share forfeitures	(1)	—		(1)		—		—		(1)
Net income	—	—		—		7,803		—		7,803
Distributions	—	—		—		—		(5,147)		(5,147)
Balance at March 31, 2023	14,707	$	15	$	238,612	$	53,498	$	(24,378)	$	267,747





Balance at December 31, 2021	14,597	$	15	$	237,624	$	24,650	$	(4,595)	$	257,694
Share grants	—	—		82		—		—		82
Net income	—	—		—		11,126		—		11,126
Distributions	—	—		—		—		(3,649)		(3,649)
Balance at March 31, 2022	14,597	$	15	$	237,706	$	35,776	$	(8,244)	$	265,253


	Three Months Ended March 31, 2020
Decrease in net assets resulting from operations
Net investment income	$	2,671
Net realized gain on investments	915
Net change in unrealized losses on investments	(123,346)
Distributions to preferred shareholders	(126)
Net decrease in net assets attributable to common shares resulting from operations	(119,886)
Distributions to common shareholders from:
Distributable earnings	(3,367)

Total distributions to common shareholders	(3,367)


Total decrease in net assets attributable to common shares	(123,253)
Net assets attributable to common shares
Beginning of period	255,326
End of period	$	132,073
Common shares issued and repurchased
Shares outstanding, beginning of period	10,202

Shares outstanding, end of period	10,202


	As of March 31,
	2023		2022
Cash and cash equivalents	$	84,300	$	8,953
Restricted cash	8		9
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	84,308	$	8,962


	Three Months Ended March 31, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net decrease in net assets before preferred distributions resulting from operations	$	(119,760)
Adjustments to reconcile net decrease in net assets before preferred distributions
resulting from operations to cash provided by operating activities:
Purchases of long term investments	(5,757)
Proceeds from sales of long term investments	4,900
Net sales of short term investments	3,099
Changes in assets and liabilities:
Dividends and interest receivable and other assets	524
Receivable for securities sold	(1,849)
Prepaid expenses	28
Interest payable	(55)
Payable for securities purchased	(10)
Advisory fee payable	(63)
Compliance and internal audit costs payable	34
Administrative fee payable	(20)
Accrued expenses and other liabilities	38
Net unrealized losses on investments	123,346
Net realized gain on investments and foreign currency transactions	(915)
Cash provided by operating activities	3,540

CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to preferred shareholders	(130)
Distributions paid to common shareholders	(3,367)
Cash used in financing activities	(3,497)

Increase in cash and cash equivalents	43
Cash and cash equivalents at beginning of period	7
Cash and cash equivalents at end of period	$	50

SUPPLEMENTAL DISCLOSURES:
Cash paid for interest and fees on borrowings	$	609


	As of March 31, 2021 (Successor Basis)			As of December 31, 2020 (Predecessor Basis)
Number of loans	7			5
Total loan commitments	$	177,195		$	111,720
Unfunded loan commitments (1)(2)	$	28,613		$	18,857
Principal balance (2)	$	148,652		$	92,863
Unamortized net deferred origination fees	$	(1,405)		$	(984)
Carrying value	$	147,247		$	91,879
Weighted average coupon rate	4.99		%	5.08		%
Weighted average all in yield (3)	5.65		%	5.71		%
Weighted average maximum maturity (years) (4)	4.3			4.2
Weighted average risk rating	3.0			3.0
Weighted average LTV (5)	67		%	68		%


	Principal Balance		Deferred Fees and Other Items		Amortized Cost
Balance at December 31, 2022	$	678,555	$	(8,626)	$	669,929
Additional funding	1,884		(14)		1,870

Repayments	(51,743)		(175)		(51,918)
Net amortization of deferred fees	—		1,004		1,004
Purchase discount accretion	—		1,185		1,185
Balance at March 31, 2023	$	628,696	$	(6,626)	$	622,070


		March 31, 2021 (Successor Basis)					December 31, 2020 (Predecessor Basis)						March 31, 2023					December 31, 2022
Property Type	Property Type	Number of Loans	Carrying Value		Percentage of Value		Number of Loans	Carrying Value		Percentage of Value		Property Type	Number of Loans	Amortized Cost		Percentage of Value		Number of Loans	Amortized Cost		Percentage of Value
Office (1)	Office (1)	3	$	48,979	33	%	2	$	38,106	41	%	Office (1)	10	$	244,302	39	%	11	$	252,796	38	%
Multifamily	Multifamily	1	44,119		30	%	0	0		0	%	Multifamily	8	198,390		32	%	8	197,229		29	%
Lab		2	31,139		21	%	2	31,078		34	%

Retail	Retail	1	17,344		12	%	1	17,029		19	%	Retail	4	110,037		18	%	4	109,248		16	%
Industrial (1)	Industrial (1)	0	5,666		4	%	0	5,666		6	%	Industrial (1)	3	69,341		11	%	4	110,656		17	%
		7	$	147,247	100	%	5	$	91,879	100	%
													25	$	622,070	100	%	27	$	669,929	100	%


		March 31, 2021 (Successor Basis)			December 31, 2020 (Predecessor Basis)
March 31, 2023								March 31, 2023
Risk Rating	Risk Rating	Number of Loans	Carrying Value		Number of Loans	Carrying Value		Risk Rating	Number of Loans	Percentage of Portfolio		2023		2022		2021		Prior		Total
1	1	0	$	0	0	$	0	1	1	2	%	$	—	$	—	$	—	$	9,496	$	9,496
2	2	0	0		0	0		2	5	20	%	—		41,952		31,483		52,289		125,724
3	3	7	147,247		5	91,879		3	16	63	%	—		128,678		236,711		29,001		394,390
4	4	0	0		0	0		4	3	15	%	—		36,538		39,970		15,952		92,460
5	5	0	0		0	0		5	—	—	%	—		—		—		—		—
		7	$	147,247	5	$	91,879		25	100	%	$	—	$	207,168	$	308,164	$	106,738	$	622,070


	Loans Held For Investment, net		Unfunded Loan Commitments		Total
Balance at December 31, 2022	$	—	$	—	$	—
Cumulative-effect adjustment upon adoption of ASU No. 2016-13	4,893		1,702		6,595
Reversal of credit losses	(758)		(229)		(987)


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


	Debt Obligation
							Weighted Average			Collateral
	Maximum Facility Size		Principal Balance		Carrying Value		Coupon Rate (1)		Remaining Maturity (years) (2)	Principal Balance
March 31, 2023:

Citibank Master Repurchase Facility	$	215,000	$	150,101	$	149,845	6.83	%	0.9	$	205,380
UBS Master Repurchase Facility	192,000		133,108		132,680		6.80	%	0.8	182,530
BMO Facility	150,000		84,855		84,296		6.73	%	2.0	113,745

Wells Fargo Master Repurchase Facility	125,000		67,426		66,564		6.57	%	1.9	89,177
Total/weighted average	$	682,000	$	435,490	$	433,385	6.76	%	1.3	$	590,832


December 31, 2022:

Citibank Master Repurchase Facility	$	215,000	$	150,647	$	150,360	6.34	%	1.1	$	205,234
UBS Master Repurchase Facility	192,000		144,437		143,887		6.48	%	1.1	198,254
BMO Facility	150,000		111,105		110,473		6.22	%	2.2	148,476

Wells Fargo Master Repurchase Facility	125,000		67,426		66,801		6.23	%	2.1	89,008
Total/weighted average	$	682,000	$	473,615	$	471,521	6.34	%	1.5	$	640,972


Year	Principal Payments on Secured Financing Facilities
2023	$	87,237
2024	237,996
2025	110,257
2026 and thereafter	—

	$	435,490


Record Date	Payment Date	Distribution per Share		Total Distribution
January 23, 2023	February 16, 2023	$	0.35	$	5,147