UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172018
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-38199
 
Tremont Mortgage Trust
(Exact Name of Registrant as Specified in Its Charter)
 
Maryland
(State of Organization)
82-1719041
(IRS Employer Identification No.)
 
Two Newton Place, 255 Washington Street, Suite 300, Newton, MA 02458-1634
(Address of Principal Executive Offices)                            (Zip Code)
Registrant’s Telephone Number, Including Area Code 617-796-8317

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer ☐ Accelerated filer ☐
   
Non-accelerated filer  Smaller reporting company ☒
(Do not check if a smaller reporting company)
   
Emerging growth company ☒  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided in Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

Number of registrant's common shares of beneficial interest, $0.01 par value per share, outstanding as of November 13, 2017: 3,100,1001, 2018: 3,179,118


TREMONT MORTGAGE TRUST
FORM 10-Q
September 30, 20172018
 
INDEX

  Page
 
 
 
 
 
 
 
 

References in this Quarterly Report on Form 10-Q to the Company, we, us or our include Tremont Mortgage Trust unless otherwise expressly stated or the context indicates otherwise.


PART I. Financial Information
Item 1. Financial Statements (unaudited)
TREMONT MORTGAGE TRUST
CONDENSED CONSOLIDATED BALANCE SHEETSHEETS
(amountsDollars in thousands, except share data)
(unaudited)

 September 30,
September 30, December 31,
 2017
2018 2017
Assets  

 
Cash and cash equivalents $61,954

$30,101
 $61,666
Restricted cash
100
 
Loans held-for-investment, net (includes $68,637 and $0 pledged as collateral under master repurchase agreement and note payable)
81,664
 
Accrued interest receivable

293
 
Prepaid expenses and other assets
254
 259
Total assets $61,954

$112,412
 $61,925
  


 

Liabilities and Shareholders' Equity  


 

Accounts payable and other liabilities $75
Accounts payable, accrued liabilities and deposits
$607
 $301
Master repurchase agreement (net of deferred financing costs of $649 and $0, respectively)
20,935
 
Note payable (net of deferred financing costs of $229 and $0, respectively)
31,461
 
Due to related persons 115

23
 754
Total liabilities 190

53,026
 1,055
  


 

Commitments and contingencies 




 

  


 

Shareholders' Equity:  
Common shares of beneficial interest, $0.01 par value per share; 25,000,000 shares authorized; 3,100,100 shares issued and outstanding 31
Shareholders' equity:


 

Common shares of beneficial interest, $0.01 par value per share; 25,000,000 shares authorized; 3,179,118 and 3,126,439 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively

32
 31
Additional paid in capital 61,971

62,443
 62,135
Cumulative net loss (238)
(3,089) (1,296)
Total shareholders’ equity 61,764

59,386
 60,870
Total liabilities and shareholders' equity $61,954

$112,412
 $61,925


See accompanying notes.

TREMONT MORTGAGE TRUST
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amountsAmounts in thousands, except per share data)
(unaudited)


 Three Months Ended September 30, 2017 June 1, 2017 (inception) through September 30, 2017
Three Months Ended
September 30,
 Nine Months Ended
September 30,
 June 1, 2017 (inception) through September 30,
Interest Income:    


2018 2017 2018 2017
Income:


 

 

 

Interest income from investments $23
 $23

$1,385
 $23
 $2,113
 $23
Less: Interest and related expenses
(563) 
 (666) 
Total income from investments, net
822
 23
 1,447
 23
    

 
 
 
Expenses:    


 

 

 

Management fees

 32
 447
 32
General and administrative expenses 261
 261

510
 176
 1,668
 176
Shared services agreement reimbursement
375
 53
 1,125
 53
Total expenses
885
 261
 3,240
 261
Loss before income tax expense
(63) (238) (1,793) (238)
Income tax expense

 
 
 
Net loss $(238) $(238)
$(63) $(238) $(1,793) $(238)
    


 

 

 

Weighted average common shares outstanding - basic and diluted 438
 330
Weighted average common shares outstanding
3,129
 438
 3,121
 330
    


 

 

 

Net loss per common share - basic and diluted $(0.54) $(0.72)
$(0.02) $(0.54) $(0.57) $(0.72)



See accompanying notes.


TREMONT MORTGAGE TRUST
STATEMENTCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWFLOWS
(dollarsDollars in thousands)
(unaudited)


 June 1, 2017 (inception) through September 30, 2017
Nine Months Ended September 30, 2018 June 1, 2017 (inception) through September 30, 2017
Cash Flows from Operating Activities  

  
Net loss $(238)
$(1,793) $(238)
Adjustments to reconcile net loss to net cash used in operating activities:


  
Share based compensation
325
 
Amortization of deferred financing costs
184
 
Amortization of loan origination and exit fees
(145) 
Changes in operating assets and liabilities: 




  
Accounts payable and other liabilities 75
Accrued interest receivable (293) 
Prepaid expenses and other assets
5
 
Accounts payable, accrued liabilities and deposits
274
 75
Due to related persons 115

(731) 115
Net cash used in operating activities (48)
(2,174) (48)
  

  
Cash Flows from Investing Activities


  
Origination of loans held-for-investment, net
(81,519) 
Net cash used in investing activities
(81,519) 




  
Cash Flows from Financing Activities 




  
Proceeds from master repurchase agreement
21,583
 
Proceeds from note payable
31,690
 
Payments for deferred financing costs
(1,045) 
Proceeds from issuance of common shares 62,002
 
 62,002
Net cash provided by financing activities 62,002
Net cash used in financing activities
52,228
 62,002
  


  
Increase in cash and cash equivalents 61,954
Cash and cash equivalents at beginning of period 
Cash and cash equivalents at end of period $61,954
Decrease in cash, cash equivalents and restricted cash
(31,465) 61,954
Cash, cash equivalents and restricted cash at beginning of period
61,666
 
Cash, cash equivalents and restricted cash at end of period $30,201
 $61,954

Supplemental disclosure of cash, cash equivalents and restricted cash:
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amount shown in the condensed consolidated statements of cash flows:


September 30, 2018
September 30, 2017
Cash and cash equivalents
$30,101

$61,954
Restricted cash
100


Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows
$30,201

$61,954

See accompanying notes.

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TREMONT MORTGAGE TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)


Note 1. Basis of Presentation
The accompanying condensed consolidated financial statements of Tremont Mortgage Trust and its subsidiaries, or TRMT, we, us or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2017, or our Annual Report.
In the opinion of our management, all adjustments which include only(consisting of normal recurring adjustmentsaccruals) considered necessary for a fair presentation,statement of results for the interim period have been included. Our operatingAll intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.
The preparation of these financial statements in conformity with U.S. generally accepted accounting principles, or GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the condensed consolidated financial statements include the fair value of financial instruments.
Note 2. Organization
We were organized as a real estate investment trust, or REIT, under Maryland law on June 1, 2017. On September 18, 2017, we sold 2,500,000 of our common shares of beneficial interest, par value $0.01 per share, or our common shares, at a price of $20.00 per share in our initial public offering, or our IPO. Concurrently with our IPO, we sold an additional 600,000 of our common shares at a price of $20.00 per share to Tremont Realty Advisors LLC, or our Manager, in a private placement. The aggregate proceeds from these sales were $62,000.

Note 3. Summary of Significant Accounting Policies
Cash, Cash Equivalents and Cash Equivalents.Restricted Cash. We consider highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.
Restricted cash primarily consists of deposit proceeds from potential borrowers when originating loans, which may be returned to the applicable borrower upon the closing of the loan, after deducting any transaction costs paid by us for the benefit of such borrower.
Repurchase Agreements. Loans financed through repurchase agreements will generally be treated as collateralized financing transactions and will remain recorded in our consolidated balance sheets as assets, and cash received from the purchasers will be recorded in our consolidated balance sheets as a liability. Interest paid in accordance with repurchase agreements will be recorded as interest expense in our consolidated statements of operations.
Loans Held-for-Investment. Generally, our loans will be classified as held-for-investment based upon our intent and ability to hold them until maturity. We expect that loans that are held-for-investment will be carried at cost, net of unamortized loan origination and exit fees that are required to be recognized in the carrying value of the loans in accordance with GAAP, unless the loans are deemed to be impaired. Loans that we have a plan to sell or liquidate will be held at the lower of cost or fair value.
We evaluate each of our loans for impairment at least quarterly by assessing a variety of risk factors in relation to each loan and assigning a risk rating to each loan based on those factors. Factors considered in these evaluations include, but are not limited to, property type, geographic and local market dynamics, physical condition, leasing and tenant profile, projected cash flow, risk of loss, current loan-to-value ratio, or LTV, debt yield, collateral performance, structure, exit plan and sponsorship. Loans will be rated “1” (less risk) through “5” (greater risk) as defined below:
"1" lower risk—Criteria reflects a sponsor having a strong financial condition and low credit risk and our evaluation of management's experience; collateral performance exceeding performance metrics included in the business plan or credit underwriting; and the property demonstrating stabilized occupancy and/or market rates, resulting in strong current cash flow and net operating income and/or having a very low LTV.

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TREMONT MORTGAGE TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)

"2" average risk—Criteria reflects a sponsor having a stable financial condition and our evaluation of management's experience; collateral performance meeting or exceeding substantially all performance metrics included in the business plan or credit underwriting; and the property demonstrating improved occupancy at market rents, resulting in sufficient current cash flow and/or having a low LTV.
"3" acceptable risk—Criteria reflects a sponsor having a history of repaying loans at maturity and meeting its credit obligations and our evaluation of management's experience; collateral performance expected to meet performance metrics included in the business plan or credit underwriting; and the property having a moderate LTV. New loans and loans with a limited history will typically be assigned this rating and will be adjusted to other levels from time to time as appropriate.
"4" higher risk—Criteria reflects a sponsor having a history of unresolved missed or late payments, maturity extensions and difficulty timely fulfilling its credit obligations and our evaluation of management's experience; collateral performance failing to meet the business plan or credit underwriting; the existence of a risk of default possibly leading to a loss and/or potential weaknesses that deserve management’s attention; and the property having a high LTV.
"5" impaired/loss likely—Criteria reflects a very high risk of realizing a principal loss or having incurred a principal loss; a sponsor having a history of default payments, trouble fulfilling its credit obligations, deeds-in-lieu of foreclosures, and/or bankruptcies; collateral performance is significantly worse than performance metrics included in the business plan; loan covenants or performance milestones having been breached or not attained; timely exit via sale or refinancing being uncertain; and the property having a very high LTV.
Impairment occurs when it is deemed probable that we will not be able to collect all amounts due under a loan according to its contractual terms. Impairment will then be measured based on the present value of expected future cash flows discounted at the loan’s contractual effective rate and the fair value of any available collateral, net of any costs we expect to incur to realize that value. The determination of whether loans are impaired will involve judgments and assumptions based on objective and subjective factors. Consideration will be given to various factors, such as business plans, property occupancies, tenant profiles, rental rates, operating expenses and borrowers’ repayment plans, among others, and will require significant judgments, including assumptions regarding the values of loans, the values of underlying collateral and other circumstances, such as guarantees, if any. Upon measurement of an impairment, we will record an allowance to reduce the carrying value of the loan accordingly, and record a corresponding charge to net income in our consolidated statements of operations.
As of September 30, 2018, we have not recorded any allowance for losses as we believe it is probable that we will be able to collect all amounts due pursuant to the contractual terms of our loans.
Fair Value of Financial Instruments. The accompanying balance sheet includesFinancial Accounting Standards Board, or FASB, Accounting Standards CodificationTM, or ASC, Topic 820-10, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands the followingrequired disclosure regarding fair value measurements. ASC Topic 820-10 defines fair value as the price that would be received for a financial instruments: cash, accounts payable and other liabilities and due to related persons. We consider the carrying values of cash, accounts payable and other liabilities and due to related persons to approximate the fair values of these financial instruments basedinstrument in a current sale, which assumes an orderly transaction between market participants on the short duration betweenmeasurement date. We determine the estimated fair value of financial assets and liabilities using the three tier fair value hierarchy established by GAAP, which prioritizes the inputs used in measuring fair value. GAAP establishes market based or observable inputs as the preferred source of values followed by valuation models using management assumptions in the absence of market inputs. The three levels of inputs that may be used to measure fair value are as follows:
Level I—Inputs include quoted prices in active markets for identical assets or liabilities that we have the ability to access.
Level II—Inputs include quoted prices in markets that are less active or inactive or for which all significant inputs are observable, either directly or indirectly.
Level III—Inputs include unobservable prices and are supported by little or no market activity and are significant to the overall fair value measurement.
Loan Deferred Fees. Loan origination and exit fees are reflected in loans held-for-investment, net, in our consolidated balance sheets and include fees charged to borrowers. These fees are amortized into interest income over the life of these instrumentsthe related loans held-for-investment.

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TREMONT MORTGAGE TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)

Deferred Financing Costs. Costs incurred in connection with financings are capitalized and their expected realizations.amortized over the respective financing terms and are recorded in our consolidated statements of operations as a component of interest and related expenses. At September 30, 2018, we had approximately $878 of capitalized financing costs, net of amortization.
Net Loss Per Common Share Amounts.Share. We calculate basic earnings per common share by dividing net loss by the weighted average number of our common shares outstanding during the period. We calculate diluted net loss per share using the more dilutive of the two class method or the treasury stock method.
Revenue Recognition. Interest income related to our first mortgage loans secured by commercial real estate, or CRE, will generally be accrued based on the coupon rates applied to the outstanding principal balance of such loans. Fees, premiums and discounts, if any, will be amortized or accreted into interest income over the remaining lives of the loans using the effective interest method, as adjusted for any prepayments.
If a loan's interest or principal payments are not paid when due and there is uncertainty that such payments will be collected, the loan may be categorized as non-accrual and no interest will be recorded unless it is collected. When all overdue payments are collected and, in our judgment, a loan is likely to remain current, it may be re-categorized as accrual.
For loans purchased at a discount, GAAP limits the yield that may be accreted (accretable yield) to the excess of the investor’s estimate of undiscounted expected principal, interest and other cash flows (cash flows expected at acquisition to be collected) over the investor’s initial investment in the loan. GAAP also requires that the excess of contractual cash flows over cash flows expected to be collected (non-accretable difference) not be recognized as an adjustment of yield, loss accrual or valuation allowance. Subsequent increases in cash flows expected to be collected from such loans generally will be recognized prospectively through adjustment of the loan’s yield over its remaining life. Decreases in cash flows expected to be collected will be recorded as impairment.
Note 4. Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board, orOn January 1, 2018, we adopted FASB issued Accounting Standards Update, or ASU, No. 2014-09 (and related clarifying guidance issued by the FASB), Revenue From Contracts With Customers, which outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. ASU No. 2014-09 states that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services”. In August 2015, the FASB provided for a one year deferral of the effective date for ASU No. 2014-09, which is now effective for us beginning January 1, 2018.services.” We have evaluated ASU No. 2014-09 and related clarifying guidance issued by the FASB and determined that interest income and gains and losses on financial instruments are outside of its scope; therefore, we do not expect the adoption of ASU No. 2014-09 todid not have a material impact in our consolidated financial statements and related disclosures.statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses than is currently required.losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We expect that the adoption of ASU No. 2016-13 will increase our timing and carrying amounts for credit losses, but we are continuing to assesscurrently assessing the potential impact ourthe adoption of ASU No. 2016-13 will have in our consolidated financial statements.

On January 1, 2018, we adopted FASB ASU No. 2016-18, Restricted Cash, which requires companies to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statements of cash flows. This update also requires a reconciliation of the totals in the statements of cash flows to the related captions in the balance sheet. As a result, amounts included in restricted cash in our condensed consolidated balance sheets are included with cash and cash equivalents in the consolidated statements of cash flows. Restricted cash, which primarily consists of deposit proceeds from potential borrowers which may be returned to the applicable borrower upon the closing of the loan, after deducting any transaction costs paid by us for the benefit of such borrower, totaled $100 as of September 30, 2018. The adoption of this update did not change our consolidated balance sheet presentation.
In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which aligns the measurement and classification guidance for share based payments to nonemployees with the guidance for share based payments to employees, with certain exceptions. ASU No. 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We

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TREMONT MORTGAGE TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)

are currently assessing the potential impact the adoption of ASU No. 2018-07 will have in our condensed consolidated financial statements.
Note 5. Loans Held-for-Investment
We originate first mortgage loans secured by middle market and transitional CRE and related instruments which are generally to be held as long term investments.
As of September 30, 2018, we had established a portfolio of investments with a total commitment of approximately $88,512, of which $6,104 remained unfunded. At September 30, 2018, these loans had a total principal balance in loans held-for-investment of $82,408, and a net book value of $81,664, net of deferred fees totaling $744; a weighted average all-in yield, which includes the amortization of deferred fees, of 6.71%; a weighted average coupon rate of 6.09%; a weighted average maximum maturity of 4.8 years, assuming full term extension of all loans; and a weighted average LTV of 73%. To fund these loan originations, we used cash on hand, advancements under our master repurchase agreement and borrowings under a note payable.
Loan Risk Ratings
We evaluate each of our loans for impairment at least quarterly by assessing a variety of risk factors in relation to each loan and assigning a risk rating to each loan based on those factors. Factors considered in these evaluations include, but are not limited to, property type, geographic and local market dynamics, physical condition, leasing and tenant profile, projected cash flow, risk of loss, current LTV, debt yield, collateral performance, structure, exit plan and sponsorship.
During the nine months ended September 30, 2018, we originated four first mortgage bridge loans with an aggregate net book value of $81,664. Based on our internal risk rating policy, each of these loans was assigned a "3" acceptable risk rating. We did not have any impaired loans, nonaccrual loans, or loans in default as of September 30, 2018; thus, we did not record a reserve for loan loss.
See Note 3 for a discussion regarding the risk rating system that we use in evaluating our portfolio.
Note 6. Secured Debt Agreements
At September 30, 2018, we had a master repurchase facility and a note payable that we have used to finance certain loans.
Master Repurchase Facility
On February 9, 2018, one of our wholly owned subsidiaries entered into a master repurchase agreement, or our master repurchase agreement, with Citibank, N.A., or Citibank, for a $100,000 master repurchase facility, or our master repurchase facility, pursuant to which we may sell to Citibank, and later repurchase, floating rate mortgage loans and other related assets, or purchased assets. Our master repurchase agreement expires February 9, 2021, unless terminated earlier according to its terms.
Under our master repurchase facility, the initial purchase price paid by Citibank for each 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 Citibank’s approval. Upon the repurchase of a purchased asset, we are required to pay Citibank the outstanding purchase price of the purchased asset, accrued interest and all accrued and unpaid expenses of Citibank relating to such purchased asset. The price differential (or interest rate) relating to a purchased asset is equal to one month LIBOR plus a premium of 200 to 250 basis points, determined by the yield of the purchased asset and the property type of the purchased asset’s real estate collateral.
In connection with our master repurchase facility, we entered into a guaranty which requires us to pay the purchase price, purchase price differential and any costs and expenses of Citibank related to the facility. This guaranty also requires us to comply with customary financial covenants, which include a minimum tangible net worth, minimum cash liquidity, a total indebtedness to tangible net worth ratio and a minimum interest coverage ratio. As of September 30, 2018, we believe we were in compliance with the terms and conditions of the covenants of our master repurchase facility.

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TREMONT MORTGAGE TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)

Our master repurchase agreement also contains margin maintenance provisions that provide Citibank with the right, in certain circumstances related to a credit event, as defined in our master repurchase agreement, to re-determine the value of purchased assets. Where a decline in the value of purchased assets has resulted in a margin deficit, Citibank may require us to eliminate such margin deficit through a combination of purchased asset repurchases and cash transfers to Citibank, subject to Citibank's approval.
Our master repurchase agreement provides for acceleration of the date of repurchase of the purchased assets and Citibank’s liquidation of the purchased assets upon the occurrence and continuation of certain events of default, including a change of control of us, which includes our Manager ceasing to act as our sole manager or be a wholly owned subsidiary of The RMR Group LLC, or RMR LLC.
In July 2018, we sold to, and committed to later repurchase from, Citibank, two first mortgage bridge loans, with an aggregate principal balance of $28,778, and, as a result, Citibank advanced to us $21,583. As of September 30, 2018, our master repurchase agreement had a weighted average interest rate of LIBOR plus 226 basis points per annum, excluding associated fees and expenses, and a weighted average remaining maturity of 2.4 years. During the nine months ended September 30, 2018, we recorded interest expense of $234 in connection with our master repurchase facility.
Note Payable
In July 2018, we closed a $40,363 first mortgage bridge loan, of which $39,613 was funded by us at closing, to finance the acquisition of the Hampton Inn JFK, a 216-key, 13-story hotel located adjacent to the John F. Kennedy International Airport in Queens, NY, or the JFK Loan, and in connection therewith, one of our wholly owned subsidiaries entered into a term loan facility, in the form of a note payable, with Texas Capital Bank, National Association, or Texas Capital Bank, or the TCB loan. The TCB loan advances up to 80% of the JFK Loan amount from time to time. The TCB loan matures in July 2021. Subject to our payment of extension fees and meeting other conditions, we have the option to extend the stated maturity date of the TCB loan for two, 12 month periods. Interest on amounts advanced to our subsidiary under the TCB loan is calculated at a floating rate based on one month LIBOR plus a premium of 215 basis points. We may be required to repay a portion of the amount outstanding under the TCB loan to maintain a 10.5% debt yield on the net operating income of the underlying hotel. The TCB loan is prepayable in whole at any time without premium or penalty, and provides for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of customary events of default. In connection with the TCB loan, we entered into a guaranty with Texas Capital Bank pursuant to which we have guaranteed 25% of the TCB loan amount plus all related interest and costs. This guaranty also requires us to comply with customary financial covenants, which include a minimum tangible net worth, minimum asset liquidity, a total indebtedness to tangible net worth leverage ratio and a required debt yield. As of September 30, 2018, we believe we were in compliance with the terms and conditions of the covenants of the TCB loan.
As of September 30, 2018, Texas Capital Bank had advanced to our subsidiary $31,690 under the TCB loan with an interest rate of LIBOR plus 215 basis points per annum, excluding associated fees and expenses. During the nine months ended September 30, 2018, we recorded interest expense of $246 in connection with the TCB loan.
Note 7. Fair Value of Financial Instruments
As of each of September 30, 2018 and December 31, 2017, the carrying values of certain of our financial instruments, which include cash and cash equivalents, restricted cash, prepaid expenses, due to related parties, accounts payable, accrued expenses and deposits, approximated their fair values due to the short term nature of these financial instruments.
At September 30, 2018, the estimated fair value of our loans held-for-investment was $83,006, which we estimated using Level III inputs. We estimated the fair values of our loans held-for-investment by using discounted cash flow analysis and currently prevailing market terms as of the measurement date, determined by significant unobservable market inputs, which include holding periods, discount rates based on loan to value, property types and loan pricing expectations which are corroborated by a comparison with other market participants to determine the appropriate market spread to add to the one-month LIBOR (Level III inputs as defined in the fair value hierarchy under GAAP).
There were no transfers of financial assets or liabilities within the fair value hierarchy during either the three or nine months ended September 30, 2018 or the year ended December 31, 2017.

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TREMONT MORTGAGE TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)

The following table provides information regarding financial assets and liabilities not carried at fair value on a recurring basis in our condensed consolidated balance sheets:
  Book Face Fair Value
At September 30, 2018 Value Value Level I Level II Level III
Financial assets          
Loans held-for-investment $81,664
 $82,408
 $
 $
 $83,006
Financial liabilities          
Master repurchase agreement 20,935
 21,583
 
 
 21,583
Note payable 31,461
 31,690
 
 
 31,690
Note 5.8. Shareholders' Equity
Share Awards
We have common shares available for issuance under the terms of our 2017 Equity Compensation Plan.
On September 18, 2017,March 9, 2018, in accordance with our Trustee compensation arrangements, and in connection with the election of one of our Managing Trustees, we sold 2,500,000granted 1,500 of our common shares, valued at a price of $20.00$13.31 per share, in our IPO. Concurrently with our IPO, we sold an additional 600,000the closing price of our common shares aton The Nasdaq Stock Market LLC, or Nasdaq, on that day, to the Managing Trustee who was elected as a priceManaging Trustee that day.
On April 25, 2018, in accordance with our Trustee compensation arrangements, we granted 3,000 of $20.00 per share to our Manager in a private placement. The aggregate proceeds from these sales were $62,000. We did not declare or pay any cash dividends on our common shares, duringvalued at $12.61 per share, the periodclosing price of our common shares on Nasdaq on that day, to each of our five Trustees as part of their annual compensation.
On September 13, 2018, we granted an aggregate of 46,300 of our common shares, valued at $11.80 per share, the closing price of our common shares on Nasdaq on that day to our officers and certain other employees of our Manager and of RMR LLC under our equity compensation plan.
Share Forfeitures and Repurchases
On August 20, 2018, 8,000 of our common shares were forfeited in connection with the resignation of certain of our executive officers. The shares were valued at $12.50 per share, the closing price of our common shares on Nasdaq on that day.
On September 24, 2018, we purchased an aggregate of 2,121 of our common shares, valued at $11.89 per common share, the closing price of our common shares on Nasdaq on that day, from certain of our inception (June 1, 2017) through September 30, 2017.officers and other employees of our Manager and of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.
Note 6.9. Management Agreement with our Manager
We have no employees. The personnel and various services we require to operate our business are provided to us by our Manager. In connection with our IPO, we entered intoManager pursuant to a management agreement, with our Manager, which provides for the day to day management of our operations by our Manager, subject to the oversight and direction of our Board of Trustees.
We pay our Manager an annual base management fee that is equal to 1.5% of our “equity,” as defined. We pay this business management fee in cash quarterly in arrears. In addition, beginning in the fourth quarter of 2018, we may pay our Manager an incentive fee if it is earned under our management agreement. The incentive fee, if any, will be payable in cash quarterly in arrears. We also will be obligated to pay our Manager a termination fee in the event our management agreement is terminated by us without cause or by our Manager for a material breach by us. Pursuant to our management agreement, we recognized management fees of $32$0 and $447 for the three and nine months ended September 30, 2018, respectively. In June 2018, our Manager agreed to waive any base management fees otherwise due and payable pursuant to our management agreement for the period beginning July 1, 2018 until June 30, 2020. As a result, we did not recognize any base management fees for the three months ended September 30, 2018. If our Manager had not agreed to waive these base management fees, we would have recognized $222 of base management fees for the three months ended September 30, 2018. For the period beginning on September 18, 2017, the date on which we entered into theour management agreement, through September 30, 2017. Our2017, we recognized base management fees are includedof $32.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in general and administrative expensesthousands, except per share data)

In addition, beginning in the fourth quarter of 2018, we may be obligated to pay our statements of operations.Manager an incentive fee if it is earned under our management agreement; however, our Manager has agreed that no incentive fee will be paid or payable by us for the 2018 or 2019 calendar years.
Our Manager, and not us, is responsible for the costs of its employees who provide services to us, including the cost of our Manager’s personnel who originate our loans, unless any such payment or reimbursement is specifically approved by a majority of our Independent Trustees, is a shared services cost or relates to awards made under any equity compensation plan adopted by us. We are generally required to pay or to reimburse our Manager and its affiliates for all other costs and expenses of our operations. Some of these overhead, professional and other services are provided by The RMR Group LLC, or RMR LLC pursuant to a shared services agreement between our Manager and RMR LLC. We will reimburse our Manager for shared services costs our Manager pays to RMR LLC and its affiliates, and these reimbursements may include an allocation of the cost of personnel employed by RMR LLC, with such shared services costs subject to approval by a majority of our Independent Trustees at least annually. We incurred shared services costs of $375 and $1,125 for the three and nine months ended September 30, 2018, respectively, and $53 for the period beginning on September 18, 2017 through September 30, 2017, payable to our Manager as reimbursement for shared services costs it paid to RMR LLC. These amounts are included in shared services agreement reimbursement in our condensed consolidated statements of operations. In addition, we will also pay our pro rata portion of internal audit costs incurred by RMR LLC on behalf of us and other public companies to which RMR LLC or its affiliatessubsidiaries provide management services. ForWe incurred internal audit costs of $25 and $87 for the three and nine months ended September 30, 2018, respectively, and $0 for the period beginning on September 18, 2017 the date we entered into our management agreement, through September 30, 2017, we incurred shared service costs of $53 payable to our Manager as reimbursement for shared service costs it paid to RMR LLC, whichLLC. These amounts are included in general and administrative expenses in our condensed consolidated statements of operations.
For further information about our management agreement with our Manager and RMR LLC’s shared services agreement with our Manager, please refer to the prospectus related to our IPO dated September 13, 2017, or our IPO Prospectus, which was filed with the Securities and Exchange Commission, or SEC, on September 15, 2017, including the sections captioned “Our Manager and our Management Agreement” and “Certain relationships and related person transactions - Our relationship with our Manager, RMR and other entities managed by RMR”. Our filings with the SEC, including our IPO Prospectus, are available at the SEC’s website at www.sec.gov.
Note 7.10. Related Person Transactions
We have relationships and historical and continuing transactions with our Manager, RMR LLC, The RMR Group Inc., or RMR Inc., and others related to them, including other companies to which RMR LLC providesor its subsidiaries provide management services and which have trustees, directors and officers who are also our Trustees or officers.
We were formerly a 100% owned subsidiary of our Manager. Our Manager is our largest shareholder and, as of September 30, 2017, owned 600,100 of our common shares, or approximately 19.4% of our outstanding common shares. Our Manager has agreed to pay the initial organizational costs related to our formation and the other costs of our IPO, including the underwriting discounts and commissions; as of September 30, 2017, our Manager has incurred approximately $6,823 in such costs. Each of our Managing Trustees and officers is also a director or officer of our Manager and of RMR LLC.

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NOTES TO FINANCIAL STATEMENTS
(dollars in thousands, except per share data)

Our Manager, Tremont Realty Advisors LLC. We have a management agreement with our Manager to provide management services to us. See Note 6, Management Agreement with our Manager9 for further information regarding our management agreement with our Manager.
We were formerly a 100% owned subsidiary of our Manager. Our Manager is our largest shareholder and, our Manager entered into a private placement purchase agreement concurrent with our IPO, pursuant to which our Manager acquired 600,000as of September 30, 2018, owned 600,100 of our common shares, at a priceor approximately 18.9% of $20.00 per share, which wasour outstanding common shares. Our Manager paid the same price at which we soldinitial organizational costs related to our common shares information and the other costs of our IPO. Under theIPO and concurrent private placement, purchase agreement, we granted toincluding underwriting discounts and commissions, totaling $6,823. Each of our Managing Trustees and executive officers is also a director or officer of our Manager certain demand and piggyback registration rights, subject to certain limitations, covering our common shares owned by our Manager.of RMR LLC.
RMR Inc. and RMR LLC. Our Manager is a subsidiary of RMR LLC, which is a majority owned subsidiary of RMR Inc., and RMR Inc. is the managing member of RMR LLC. TheAdam D. Portnoy, one of our Managing Trustees, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., ABP Trust, is owned byand a managing director, president and chief executive officer of RMR Inc. and a director of our Manager and the president and chief executive officer of RMR LLC. David M. Blackman, our other Managing Trustees.Trustee and our President and Chief Executive Officer, also serves as the president and chief executive officer of our Manager and an executive officer of RMR LLC. Other officers of our Manager and of RMR LLC also serve as our officers. RMR LLC provides certain shared services to our Manager which are applicable to us, and we reimburse our Manager for the amounts it pays for those services. See Note 6, Management Agreement with our Manager9 for further information regarding these shared services arrangements.
In September 2018, we granted annual awards of 46,300 of our common shares to our officers and to other officers and employees of our Manager and of RMR LLC. In September 2018, we purchased 2,121 of our common shares, valued at the closing price of our common shares on Nasdaq on the date of purchase, in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares to certain of our officers and other officers and employees or our Manager and of RMR LLC. We include the amounts recognized as expense for share awards to our officers and to other officers and employees of our Manager and of RMR LLC in general and administrative expenses in our condensed consolidated statements of operations.
For further information about these and other such relationships and certain other related person relationships and transactions, please refer to our IPO Prospectus, including the sections captioned “Our Manager and our Management Agreement” and “Certain relationships and related person transactions - Our relationship with our Manager, RMR and other entities managed by RMR”.Annual Report.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)

Note 8.11. Income Taxes
We intendhave elected to elect and qualify for taxationbe taxed as a REIT for U.S. federal income tax purposes, commencing with our taxable year ending December 31, 2017,under the Internal Revenue Code of 1986, as amended, or the IRC. Accordingly, we generally are not, and to maintain that qualification thereafter. We therefore expect to generallywill not be, subject to U.S. federal and most state income taxation on our operating incometaxes provided that we distribute our taxable income to our shareholders and meet certain other requirements to qualify for taxation as a REIT for U.S. federal income tax purposes. However, we expect to beREIT. We are subject to income tax in certain statesstate and local jurisdictions despitetaxes, certain of which amounts are reported as income taxes in our qualificationcondensed consolidated statements of income. We do not currently expect recent amendments to the IRC to have a significant impact on us; however, we will monitor future interpretations of such amendments as they develop, and accordingly, our estimates and disclosures may change.
Note 12. Weighted Average Common Shares
We calculated earnings per share, or EPS, for taxation as a REIT for U.S. federal income tax purposes.the period ended September 30, 2018 using the weighted average number of common shares outstanding during the period. When applicable, diluted EPS reflects the more dilutive earnings per common share amount calculated using the two class method or the treasury stock method. For the three and nine months ended September 30, 2018, 2,204 and 1,071, respectively, restricted unvested common shares were not included in the calculation of diluted EPS because to do so would have been antidilutive.

Note 13. Commitments and Contingencies
Unfunded Commitments
As of September 30, 2018, we had unfunded commitments of $6,104 related to our loans held-for-investment. These commitments are not reflected in our condensed consolidated balance sheets.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in Part 1, Item 1 of this Quarterly Report on Form 10-Q and with the prospectus related toin our initial public offering, or IPO, dated September 13, 2017, or our IPO Prospectus, which was filed with the Securities and Exchange Commission, or SEC, on September 15, 2017 and is accessible at the SEC’s website, www.sec.gov.

Annual Report.
OVERVIEW (dollars in thousands, except per share data)
We are a real estate investment trust, or REIT that was organized under Maryland law that focuses primarilyin 2017. We focus on originating and investing in first mortgage loans secured by middle market and transitional commercial real estate, or CRE. We define middle market CRE as commercial properties that have values up to $75 million$75,000 and transitional CRE as a commercial properties subject to redevelopment or repositioning activities that are expected to increase the value of the properties. Although
We completed our primary focus is originating and investing in floating rate first mortgage loans of less than $50 million, our target investments also include subordinated mortgages, mezzanine loans and preferred equity interests in entities that own middle market and transitional CRE.
OnIPO on September 18, 2017, we2017. We sold 2,500,000 of our common shares of beneficial interest, par value $0.01 per share, or our common shares at a price of $20.00 per share in our IPO. Concurrently with our IPO, we sold an additional 600,000 of our common shares at a price of $20.00 per share to Tremont Realty Advisors LLC, or our Manager pursuant toin a private placement purchase agreement.placement. The aggregate proceeds to us from these sales were $62,000. Our Manager paid the initial organizational costs related to our formation and the other costs of our IPO and concurrent private placement, including the underwriting discounts and commissions.

We are externally managed by ourOur Manager which is an investment adviser registered with the SEC. Our Manager is owned by The RMR Group LLC,Securities and Exchange Commission, or RMR LLC, which is the majority owned operating subsidiary of The RMR Group Inc., or RMR Inc., a management holding company listed on The Nasdaq Stock Market LLC under the symbol ‘‘RMR’’.SEC. We believe that our Manager provides us with significant experience and expertise in investing in middle market and transitional CRE.

We intend to operate our business in a manner consistent with our intention to qualifyqualification for taxation as a REIT forunder the IRC. We generally are not subject to U.S. federal income tax purposes,taxes on our REIT taxable income to the extent that we annually distribute all of our REIT taxable income to our shareholders and maintain our qualification for taxation as a REIT under the IRC. We also operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act of 1940, as amended.amended, or the Investment Company Act.
Book Value per Common Share
The following table calculates our book value per common share (amounts in thousands, except per share data).

 Three Months Ended
 September 30, 2018 June 30, 2018
Shareholders' equity59,386
 $59,349
Total outstanding common shares3,179
 3,143
Book value per common share$18.68
 $18.88
Our Portfolio
As of September 30, 2018, our portfolio of investments had an aggregate book value of $81,664, of which an aggregate of $82,408 of loans had been funded by us.
During the nine months ended September 30, 2018, we originated four first mortgage bridge loans with an aggregate book value of $81,664. Based on our internal risk rating policy, each of these loans was assigned a "3" acceptable risk rating. We did not have any impaired loans, nonaccrual loans, or loans in maturity default as of September 30, 2018. See Notes 3 and 5 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion regarding the risk rating system that we use in evaluating our loans held-for-investment.
Investment Activities
In April 2018, we closed a $18,102 first mortgage bridge loan to finance the acquisition of a 184,000 square foot, 14-story office tower in Metairie, LA, at an as-is LTV of approximately 80%. This loan bears interest at a variable rate of one month LIBOR plus a premium of 500 basis points payable monthly. This loan funded $15,949 at closing, includes a future funding allowance of $2,153 for leasing capital and building improvements and has a three year initial term with two, one year extension options, subject to the borrower meeting certain criteria. As of September 30, 2018, we had advanced $350, with $1,803 remaining under the future funding allowance.
In June 2018, we closed a $15,200 first mortgage bridge loan to refinance a 136,000 square foot office building in Houston, TX, at an as-is LTV of approximately 69%. This loan bears interest at a variable rate of one month LIBOR plus a premium of 400 basis points payable monthly. This loan funded $12,725 at closing, includes a future funding allowance of $2,475 for building improvements and leasing capital and has a three year initial term with two, one year extension options, subject to the borrower meeting certain criteria. As of September 30, 2018, we had not advanced any amount of the future funding allowance.
In July 2018, we closed a $40,363 first mortgage bridge loan to finance the acquisition of the Hampton Inn JFK, a 216-key, 13-story hotel located adjacent to the John F. Kennedy International Airport in Queens, NY, at an as-is LTV of approximately 71%. This loan bears interest at a variable rate of one month LIBOR plus a premium of 350 basis points payable monthly. This loan funded $39,613 at closing, includes a future funding allowance of $750 for a property improvement plan and has a three year initial term with two, one year extension options, subject to the borrower meeting certain criteria. As of September 30, 2018, we had not advanced any amount of the future funding allowance.
In July 2018, we closed a $14,847 first mortgage bridge loan to refinance a 62,000 square foot, property in Scarsdale, NY, at an as-is LTV of approximately 76%. This loan bears interest at a variable rate of one month LIBOR plus a premium of 400 basis points payable monthly. This loan funded $13,680 at closing, includes a future funding allowance of $1,167 for building improvements and leasing capital and has a three year initial term with two, one year extension options, subject to the borrower meeting certain criteria. As of September 30, 2018, we had advanced $91 with $1,076 remaining under the future funding allowance.
In August 2018, we entered a loan application with a borrower for a first mortgage bridge loan for a total commitment of $13,430 to finance the acquisition of a 123,172 square foot retail property located in Phoenix, AZ.
In October 2018, we entered a loan application with a borrower for a first mortgage bridge loan for a total commitment of $11,851 to refinance a 173,860 square foot, four-building office portfolio located in Dallas, TX.
In October 2018, we entered a loan application with a borrower for a first mortgage bridge loan for a total commitment of $29,500 to finance the acquisition of a 299,260 square foot, three-building office portfolio located in St. Louis, MO.

In October 2018, we entered a loan application with a borrower for a first mortgage bridge loan for a total commitment of $24,550 to finance the acquisition of a 432 unit apartment community located in Rochester, NY.
If our pending loans under application are closed, we expect that we would have approximately $12,000 of the proceeds from our IPO and concurrent private placement remaining for investment. That amount, together with expected additional borrowings under our master repurchase facility or other possible financing sources, if any, may provide us with up to approximately $48,000 of funding for additional investments. Further investments beyond pending loans under application would require us to obtain additional financing, whether by expanding our master repurchase facility or obtaining new financing sources. We cannot be sure that we would be able to obtain any such additional financing.
Financing Activities
On February 9, 2018, one of our wholly owned subsidiaries entered into our master repurchase agreement with Citibank. In July 2018, we sold to, and committed to later repurchase from, Citibank, two first mortgage bridge loans, with an aggregate principal balance of $28,778, and, as a result, Citibank advanced to us 75% of the aggregate outstanding balance of those loans, or $21,583.
For more information regarding our master repurchase facility, see Note 6 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
On July 27, 2018, one of our wholly owned subsidiaries entered into the TCB loan, pursuant to which that subsidiary may borrow up to $32,290. As of September 30, 2018, Texas Capital Bank had advanced to our subsidiary $31,690 under the TCB loan. For more information regarding the TCB loan, see Note 6 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
RESULTS OF OPERATIONS (dollars in thousands)
We originate first mortgage loans secured by middle market and transitional CRE and related instruments which are generally held as long term investments. These assets are classified as loans held-for-investment in our condensed consolidated balance sheets. 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.
We were formed in June 2017 and we completed our initial public offering in September 2017. Our operations during 2017 were limited as we were in the initial stages of formation and conducting our business. Our results of operations for the period from our inception on June 1, 2017 through September 30, 2017 included interest income of $23, primarily from the interest we earned on the cash we received in our IPO and concurrent private placement, management fees of $32 payable to our Manager under our management agreement, general and administrative expenses of $176, including costs associated with our being a public company, and reimbursements of $53 payable to our Manager for shared services our Manager arranges for from its parent, RMR LLC.
For the three months ended September 30, 2018, we incurred a net loss of $63. We generated interest income of $1,385 and incurred interest and related expenses of $563, which resulted in $822 net interest income during the quarter ended September 30, 2018. The expenses we incurred during the three months ended September 30, 2018 include shared services costs of $375 and other general and administrative expenses of $510, which primarily include legal and audit fees, insurance, dues and subscriptions, Trustee fees, internal audit costs, share grants and other professional fees.
For the nine months ended September 30, 2018, we incurred a net loss of $1,793. We generated interest income of $2,113 and incurred interest and related expenses of $666, which resulted in $1,447 of net interest income during the nine months ended September 30, 2018. The expenses we incurred during the nine months ended September 30, 2018 include management fees and shared services costs of $1,572 and other general and administrative expenses of $1,668, which primarily include legal and audit fees, insurance, dues and subscriptions, Trustee fees, internal audit costs, share grants and other professional fees.
Our results of operations for the three and nine months ended September 30, 2018 are not indicative of those expected in future periods. In general, we expect that our income and expenses related to our investment portfolio will increase as a result of our existing and future investment activities.

Factors Affecting Operating Results
We expect that theOur results of our operations will be affectedare impacted by a number of factors and will primarily depend on the interest income from our investments and the financing and other costs associated with our business. Our operating results may also be impacted by general CRE market conditions and unanticipated defaults by our borrowers.
Credit Risk. We will beare subject to the credit risk of our borrowers in connection with our investments. We will 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 adversely impact our operating results.
Changes in Fair Value of our Assets. We generally expect to hold our investments generally as long term investments for their contractual terms. We will evaluate our investments for impairment periodically. 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, we will record an allowance to reduce the carrying value of the loan to an amount that takes into account both the present value of expected future cash flows discounted at the loan's contractual effective interest rate and the fair value of any available collateral, net of any costs we expect to incur to realize that value.
Although we generally expect to hold our investments generally as long term investments,for their contractual terms, we may occasionally classify some of our investments as held for sale. Investments held for sale will be carried at the lower of their amortized cost or fair value within loans held for sale on our consolidated balance sheet,sheets, with changes in fair value recorded through earnings. Fees received from our borrowers on any loans held for sale will be deferred and recognized as part of the gain or loss on sale. We do not currently expect to hold any of our investments for trading purposes.
Availability of Leverage and Equity. We expect to use leverage to make additional investments that may increase our potential returns. We may not be able to obtain the amount of leverage we desire or its cost may exceed our expectation and, consequently, the returns generated from our investments may be less than we currently expect.reduced. To continue to grow our portfolio of

investments, we may also seek to raise additional equity capital. Our access to additional equity capital will depend on many factors, and our abilitywe may not be able to raise equity capital in the future cannot be predicted at this time.future.
Market Conditions. In light ofUnder current market conditions, we believe that we will be able to identify a large number ofadditional attractive financing opportunities by focusingcontinuing to focus on middle market and transitional CRE loans. We expect our primary focus will be originating and investing in floating rate first mortgage loans of less than $50 million. We believe that there is currently an imbalance in the CRE debt market that is marked by reduced supplycontinues to be strong demand for alternative sources of CRE debt capital and increased demand for CRE debt capital when compared to a decade ago. We also believe that this imbalance is especially pronounced for middle market and transitional CRE. We believe that this market dynamic creates an opportunity for alternative lenders, like us, to provide CRE debt financing to commercial property owners whocapital. The decrease in the past have obtained debt financing from historicaltraditional CRE debt providers, such as banks and insurance companies.
companies, is a primary reason borrowers are seeking alternative sources of debt. Alternative CRE lenders, like us, generally are able to set their investment goals with significantly less regulatory constraints than historical CRE debt providers, such as banks and insurance companies. This allows alternative CRE lenders to create customized solutions to fit borrowers' specific business plans for the collateral properties. We believe that this flexibility affords alternative lenders, like us, a significant competitive advantage over regulated historical CRE debt providers, especially with regard to middle market and transitional CRE debt financing.
Although a largeA significant amount of capital has beencontinues to be raised recently by alternative lenders. As new alternative CRE debt providers mostenter the marketplace, borrowers are becoming more familiar with the alternative CRE debt product and are choosing to utilize alternative CRE debt in a wider array of circumstances. However, increased supply of alternative CRE debt capital has resulted in more competition for loans and applied downward pressure on loan premiums. Although LIBOR, the index rate upon which bridge loans are priced, has increased over 100 basis points since October 2017, there has been a net reduction in overall borrowing costs including loan fees and decreased loan premiums. To offset the reduction in loan premiums, some alternative CRE debt providers are considering construction and higher LTV loans to meet their investors’ return expectations. Because of this capital has been raised by a small number of firms. We believe that firms raising large amounts of capital generally target large loan investments in order to deploy the capital efficiently, and that most of the capital recently raised forpremium compression, borrowers are more frequently seeking alternative CRE debt financing including capital raisedfor stabilized or near stabilized properties to take advantage of the flexibility offered by many other commercial mortgage REITs, will be used forthese loan investments of greater than $50.0 million. We also believe that, since the 2008 global financial crisis, financial institutions and other historical CRE debt providers, such as banks and insurance companies, have increased their focus on investments in lower loan to value, or LTV, loans and in stabilized properties.structures. We believe a significant portion of alternative lenders are targeting loan amounts in excess of $50,000 in primary markets. We expect that this market dynamic has contributedour primary focus will continue to the current supplybe originating and demand imbalance for middle market and transitional CRE debt financing.investing in floating rate first mortgage loans of less than $50,000.
Changes in Market Interest Rates. With respect to our proposed 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) coupons on our variable rate investments, if any, to reset, perhaps on a delayed basis, to higher interest rates; and (d) refinancingsrefinancing by our borrowers to become more difficult and costly, negatively impacting refinancingsrefinancing as a source of repayment for our investments.
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) coupons on our variable rate

investments, if any, to reset, perhaps on a delayed basis, to lower interest rates; and (d) our borrowers' ability to refinance to become easier and more affordable, positively impacting our borrowers' ability to repay our investments.
We believe that we are in a rising interest rate environment.  The interest income on our loans and interest expense on our borrowings float with 1 Month LIBOR.  Because we generally lever approximately 75% of our investments, as LIBOR increases our income from investments net of interest and related expenses will increase.    
Size of Portfolio. The size of our portfolio of investments, as measured both by the aggregate principal balance and the number of our CRE loans and our other investments, willis also be an important factor in determining our operating results. Generally, as the size of our portfolio grows,continues to grow, the amount of interest income we receive will increase and we may achieve certain economies of scale and diversify risk within our portfolio investments. 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 portfolio growscontinues to grow 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.

Results of OperationsLIQUIDITY AND CAPITAL RESOURCES (dollars in thousands)
AsLiquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay or meet margin calls resulting from our borrowings, fund and maintain our assets and operations, make distributions to our shareholders and fund other business operating requirements. We will use a significant amount of cash to originate, purchase and invest in our target investments, repay principal and interest on our borrowings, make distributions to our shareholders and fund other business operating requirements. We expect that our sources of cash flows will include payments of principal, interest and fees we receive on our investments, cash generated from our operating results, unused borrowing capacity, including under our master repurchase facility or other repurchase agreements or financing arrangements, bank loans or public or private issuances of debt or equity securities.
We expect to declare at least a partial distribution to common shareholders in January 2019 based upon results of the fourth quarter of 2018.
Cash Used in Operating Activities. During the nine months ended September 30, 2017, we had2018, our cash used in operating activities of $2,174 consisted of a net loss of $1,793, partially offset by amortization of deferred financing fees related to our master repurchase facility of $184, share based compensation of $325 and changes in our accounts payable, other accrued liabilities of $274 and prepaid expenses and other assets of $5. Our cash used in operating activities also consisted of changes in the amounts accrued but not originated any loans or investments. Although we were formed on June 1, 2017, we did not commence operations untilpaid as of the closingrespective period end dates of our IPO. The expenses we have incurred since$731, amortization of loan origination fees of $145 and accrued interest receivable of $293.
Our cash used in operating activities of $48 from our inception on June 1, 2017 through September 30, 2017 consisted of a net loss of $238, partially offset by changes in the amounts due to related persons of $115 and duringaccounts payable and other liabilities of $75.
Cash Used in Investing Activities. During the threenine months ended September 30, 2017, include management and shared service2018, our cash used in investing activities consisted of $81,519 of loan originations, net of deferred fees of $85, which is the pro rated amount ofreceived on our management fees and reimbursements to our Manager from the date of our IPO, and other general and administrative expenses of $176. Our results of operations sinceloans held-for-investment. From our inception on June 1, 2017 and forthrough September 30, 2017, we did not use or receive any cash in investing activities.
Cash Used in Financing Activities. During the threenine months ended September 30, 2017, are not indicative2018, our cash used in financing activities consisted of those expected in future periods. In general, we expect that our income and expensesthe $1,045 of deferred financing cost payments related to our investment portfolio will increasemaster repurchase facility and our note payable, offset by $21,583 of advancements under our master repurchase agreement and $31,690 of borrowings under our note payable.
From our inception on June 1, 2017 through September 30, 2017, our cash flows from financing activities primarily consisted of the $62,002 in future periods as a resultaggregate proceeds we received from the sales of our future investment activities.

We are an “emerging growth company” as definedcommon shares in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Pursuant to the JOBS Act, we have elected to delay the adoption of new or revised financial accounting standards,our IPO and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for publicly owned companies that are not emerging growth companies.

in concurrent private placement.
Off-Balance Sheet Arrangements

As of September 30, 2017,2018, 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
Liquidity and Capital Resources (dollars in thousands)
Liquidity is a measureIn February 2018, one of our abilitywholly owned subsidiaries entered into our $100,000 master repurchase facility with Citibank, and as of September 30, 2018, we had $21,583 of advancements outstanding under this facility. In July 2018, one of our wholly owned subsidiaries entered into the TCB loan, pursuant to meet potential cash requirements, including ongoing commitmentswhich that subsidiary may borrow up to repay or meet margin calls resulting from our borrowings, fund$32,290, and maintain our assets and operations, make expected future distributionsas of September 30, 2018, Texas Capital Bank had advanced to our shareholderssubsidiary $31,690 under this loan. As of September 30, 2018, we believe we were in compliance with the terms and fund other business operating requirements. We will use significant cash to originate, purchaseconditions of the covenants of our master repurchase facility and invest inthe TCB loan. For more information regarding our target investments, repay principalmaster repurchase facility and interest on our borrowings, make expected future distributionsthe TCB loan, see Note 6 to our shareholders and fund other business operating requirements. We expect that our sources of cash flows will include payments of principal, interest and fees we receive on our investments, cash generated from our operating results, unused borrowing capacity, including repurchase agreements with banks that acquire senior interests in our investments which we are obligated to repurchase, bank loans or public or private issuances of debt or equity securities.
Cash Flows Used in Operating Activities. We have not yet originated any loans or investments. Our cash used in operating activities of $48 from our inception on June 1, 2017 through September 30, 2017 consisted of a net loss of $238, partially offset by amounts due to related persons of $115 and accounts payable and other liabilities of $75.
Cash Flows Used in Investing Activities. From our inception on June 1, 2017 through September 30, 2017, we did not use or receive any cash in investing activities.
Cash Flows from Financing Activities. From our inception on June 1, 2017 through September 30, 2017, our cash flows from financing activities primarily consisted of the $62,000 in aggregate proceeds from the sales of our common shares in our IPO and in a concurrent private placement.

Contractual Obligations and Commitments
We have a management agreement with our Manager to provide management services to us. See Note 6, Management Agreement with our Manager to ourcondensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Inflation and Deflation
During the past several years there has been very little inflation in the U.S. economy. Recently, there have been some modest signs of inflationary price movements, and the U.S. Federal Reserve has begun to raise interest rates modestly.
If inflation occurs, we believe it may have both positive and negative impacts upon our business. A positive impact of inflation on our business may be to increase the value of collateral for our existing loans, making the refinancing and repayment of principal easier for borrowers and reducing our risk of borrower defaults. A negative impact of inflation on our business may be to cause interest rates to rise, reducing the market value of any fixed rate loans we hold. A rise in interest rates may also make it more difficult for our borrowers to refinance loans in order to pay their obligations to us. Because we expect that a majority of our investments will require interest at variable rates and because we do not currently anticipate that there

will be excessive inflation in the U.S. economy, we do not expect inflation to have a material impact upon our business for the reasonably foreseeable future thereafter.
We believe deflation will generally lower asset values, which would have a negative impact upon our business because it would cause collateral values to decline and increase the risk of our borrowers defaulting. However, we do not currently anticipate that the U.S. economy will experience deflation during the reasonably foreseeable future.
Related Person Transactions
We have relationships and historical and continuing transactions with our Manager, RMR LLC, RMR Inc. and others related to them. For example:example, we have no employees and the personnel and various services we require to operate our business are provided to us by our Manager pursuant to our management agreement with our Manager; our Manager is a subsidiary of RMR LLC and certain of the services provided to us by our Manager are provided by RMR LLC pursuant to a shared services agreement between our Manager and RMR LLC pursuant to which we expect, during the first year of our operations, to reimburse our Manager approximately $1,500 for shared services costs; our Manager is our largest shareholder and, at September 30, 20172018, owned approximately 19.4%18.9% of our outstanding common shares; RMR Inc. is the managing member of RMR LLCLLC; and Adam D. Portnoy, one of our Managing Trustees, is the sole trustee, an officer and controlling shareholder of ABP Trust, which is owned by our Managing Trustees, is the controlling shareholder of RMR Inc. Other companies to which RMR LLC or its subsidiaries provide management or advisory services have trustees, directors and officers who are also trustees, directors or officers of us, our Manager, RMR LLC or RMR Inc. For further information about these and other such relationships and related person transactions, see Note 6, Management Agreement withNotes 9 and 10 to our Manager and Note 7, Related Person Transactions to ourcondensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our IPO ProspectusAnnual Report, our definitive Proxy Statement for our 2018 Annual Meeting of Shareholders and our other filings with the SEC. In addition, see the section captioned “Risk Factors” of our Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships. Our filings with the SEC and copies of certain of our agreements with these related persons, including theour management agreement with our Manager, are available as exhibits to our filings with the SEC and accessible at the SEC’s website, www.sec.gov.www.sec.gov. We may engage in additional transactions with related persons, including businesses to which our ManagerRMR LLC or its affiliatessubsidiaries provide management services.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures about market risk affecting us, see "Quantitative and Qualitative Disclosures About Market Risk" in our IPO Prospectus.Annual Report. Our exposure to market risks has not changed materially from those set forth in our IPO Prospectus.Annual Report.
Item 4. Controls and Procedures
As of the end of the period covered by this report,Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of our Managing Trustees, our Chief Executive Officer 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 Chief Executive Officer and our Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective.
There have been no changes in our internal control over financial reporting during the quarter ended September 30, 20172018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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 WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE”, “WILL”, “MAY” AND NEGATIVES OR DERIVATIVES OF THESE OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. FORWARD LOOKING STATEMENTS IN THIS REPORT RELATE TO VARIOUS ASPECTS OF OUR BUSINESS, INCLUDING:
OUR OPERATING AND INVESTMENT TARGETS, GUIDELINES, INVESTMENT AND FINANCING STRATEGIES AND LEVERAGE POLICIES,
THE ABILITY OF OUR MANAGER TO LOCATE SUITABLE INVESTMENTS FOR US, MONITOR, SERVICE AND ADMINISTER OUR INVESTMENTS AND IMPLEMENT OUR INVESTMENT STRATEGY,

THE ORIGINATION, EXTENSION, EXIT, PREPAYMENT OR OTHER FEES WE MAY EARN,
YIELDS THAT MAY BE AVAILABLE TO US FROM MORTGAGES ON SPECIALIZED REAL ESTATE,
THE LENGTHDURATION AND OTHER TERMS OF OUR LOANS,
THE ABILITY AND WILLINGNESS OF OUR BORROWERS TO REPAY OUR LOANS AND INVESTMENTS IN A TIMELY MANNER OR AT ALL,
OUR EXPECTED OPERATING RESULTS,
THE AMOUNT AND TIMING OF ANY CASH FLOWS WE MAY RECEIVE FROM OUR INVESTMENTS,
OUR ABILITY TO PAY DISTRIBUTIONS TO OUR SHAREHOLDERS AND TO SUSTAIN THE AMOUNT OF ANY SUCH DISTRIBUTIONS,
OUR PROJECTED LEVERAGE,
OUR ABILITY TO OBTAIN AND MAINTAIN FINANCING TO ENABLE US TO USE LEVERAGE TO MAKE ADDITIONAL INVESTMENTS THAT MAYOR TO INCREASE OUR POTENTIAL RETURNS,
THE COST AND AVAILABILITY OF FINANCING UNDER OUR MASTER REPURCHASE FACILITY,
OUR QUALIFICATION FOR TAXATION AS A REIT,
OUR ABILITY TO MAINTAIN OUR EXEMPTION FROM REGISTRATION UNDER THE INVESTMENT COMPANY ACT, OF 1940, AS AMENDED,
OUR UNDERSTANDING OF OUR COMPETITION AND OUR ABILITY TO COMPETE, AND EXECUTE ON
OUR ABILITY TO CARRY OUT OUR BUSINESS STRATEGY AND THE OPPORTUNITIES WE BELIEVE MAY EXIST FOR OUR BUSINESS,
THE CREDIT QUALITIES OF BORROWERS,
MARKET TRENDS IN OUR INDUSTRY, INTEREST RATES, REAL ESTATE VALUES, THE DEBT SECURITIES MARKETS OR THE GENERAL ECONOMY, AND
OTHER MATTERS.
OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FACTORS THAT COULD HAVE A

MATERIAL ADVERSE EFFECT ON OUR FORWARD LOOKING STATEMENTS AND UPON OUR BUSINESS, FINANCIAL CONDITION, LIQUIDITY AND RESULTS OF OPERATIONS INCLUDE, BUT ARE NOT LIMITED TO:
THE IMPACT OF CONDITIONS AND CHANGES IN THE U.S. ECONOMY, GENERALLY OR IN SPECIFIC GEOGRAPHIC REGIONSTHE CRE INDUSTRY AND THE CAPITAL MARKETS ON US AND OUR BORROWERS,
COMPETITION WITHIN THE IMPACT OF CHANGES IN THE COMMERCIAL REAL ESTATECRE LENDING INDUSTRY,
CHANGES IN THE AVAILABILITY, SOURCING AND STRUCTURING OF CRE LENDING,
THE IMPACT OF CHANGES IN INTEREST RATES ON OUR FINANCIAL RESULTS,
THE VOLATILITY OF THE MARKETS,
DEFAULTS BY BORROWERS ON OUR LOANS,
COMPLIANCE WITH, AND CHANGES IN GOVERNMENTALTO, FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS, ACCOUNTING RULES, TAX LAWS AND RATES AND SIMILAR MATTERS, (INCLUDING INTERPRETATION THEREOF),
ACTUAL AND POTENTIAL CONFLICTS OF INTEREST WITH OUR RELATED PARTIES, INCLUDING OUR MANAGING TRUSTEES, OUR MANAGER, RMR LLC AND OTHERS AFFILIATED WITH THEM, AND

LIMITATIONS IMPOSED ON OUR BUSINESS AND OUR ABILITY TO SATISFY COMPLEX RULES IN ORDER FOR US TO QUALIFY 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, RMR LLC AND OTHERS AFFILIATED WITH THEM, AND
ACTS OF TERRORISM, OUTBREAKS OF SO CALLED PANDEMICS OR OTHER MANMADE OR NATURAL DISASTERS BEYOND OUR CONTROL.
FOR EXAMPLE:
WE HAVE NOA LIMITED OPERATING HISTORY, AND WE MAY NOT BE ABLE TO OPERATE OUR BUSINESS SUCCESSFULLY OR GENERATE SUFFICIENT REVENUE TO MAKE OR SUSTAIN DISTRIBUTIONS TO OUR SHAREHOLDERS,
WE EXPECT TO DECLARE AT LEAST A PARTIAL DISTRIBUTION TO OUR COMMON SHAREHOLDERS IN JANUARY 2019 BASED UPON THE RESULTS OF THE FOURTH QUARTER OF 2018. ANY SUCH DISTRIBUTION WILL NEED TO BE DECLARED BY OUR BOARD OF TRUSTEES, IN ITS SOLE DISCRETION. FURTHER, WE MAY NOT GENERATE EARNINGS FOR THE FOURTH QUARTER OF 2018 AND ANY EARNINGS WE MAY GENERATE FOR THAT PERIOD ARE UNCERTAIN AND MAY BE MODEST. WE CANNOT BE SURE THAT OUR BOARD OF TRUSTEES WILL DECLARE A DISTRIBUTION TO OUR COMMON SHAREHOLDERS IN JANUARY 2019 OR ANY TIME AND WE DO NOT KNOW WHAT THE AMOUNT, IF ANY, OF ANY SUCH DISTRIBUTION MAY BE. FURTHER, ANY DISTRIBUTION THAT OUR BOARD OF TRUSTEES MAY DECLARE MAY NOT BE AT A RATE THAT WE CAN SUSTAIN FOR FUTURE PERIODS,
COMPETITION MAY LIMIT OUR ABILITY TO MAKE DESIRABLE INVESTMENTS,
OUR BELIEF THAT THERE CONTINUES TO BE STRONG DEMAND FOR ALTERNATIVE SOURCES OF CRE DEBT CAPITAL MAY NOT BE CORRECT; FURTHER, ANY DEMAND THAT NOW EXISTS COULD BE REDUCED. REDUCED DEMAND FOR ALTERNATIVE SOURCES OF CRE DEBT CAPITAL WOULD INCREASE COMPETITION FOR INVESTMENTS IN THE CRE DEBT MARKET,
CONTINGENCIES RELATED TO LOANS THAT WE HAVE ENTERED APPLICATIONS WITH BORROWERS FOR BUT HAVE NOT CLOSED MAY NOT BE SATISFIED AND THE CLOSINGS OF PENDING LOANS MAY NOT OCCUR, MAY BE DELAYED OR THE TERMS MAY CHANGE,
THE VALUE OF OUR LOANS WILL DEPEND ONUPON OUR BORROWERS’ ABILITY TO GENERATE CASH FLOW FROM OPERATING THE PROPERTIES THAT ARE OUR COLLATERAL. OUR BORROWERS MAY NOT HAVE SUFFICIENT CASH FLOW TO REPAY OUR LOANS ACCORDING TO THEIR TERMS, WHICH MAY RESULT IN DELINQUENCY AND FORECLOSURE ON OUR LOANS,
PREPAYMENT OF OUR LOANS MAY ADVERSELY AFFECT THE VALUE OF OUR INVESTMENT PORTFOLIO AND CAUSE USOUR ABILITY TO REDUCE THEMAKE OR SUSTAIN DISTRIBUTIONS WE PAY TO OUR SHAREHOLDERS,

LOANS SECURED BY PROPERTIES IN TRANSITION INVOLVE A GREATER RISK OF LOSS THAN LOANS SECURED BY STABILIZED PROPERTIES,
NEITHER OUR MANAGER NORMANAGER'S AND RMR LLC HASLLC'S ONLY EXPERIENCE MANAGING OR SERVICING A MORTGAGE REIT IS WITH RESPECT TO US, AND WE HAVE ONLY RECENTLY COMMENCED OPERATIONS,
WE MAY INCUR SIGNIFICANT DEBT, AND OUR GOVERNING DOCUMENTS CONTAIN NO LIMIT ON THE AMOUNT OF DEBT WE MAY INCUR,
CONTINUED AVAILABILITY OF FINANCING UNDER OUR MASTER REPURCHASE FACILITY AND THE TCB LOAN ARE SUBJECT TO 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 WHICH MAY NOT BE OBTAINED,
ACTUAL COSTS UNDER OUR MASTER REPURCHASE FACILITY AND THE TCB LOAN WILL BE HIGHER THAN LIBOR PLUS A PREMIUM BECAUSE OF FEES AND EXPENSES ASSOCIATED WITH SUCH DEBT,
OUR OPTIONS TO EXTEND THE MATURITY DATE OF THE TCB LOAN ARE SUBJECT TO OUR PAYMENT OF EXTENSION FEES AND MEETING OTHER CONDITIONS, BUT THE APPLICABLE CONDITIONS MAY NOT BE MET,
OUR ABILITY TO OBTAIN ADDITIONAL FINANCING UNDER OUR MASTER REPURCHASE FACILITY IS CONTINGENT UPON OUR ABILITY TO EFFECTIVELY ORIGINATE ADDITIONAL INVESTMENTS. HOWEVER, WE CANNOT BE SURE THAT WE WILL BE ABLE TO USE OUR MASTER REPURCHASE FACILITY AS WE EXPECT OR EFFECTIVELY ORIGINATE ADDITIONAL INVESTMENTS IN THE NEAR FUTURE OR AT ALL,
IF AND WHEN WE FUND OR COMMIT TO FUND ADDITIONAL INVESTMENTS WITH THE REMAINING AMOUNT OF PROCEEDS WE OBTAINED FROM OUR IPO AND CONCURRENT PRIVATE PLACEMENT THAT WE HAVE NOT YET INVESTED OR COMMITTED TO INVEST, WE MAY THEN NOT HAVE FUNDING TO MAKE ANY FURTHER INVESTMENTS. IN THAT INSTANCE, IN ORDER TO CONTINUE TO GROW OUR INVESTMENTS AND BUSINESS, WE WILL NEED TO OBTAIN ADDITIONAL FINANCING, WHETHER BY EXPANDING OUR EXISTING CREDIT ARRANGEMENTS OR BY OBTAINING NEW FINANCING SOURCES. WE CANNOT BE SURE THAT WE WOULD BE SUCCESSFUL IN OBTAINING ANY SUCH ADDITIONAL FINANCING. IF WE ARE UNABLE TO OBTAIN FINANCING, WE MAY NOT BE ABLE TO FURTHER GROW OUR INVESTMENTS AND BUSINESS.
WE ARE DEPENDENT ONUPON OUR MANAGER, ITS AFFILIATES AND THEIR PERSONNEL. WE MAY BE UNABLE TO FIND SUITABLE REPLACEMENTS IF OUR MANAGEMENT AGREEMENT IS TERMINATED,
WE MAY NOT SUCCEED IN INCREASING THE SIZE OF OUR PORTFOLIO OR ITS DIVERSIFICATION OR IN ACHIEVING ECONOMIES OF SCALE,
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 INVESTMENT COMPANY ACT OF 1940, AS AMENDED, IMPOSES LIMITS ON OUR OPERATIONS, AND WE MAY FAIL TO REMAIN EXEMPT FROM REGISTRATION UNDER THE INVESTMENT COMPANY ACT, OF 1940, AS AMENDED, AND
OUR FAILURE TO QUALIFY OR REMAIN QUALIFIED FOR TAXATION AS A REIT COULD HAVE SIGNIFICANT ADVERSE CONSEQUENCES.

CURRENTLY UNEXPECTED RESULTS COULD OCCUR DUE TO MANY DIFFERENT CIRCUMSTANCES, SOME OF WHICH ARE BEYOND OUR CONTROL, SUCH AS CHANGES IN CAPITAL MARKETS OR THE ECONOMY GENERALLY, ACTS OF TERRORISM OR NATURAL DISASTERS.
THE INFORMATION CONTAINED ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q OR IN OUR OTHER FILINGS WITH THE SEC, INCLUDING UNDER THE CAPTION “RISK FACTORS”, OR INCORPORATED HEREIN OR THEREIN, IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES FROM OUR FORWARD LOOKING STATEMENTS. 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 TO UPDATE OR CHANGE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

STATEMENT CONCERNING LIMITED LIABILITY
THE ARTICLES OF AMENDMENT AND RESTATEMENT OF TREMONT MORTGAGE TRUST, A COPY OF WHICH, TOGETHER WITH ANY AMENDMENTS OR SUPPLEMENTS THERETO, IS DULY FILED WITH THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME TREMONT MORTGAGE TRUST REFERS TO THE TRUSTEES COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY. NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF TREMONT MORTGAGE TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, TREMONT MORTGAGE TRUST. ALL PERSONS OR ENTITIES DEALING WITH TREMONT MORTGAGE TRUST, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF TREMONT MORTGAGE TRUST FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.


Part II. Other Information
Item 1A. Risk Factors
There have been no material changes to risk factors from those we previously disclosed in our IPO Prospectus, which was filed with the SEC on September 15, 2017 and is accessible at the SEC’s website, www.sec.gov.

Annual Report.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds (dollars
Issuer purchases of equity securities. The following table provides information about our purchases of our equity securities during the quarter ended September 30, 2018.
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
September 2018 2,121
 $11.89
 $
 $
Total 2,121
 $11.89
 $
 $
(1) These common share withholdings and purchases were made to satisfy the tax withholding and payment obligations of certain of our officers and of certain officers and other employees of our Manager and of RMR LLC in thousands, except per share data)
On September 18, 2017, we sold 2,500,000connection with the vesting of awards of our common shares of beneficial interest, par value $0.01 per share, or our commonshares. We withheld and purchased these shares at atheir fair market value based upon the trading price of $20.00 per share in our IPO. Concurrently with our IPO, we sold an additional 600,000 of our common shares at a pricethe close of $20.00 per share to our Manager in a private placement. The aggregate proceeds from these sales were $62 million.

There has been no material change intrading on Nasdaq on the planned use of proceeds from our IPO as described in our IPO Prospectus. As described in our IPO Prospectus, we intend to use the proceeds primarily for originating and investing in floating rate first mortgage loans, subordinated mortgages, mezzanine loans, or preferred equity interests in entities that own middle market and transitional CRE. Prior to the time we have fully used the proceeds to make investments in our target investments, we may fund some or all of our quarterly distributions out of the proceeds.
purchase date.
Item 6. Exhibits
Exhibit
Number
 Description
   
 
 

 


 
 
 
101.1 The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 20172018 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheet, (ii) the Condensed Consolidated Statements of Operations, (iii) the StatementCondensed Consolidated Statements of Cash FlowFlows and (iv) related notes to these financial statements, tagged as blocks of text and in detail. (Filed herewith.)


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.
 TREMONT MORTGAGE TRUST
   
   
 By:
/s/ David M. Blackman

  
David M. Blackman
President and Chief Executive Officer
  Dated: November 14, 20172, 2018
   
 By:/s/ G. Douglas Lanois
  
G. Douglas Lanois
Chief Financial Officer and Treasurer
(principal financial and accounting officer)

  Dated: November 14, 20172, 2018


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