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 June 30, ~~2019~~2020



☐	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	82-1719041
(State of Organization)	(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

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol	Name of each exchange on which registered
Common Shares of Beneficial Interest	TRMT	The Nasdaq Stock Market LLC

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 every Interactive Data File required to be submitted 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 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	☒
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 August ~~5, 2019: 8,192,469~~3, 2020: 8,253,836

TREMONT MORTGAGE TRUST

FORM 10-Q

June 30, ~~2019~~2020

INDEX



		Page
PART I	Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets — June 30, ~~2019~~2020 and December 31, ~~2018~~2019	1
	Condensed Consolidated Statements of Operations — Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019	2
	Condensed Consolidated Statements of Shareholders’ Equity — Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019	3
	Condensed Consolidated Statements of Cash Flows — Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019	4
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1516
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2329
Item 4.	Controls and Procedures	2430
	Warning Concerning Forward-Looking Statements	2531
PART II	Other Information	2935
Item 1A.	Risk Factors	2935
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2938
Item 6.	Exhibits	3039
	Signatures	3140

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

PART I. Financial Information

Item 1. Financial Statements

TREMONT MORTGAGE TRUST

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(unaudited)


	June 30,			December 31,			June 30,			December 31,
	2019			2018			2020			2019
ASSETS
Cash and cash equivalents	$	11,467		$	27,024		$	10,632		$	8,732
Restricted cash	—			311			1			143
Loans held for investment, net	258,957			135,844			278,225			242,078
Accrued interest receivable	869			344			938			755
Due from related persons	12			—
Prepaid expenses and other assets	299			390			193			221
Total assets	$	271,604		$	163,913		$	289,989		$	251,929

LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued liabilities and deposits	$	1,085		$	935		$	777		$	1,011
Master repurchase facility, net	152,620			71,691			200,465			164,694
Note payable, net	31,523			31,485
Due to related persons	—			134			282			3
Total liabilities	185,228			104,245			201,524			165,708

Commitments and contingencies

Shareholders' equity:
Common shares of beneficial interest, $0.01 par value per share; 25,000,000 shares authorized; 8,193,173 and 3,178,817 shares issued and outstanding, respectively	82			32
Common shares of beneficial interest, $0.01 par value per share; 25,000,000 shares authorized; 8,253,836 and 8,239,610 shares issued and outstanding, respectively							83			82
Additional paid in capital	88,778			62,540			88,979			88,869
Cumulative net loss	(1,432		)	(2,904		)
Cumulative net income							5,965			1,937
Cumulative distributions	(1,052		)	—			(6,562		)	(4,667		)
Total shareholders’ equity	86,376			59,668
Total shareholders' equity							88,465			86,221
Total liabilities and shareholders' equity	$	271,604		$	163,913		$	289,989		$	251,929

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

TREMONT MORTGAGE TRUST

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share data)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018			2020			2019			2020			2019
INCOME FROM INVESTMENTS:
Interest income from investments	$	3,913		$	495		$	6,913		$	728		$	4,496		$	3,913		$	8,780		$	6,913
Less: interest and related expenses	(2,031		)	(66		)	(3,580		)	(103		)	(1,368		)	(2,031		)	(3,125		)	(3,580		)
Income from investments, net	1,882			429			3,333			625			3,128			1,882			5,655			3,333

OTHER EXPENSES:
Management fees	—			222			—			447
General and administrative expenses	618			613			1,121			1,158			524			618			1,064			1,121
Reimbursement of shared services expenses	370			375			740			750			242			370			563			740
Total expenses	988			1,210			1,861			2,355			766			988			1,627			1,861

Net income (loss)	$	894		$	(781	)	$	1,472		$	(1,730	)
Net income													$	2,362		$	894		$	4,028		$	1,472

Weighted average common shares outstanding - basic and diluted	5,401			3,123			4,275			3,117			8,177			5,401			8,173			4,275

Net income (loss) per common share - basic and diluted	$	0.16		$	(0.25	)	$	0.34		$	(0.55	)
Net income per common share - basic and diluted													$	0.29		$	0.16		$	0.49		$	0.34

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

TREMONT MORTGAGE TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(amounts in thousands)

(unaudited)


	Number of				Additional												Number of				Additional
	Common		Common		Paid In			Cumulative			Cumulative						Common		Common		Paid In			Cumulative			Cumulative
																	Shares		Shares		Capital			Net Income (Loss)			Distributions			Total
Balance at December 31, 2019																	8,240		$	82	$	88,869		$	1,937		$	(4,667	)	$	86,221
Share grants																	—		—		42			—			—			42
Share repurchases																	(1	)	—		(2		)	—			—			(2		)
Net income																	—		—		—			1,666			—			1,666
Distributions																	—		—		—			—			(1,895		)	(1,895		)
Balance at March 31, 2020																	8,239		82		88,909			3,603			(6,562		)	86,032
Share grants																	15		1		71			—			—			72
Share repurchases																	—		—		(1		)	—			—			(1		)
Net income																	—		—		—			2,362			—			2,362
Balance at June 30, 2020																	8,254		$	83	$	88,979		$	5,965		$	(6,562	)	$	88,465
	Shares		Shares		Capital			Net Loss			Distributions			Total
Balance at December 31, 2018	3,179		$	32	$	62,540		$	(2,904	)	$	—		$	59,668		3,179		$	32	$	62,540		$	(2,904	)	$	—		$	59,668
Share grants	—		—		35			—			—			35			—		—		35			—			—			35
Net income	—		—		—			578			—			578			—		—		—			578			—			578
Distributions	—		—		—			—			(350		)	(350		)	—		—		—			—			(350		)	(350		)
Balance at March 31, 2019	3,179		$	32	$	62,575		$	(2,326	)	$	(350	)	$	59,931		3,179		32		62,575			(2,326		)	(350		)	59,931
Share grants	15		—		185			—			—			185			15		—		185			—			—			185
Share repurchases	(1	)	—		(6		)	—			—			(6		)	(1	)	—		(6		)	—			—			(6		)
Net income	—		—		—			894			—			894			—		—		—			894			—			894
Distributions	—		—		—			—			(702		)	(702		)	—		—		—			—			(702		)	(702		)
Issuance of shares, net	5,000		50		26,024			—			—			26,074			5,000		50		26,024			—			—			26,074
Balance at June 30, 2019	8,193		$	82	$	88,778		$	(1,432	)	$	(1,052	)	$	86,376		8,193		$	82	$	88,778		$	(1,432	)	$	(1,052	)	$	86,376

Balance at December 31, 2017	3,126		$	31	$	62,135		$	(1,296	)	$	—		$	60,870
Share grants	2		—		20			—			—			20
Net loss	—		—		—			(949		)	—			(949		)
Balance at March 31, 2018	3,128		$	31	$	62,155		$	(2,245	)	$	—		$	59,941
Share grants	15		—		189			—			—			189
Net loss	—		—		—			(781		)	—			(781		)
Balance at June 30, 2018	3,143		$	31	$	62,344		$	(3,026	)	$	—		$	59,349

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

TREMONT MORTGAGE TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)


	Six Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	1,472		$	(1,730	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net income							$	4,028		$	1,472
Adjustments to reconcile net income to net cash provided by operating activities:
Share based compensation	220			209			114			220
Amortization of deferred financing costs	225			103			241			225
Amortization of loan origination and exit fees	(682		)	(32		)	(950		)	(682		)
Changes in operating assets and liabilities:
Accrued interest receivable	(525		)	(66		)	(575		)	(525		)
Prepaid expenses and other assets	91			11			28			91
Accounts payable, accrued liabilities and deposits	150			370			(234		)	150
Due to related persons	(146		)	(528		)	279			(146		)
Net cash provided by (used in) operating activities	805			(1,663		)
Net cash provided by operating activities							2,931			805

CASH FLOWS FROM INVESTING ACTIVITIES:
Origination of loans held for investment	(119,062		)	(28,203		)	(25,738		)	(119,062		)
Additional funding of loans held for investment	(3,369		)	(221		)	(9,067		)	(3,369		)
Net cash used in investing activities	(122,431		)	(28,424		)	(34,805		)	(122,431		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from master repurchase facility	92,983			—			35,602			92,983
Repayment of master repurchase facility	(11,900		)	—
Repayments under master repurchase facility							—			(11,900		)
Proceeds from RMR credit agreement	14,220			—			—			14,220
Repayment of RMR credit agreement	(14,220		)	—			—			(14,220		)
Payment of deferred financing costs	(341		)	(770		)
Payments of deferred financing costs							(72		)	(341		)
Proceeds from issuance of common shares, net	26,074			—			—			26,074
Repurchase of common shares	(6		)	—			(3		)	(6		)
Distributions	(1,052		)	—			(1,895		)	(1,052		)
Net cash provided by (used in) financing activities	105,758			(770		)
Net cash provided by financing activities							33,632			105,758

Decrease in cash, cash equivalents and restricted cash	(15,868		)	(30,857		)
Increase (decrease) in cash, cash equivalents and restricted cash							1,758			(15,868		)
Cash, cash equivalents and restricted cash at beginning of period	27,335			61,666			8,875			27,335
Cash, cash equivalents and restricted cash at end of period	$	11,467		$	30,809		$	10,633		$	11,467

SUPPLEMENTAL DISCLOSURES:
Interest paid	$	3,149		$	—		$	2,941		$	3,149

~~TREMONT MORTGAGE TRUST~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(dollars in thousands)~~

~~(unaudited)~~

SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

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

As of June 30,
2019 2018
Cash and cash equivalents $ 11,467
$ 30,525
Restricted cash —
284
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows $ 11,467
$ 30,809



	As of June 30,
	2020		2019
Cash and cash equivalents	$	10,632	$	11,467
Restricted cash	1		—
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	10,633	$	11,467

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~Table of Contents~~

TREMONT MORTGAGE TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Note 1. ~~Organization~~Basis of Presentation

The accompanying condensed consolidated financial statements of Tremont Mortgage Trust ~~or, collectively with~~and its consolidated subsidiaries ~~we, us~~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, 2019, or our ~~was organized as~~Annual Report.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a ~~real estate investment trust,~~fair statement of results for the interim period have been included. All intercompany transactions and balances with or ~~REIT, under Maryland law on June 1, 2017.~~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.

~~On September 18, 2017, we issued~~The preparation of financial statements in conformity with GAAP requires us to make estimates and ~~sold 2,500,000~~assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the accompanying condensed consolidated financial statements include the fair value 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 issued and sold an additional 600,000 of our common shares to Tremont Realty Advisors LLC, or our Manager, at the public offering price in a private placement. The aggregate proceeds from these sales were $62,000.financial instruments.

Note 2. Summary of Significant Accounting Policies

~~Basis~~Consolidation. For each investment we make, we evaluate whether consolidation of ~~Presentation~~

~~The accompanying condensed consolidated~~the borrower's financial statements is required under GAAP. GAAP addresses the application of ~~Tremont Mortgage Trust and~~consolidation principles to an investor with a controlling financial interest. Variable interest entities, or VIEs, are subject to consolidation under GAAP if their equity investors do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties, are not able to direct the entity’s most significant activities or are not exposed to the entity’s losses or entitled to its residual returns. VIEs are required to be consolidated ~~subsidiaries~~by their primary beneficiaries, which 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~~entities with the ~~consolidated financial statements and notes contained in our Annual Report on Form 10-K for~~power to direct the ~~year ended December 31, 2018, or our 2018 Annual Report.~~

Inactivities which are most significant to the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Operating results for interim periods are not necessarily indicativeeconomic performance of the ~~results~~VIE. These determinations often involve complex and subjective analyses. As of June 30, 2020, we concluded that ~~may be expected for the full year.~~our investments were not VIEs.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the accompanying condensed consolidated financial statements include the fair value of financial instruments.

Cash, Cash Equivalents and Restricted ~~Cash~~

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 are treated as collateralized financing transactions, unless they meet sales treatment under GAAP. Pursuant to GAAP treatment of collateralized financing transactions, loans financed through repurchase agreements remain on our consolidated balance sheet as assets, and cash received from the purchasers is recorded on our consolidated balance sheet as liabilities. Interest paid in accordance with repurchase agreements is recorded as interest expense.

Loans Held for ~~Investment~~Investment.

Generally, our loans are classified as held for investment based upon our intent and ability to hold them until maturity. Loans that are held for investment are carried at cost, net of unamortized loan origination and accreted 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~~are held at the lower of cost or fair value less cost to sell.

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 are 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

TREMONT MORTGAGE TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

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.

~~TREMONT MORTGAGE TRUST~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~(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~~and/or 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~~and/or the property having a very high LTV.

See Note 4 for further information regarding our current loan portfolio’s assessment under our internal risk rating policy.

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~~estimated fair value of ~~any available~~the underlying collateral, net of any costs we expect to incur to realize that value. The determination of ~~whether loans are impaired~~this estimated fair value involves 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~~certain 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 condensed consolidated statements of operations.

AsFair Value of ~~June 30, 2019,~~Financial Instruments. Financial Accounting Standards Board, or FASB, Accounting Standards Codification^TM, 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 required disclosure regarding fair value measurements. ASC Topic 820-10 defines fair value as the price that would be received for a financial instrument in a current sale, which assumes an orderly transaction between market participants on the measurement 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 ~~not recorded any allowance~~the ability to access.

Level II—Inputs include quoted prices in markets that are less active or inactive or for ~~losses as we believe it is probable that we will collect~~which all ~~amounts due pursuant~~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 ~~contractual terms of our loans.~~overall fair value measurement.

~~Repurchase Agreements~~

TREMONT MORTGAGE TRUST

~~Loans financed through repurchase agreements~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Loan Deferred Fees. Loan origination and exit fees are ~~treated as collateralized financing transactions, unless they meet sales treatment under GAAP. Pursuant to GAAP treatment of collateralized financing transactions,~~reflected in loans ~~financed through repurchase agreements remain on~~held for investment, net, in our condensed consolidated balance ~~sheet as assets,~~sheets and ~~cash received from~~include fees charged to borrowers. These fees are amortized and accreted, respectively, into interest income over the ~~purchasers is recorded on our condensed consolidated balance sheet as liabilities. Interest paid~~life of the related loans held for investment.

Deferred Financing Costs. Costs incurred in ~~accordance~~connection with ~~repurchase agreements is~~financings are capitalized and recorded as an offset to the related liability and amortized over the respective financing terms and are recorded in our consolidated statements of operations as a component of interest ~~expense.~~and related expenses. At June 30, 2020, we had approximately $673 of capitalized financing costs, net of amortization.

Net Earnings Per Common Share. We calculate basic earnings per common share, or EPS, by dividing net income by the weighted average number of common shares outstanding during the period. We calculate diluted net EPS using the more dilutive of the two-class method or the treasury stock method.

Revenue ~~Recognition~~

Recognition. Interest income related to our first mortgage whole 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 an impairment.

Note 3. Recent Accounting Pronouncements

In June 2016, ~~the Financial Accounting Standards Board~~FASB issued Accounting Standards Update, or 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~~forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for

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~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~(dollars in thousands, except per share data)~~

credit 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. As an emerging growth company that has opted to take advantage of the extended transition period, we expect to adopt ASU No. 2016-13 on January 1, ~~2022.~~2023. We are currently assessing the potential impact the adoption of ASU No. 2016-13 will have inon our condensed consolidated financial statements.

Note 4. Loans Held for Investment

We originate first mortgage whole loans secured by middle market and transitional CRE, ~~and related instruments~~ which are generally to be held as long term investments. ~~To fund~~We funded our existing loan ~~originations to date, we used~~portfolio using cash on hand and advancements under our master repurchase facility with Citibank, N.A., or Citibank, or our Master Repurchase Facility, and ~~borrowings under a term loan facility, in the form of a note payable, with Texas Capital Bank, National Association, or Texas Capital Bank, or the TCB note payable.~~other debt financing. See Note 5 for further information regarding our ~~debt agreements.~~

~~The table below details overall statistics for our loan portfolio:~~

Balance at June 30, 2019 Balance at December 31, 2018
Number of loans 12
7
Total loan commitments $ 282,367
$ 154,802
Unfunded loan commitments ⁽¹⁾
$ 21,879
$ 17,673
Principal balance $ 260,488
$ 137,129
Unamortized net deferred origination fees $ (1,531 ) $ (1,285 )
Carrying value $ 258,957
$ 135,844
Weighted average coupon rate 6.03 % 6.14 %
Weighted average all in yield ⁽²⁾
6.64 % 6.82 %
Weighted average maximum maturity (years)⁽³⁾
3.9
4.7
Weighted average LTV 71 % 70 %


⁽¹⁾	~~Unfunded commitments will primarily be funded to finance property and building improvements and leasing capital. These commitments will generally be funded over the term of each loan.~~


⁽²⁾	~~All in yield includes the amortization of deferred fees over the initial term of the loan.~~


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

~~The table below details our loan activities for the three months ended June 30, 2019:~~

Principal Balance Deferred Fees Carrying Value
Balance at beginning of period $ 182,397
$ (1,486 ) $ 180,911
Additional funding 2,701
—
2,701
Originations 75,390
(433 ) 74,957
Net amortization of deferred fees —
388
388
Balance at end of period $ 260,488
$ (1,531 ) $ 258,957
Master Repurchase Facility.

~~The table below details our loan activities for the six months ended June 30, 2019:~~

Principal Balance Deferred Fees Carrying Value
Balance at beginning of period $ 137,129
$ (1,285 ) $ 135,844
Additional funding 3,369
—
3,369
Originations 119,990
(928 ) 119,062
Net amortization of deferred fees —
682
682
Balance at end of period $ 260,488
$ (1,531 ) $ 258,957

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

The table below details overall statistics for our loan portfolio as of June 30, 2020 and December 31, 2019:



	Balance at June 30, 2020			Balance at December 31, 2019
Number of loans	14			12
Total loan commitments	$	296,050		$	260,167
Unfunded loan commitments ⁽¹⁾	$	17,566		$	17,268
Principal balance	$	278,484		$	242,899
Unamortized net deferred origination fees	$	(259	)	$	(821	)
Carrying value	$	278,225		$	242,078
Weighted average coupon rate	5.70		%	5.76		%
Weighted average all in yield ⁽²⁾	6.39		%	6.41		%
Weighted average maximum maturity (years)⁽³⁾	3.1			3.6
Weighted average LTV ⁽⁴⁾	68		%	70		%


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


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


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


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

The table below details our loan activities during the three months ended June 30, 2020:



	Principal Balance		Deferred Fees			Carrying Value
Balance at March 31, 2020	$	272,234	$	(747	)	$	271,487
Additional funding	6,250		—			6,250
Net amortization of deferred fees	—		488			488
Balance at June 30, 2020	$	278,484	$	(259	)	$	278,225

The table below details our loan activities during the six months ended June 30, 2020:



	Principal Balance		Deferred Fees			Carrying Value
Balance at December 31, 2019	$	242,899	$	(821	)	$	242,078
Additional funding	9,459		—			9,459
Originations	26,126		(388		)	25,738
Net amortization of deferred fees	—		950			950
Balance at June 30, 2020	$	278,484	$	(259	)	$	278,225

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

The tables below detail the property type and geographic ~~distribution~~location of the properties securing the loans ~~included~~ in our portfolio atas of June 30, 2020 and December 31, 2019:


						June 30, 2020					December 31, 2019
Property Type	Number of Loans	Carrying Value		Percentage of Value		Number of Loans	Carrying Value		Percentage of Value		Number of Loans	Carrying Value		Percentage of Value
Office	4	$	70,109	28	%	5	$	90,427	32	%	4	$	71,446	30	%
Hotel	2	62,202		24	%	1	23,848		9	%	1	23,101		10	%
Retail	3	40,107		15	%	3	45,676		16	%	3	43,782		18	%
Multifamily	2	51,805		20	%	3	69,391		25	%	3	68,911		28	%
Industrial	1	34,734		13	%	2	48,883		18	%	1	34,838		14	%
	12	$	258,957	100	%	14	$	278,225	100	%	12	$	242,078	100	%


						June 30, 2020					December 31, 2019
Geographic Location	Number of Loans	Carrying Value		Percentage of Value		Number of Loans	Carrying Value		Percentage of Value		Number of Loans	Carrying Value		Percentage of Value
East	4	$	112,432	44	%	5	$	104,461	37	%	4	$	90,047	37	%
South	5	101,241		39	%	5	105,385		38	%	5	103,295		43	%
West	1	6,200		2	%	1	10,503		4	%	1	9,014		4	%
Midwest	2	39,084		15	%	3	57,876		21	%	2	39,722		16	%
	12	$	258,957	100	%	14	$	278,225	100	%	12	$	242,078	100	%

Loan Risk Ratings

WeAs further described in Note 2, 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.

~~At June 30, 2019, we had 12 first mortgage whole loans with an aggregate~~The following table allocates the carrying value of ~~$258,957. Based~~our loan portfolio at June 30, 2020 and December 31, 2019 based on our internal risk rating ~~policy, each~~policy:



	June 30, 2020			December 31, 2019
Risk Rating	Number of Loans	Carrying Value		Number of Loans	Carrying Value
1	—	$	—	—	$	—
2	1	24,547		1	24,462
3	7	137,789		11	217,616
4	6	115,889		—	—
5	—	—		—	—
	14	$	278,225	12	$	242,078

The weighted average risk rating of ~~these~~our loans by carrying value was ~~assigned~~3.5 and 2.9 as of June 30, 2020 and December 31, 2019, respectively. The COVID-19 pandemic has negatively impacted some of our borrowers’ business operations or tenants, particularly in the cases of our retail and hospitality collateral, which are the types of properties that have been significantly negatively impacted by the pandemic. We expect that those negative impacts may continue and may apply to other borrowers and/or their tenants. Therefore, certain of our borrowers’ business plans will likely take longer to execute than initially expected and certain of our borrowers may be unable to pay their debt service obligations owed and due to us as currently scheduled or at all. As a ~~"3" acceptable risk rating~~result, at June 30, ~~2019.~~2020, we had 6 loans representing 42% of the carrying value of our loan portfolio with a loan risk rating of “4” or “higher risk." These six loans were downgraded from a risk rating of "3" or "acceptable risk" during the three months ended March 31, 2020, and we did not downgrade any loans during the three months ended June 30, 2020. We did not have any impaired loans ~~non-accrual~~or nonaccrual loans ~~or loans in maturity default~~ as of June 30, ~~2019; thus, we did not record a reserve for loan loss. See Note 2 for a discussion regarding~~2020 or December 31, 2019.

As of August 3, 2020, all of our borrowers had paid all of their debt service obligations owed and due to us and none of the ~~risk rating system that we use~~loans included in ~~evaluating~~ our ~~portfolio.~~investment portfolio were in default.

~~Note 5. Debt Agreements~~

~~At June 30, 2019, our debt agreements included our Master Repurchase Facility and the TCB note payable.~~

Debt Obligation
Weighted Average Collateral
Maximum Facility Size Principal Balance Carrying Value Coupon Rate
Remaining
Maturity⁽¹⁾
Principal Balance
Fair
Value⁽²⁾
June 30, 2019:

Master repurchase facility $ 213,482
$ 153,666
$ 152,620
L + 2.02% 2.0 $ 220,875
$ 221,124
Note payable 32,290
31,690
31,523
L + 2.15% 2.0 39,613
39,613

December 31, 2018:

Master repurchase facility $ 135,000
$ 72,582
$ 71,691
L + 2.08% 2.6 $ 97,516
$ 98,232
Note payable 32,290
31,690
31,485
L + 2.15% 2.6 39,613
39,640


⁽¹⁾	~~The weighted average remaining maturity is determined using the current maturity date of the corresponding loans, excluding extension options and term-out provisions.~~


⁽²⁾	~~See Note 6 for further discussion of our financial assets and liabilities not carried at fair value.~~

Until May 23, 2019, we were a party to a credit agreement with our Manager as lender, or the RMR Credit Agreement. After repayment of the approximate $14,220 balance then outstanding under the RMR Credit Agreement, the RMR Credit Agreement was terminated. See Note 5 for information regarding the RMR Credit Agreement.

For the three months ended June 30, 2019, we recorded interest expense of $1,479, $368 and $39 in connection with our Master Repurchase Facility, the TCB note payable and the RMR Credit Agreement, respectively. For the six months ended June 30, 2019, we recorded interest expense of $2,563, $736 and $39 in connection with our Master Repurchase Facility, the TCB note payable and the RMR Credit Agreement, respectively.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

~~At June 30, 2019,~~Note 5. Debt Agreements

The table below is an overview of our ~~outstanding borrowings had the following remaining maturities:~~debt agreements that provided financing for our loans held for investment:

Year
Principal payments on
Master Repurchase Facility ⁽¹⁾

Principal payments on
TCB note payable⁽¹⁾
2019 $ —
$ —
2020 26,396
—
2021 127,270
31,690
2022 —
—
2023 —
—
$ 153,666
$ 31,690



	Debt Obligation
							Weighted Average		Collateral
	Maximum Facility Size		Principal Balance		Carrying Value		Coupon Rate	Remaining Maturity⁽¹⁾(years)	Principal Balance		Fair Value⁽²⁾
June 30, 2020:
Master repurchase facility	$	213,482	$	201,138	$	200,465	L + 2.00%	1.1	$	278,484	$	273,860

December 31, 2019:
Master repurchase facility	$	213,482	$	165,536	$	164,694	L + 1.99%	1.6	$	242,899	$	242,763


⁽¹⁾	The ~~allocation of our outstanding borrowings under our Master Repurchase Facility and the TCB note payable~~weighted average remaining maturity is ~~based on~~determined using the current maturity date of ~~each individual borrowing under~~ the ~~respective agreement.~~corresponding loans, assuming no borrower loan extension options have been exercised.


(2)	See Note 6 for further discussion of our financial assets and liabilities not carried at fair value.

~~Master Repurchase Facility~~

~~On February 9, 2018, one of our wholly owned subsidiaries entered into~~Under the agreements tothat govern our Master Repurchase Facility, or collectively, as amended, our Master Repurchase Agreement, pursuant to which we may sell to, and later repurchase from, Citibank, floating rate mortgage loans and other related assets, or purchased assets. At that time, our Master Repurchase Facility provided up to $100,000 for advancements. On November 6, 2018, we amended our Master Repurchase Agreement to increase the maximum amount available for advancement under the facility from $100,000 to $135,000 and to change its stated expiration date from February 9, 2021 to November 6, 2021, subject to earlier termination as provided for in our Master Repurchase Agreement.

On February 4, 2019, we amended our Master Repurchase Agreement to increase the maximum amount available for advancement under the facility from $135,000 to $210,000 and on May 1, 2019, in connection with an increase in commitment under the RMR Credit Agreement, we further amended our Master Repurchase Agreement to increase the maximum amount available for advancement under the facility from $210,000 to $250,000, in each case with the additional advancements being available for borrowing under the facility if and as we borrowed under the RMR Credit Agreement or if and as we received proceeds from any public offering of our common shares or preferred equity, as further provided in our Master Repurchase Agreement. In connection with the February 2019 amendment, certain other provisions of our Master Repurchase Agreement were amended to accommodate the RMR Credit Agreement. In May 2019, we completed an underwritten public offering, or the Offering, as further described in Note 7, and the RMR Credit Agreement was terminated. As of June 30, 2019, we had $59,816 available for advancement under our Master Repurchase Facility, which amount is subject to our identifying suitable first mortgage whole loans for investment and obtaining sufficient capital for immediate reinvestment.

~~Under~~ our Master Repurchase Agreement, 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 ~~London Inter-bank Offered Rate, or~~ 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. Citibank has the discretion under our Master Repurchase Agreement to ~~advance~~make advancements at margins higher ~~margins~~ than 75% and at premiums of less than 200 basis points. ~~As of June 30, 2019, outstanding borrowings~~The weighted average interest rate for advancements under our Master Repurchase Facility ~~had a weighted average~~was 2.47% and 4.49% for the three months ended June 30, 2020 and 2019, respectively, and 2.97% and 4.52% for the six months ended June 30, 2020 and 2019, respectively. For the three months ended June 30, 2020 and 2019, we recorded interest ~~rate~~expense of ~~LIBOR plus 202 basis points per annum, excluding associated fees~~$1,245 and ~~expenses.~~$1,479, respectively, and $2,883 and $2,563 for the six months ended June 30, 2020 and 2019, respectively, in connection with our Master Repurchase Facility.

In connection with our Master Repurchase Agreement, we entered into a guaranty, or, as amended, the Guaranty, which requires us to ~~pay~~guarantee 25% of our subsidiary's prompt and complete payment of the purchase price, purchase price differential and any costs and expenses of Citibank related to our Master Repurchase Agreement. ~~This guaranty~~The Guaranty also requires us to comply with customary financial covenants, which include the maintenance of a minimum tangible net worth, minimum cash liquidity, a total indebtedness to tangible net worth ratio and a minimum interest coverage ratio. These maintenance provisions 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. As of June 30, 2020, we have not received a margin call under our Master Repurchase Agreement.

Our Master Repurchase Agreement also 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 Tremont Realty Advisors LLC, or our Manager, ceasing to act as our sole manager or to be a wholly owned subsidiary of The RMR Group LLC, or RMR LLC. As of June 30, 2020, we were in compliance with all of the covenants and other terms under our Master Repurchase Agreement and the Guaranty.

From July 2018 until August 2019, we were a party to a term loan facility, in the form of a note payable, with Texas Capital Bank, National Association, or the TCB note payable. Following our repayment of the $31,790 then outstanding principal and accrued interest under the TCB note payable, the TCB note payable terminated in accordance with its terms. We recorded $368 and $736 of interest expense for the three and six months ended June 30, 2019, respectively, in connection with the TCB note payable.

10From February 2019 until May 2019, we were a party to a credit agreement with our Manager as lender, or the RMR Credit Agreement. Following our repayment of the $14,220 balance then outstanding under the RMR Credit Agreement, the

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

~~The RMR Group LLC, or RMR LLC. As of June 30, 2019, we believe we were in compliance with the terms and conditions of the covenants of our Master Repurchase Agreement and the related guaranty.~~

In July 2019, we received a repayment notice with respect to our loan held for investment associated with an office building located in Scarsdale, NY. Pursuant to the notice, the borrower stated that it will repay the loan in August 2019. At the time of notice, there was approximately $13,997 of principal amount outstanding under this loan, which the borrower is required to pay, together with accrued interest, an exit fee and any expenses incurred by us with respect to this loan. When this loan is repaid, we will be required to repay the associated outstanding balance under our Master Repurchase Facility.

~~Note Payable~~

In July 2018, we closed a $40,363 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 the TCB note payable. The TCB note payable advances up to 80% of the JFK loan amount from time to time. The TCB note payable 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 note payable for two, one year periods. Interest on amounts advanced under the TCB note payable is calculated at a floating rate based on LIBOR plus a premium of 215 basis points. We may be required to repay a portion of the amount outstanding under the TCB note payable to maintain a 10.5% debt yield on the net operating income of the hotel that secures the TCB note payable. The TCB note payable 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 note payable, we entered into a guaranty with Texas Capital Bank pursuant to which we have guaranteed 25% of the TCB note payable amount plus all related interest and costs. This guaranty also requires us to comply with customary financial covenants, which include the maintenance of a minimum net worth, minimum liquid assets, a maximum leverage ratio and a required debt yield. On March 26, 2019, we amended the TCB note payable covenants to accommodate entering into the RMR Credit Agreement. As of June 30, 2019, we believe we were in compliance with the terms and conditions of the covenants of the TCB note payable and the related guaranty.

In July 2019, we received a repayment notice with respect to the JFK loan. Pursuant to the notice, the borrower stated that it will repay the loan in August 2019. At the time of notice, there was approximately $39,613 of principal amount outstanding under the JFK loan, which the borrower is required to pay, together with accrued interest, an exit fee and any expenses incurred by us with respect to this loan. When the JFK loan is repaid, we will be required to repay the outstanding balance under the TCB note payable.

~~RMR Credit Agreement~~

On February 4, 2019, we entered into the RMR Credit Agreement, pursuant to which, from time to time until August 4, 2019, the scheduled expiration date of the RMR Credit Agreement, we were able to borrow up to $25,000 and, beginning May 3, 2019, $50,000 in subordinated unsecured loans at a rate of 6.50% per annum. In May 2019, we borrowed $14,220 under the RMR Credit Agreement to fund additional investments in first mortgage whole loans. Also in May 2019, we completed the Offering. Subsequently, in May 2019, we repaid the approximate $14,220 balance then outstanding under the RMR Credit Agreement with a portion of the Offering proceeds and the RMR Credit Agreement was terminated. ~~In connection with this repayment and termination, we paid our Manager approximately~~We recorded $39 of interest expense for both the three and ~~$7 of fees. See Note 7 for further information regarding~~six months ended June 30, 2019, in connection with the ~~Offering. We have historical and continuing relationships with~~RMR Credit Agreement.

At June 30, 2020, our ~~Manager. See Notes 8 and 9 for further information regarding these relationships and related party transactions.~~outstanding advancements under our Master Repurchase Facility had the following remaining maturities:



Year	Principal Payments ⁽¹⁾
2020	$	29,680
2021	171,458
2022	—
2023	—
2024	—
	$	201,138


(1)	The allocation of our outstanding advancements under our Master Repurchase Facility is based on the current maturity date of each loan investment with respect to which the individual borrowing relates assuming no borrower loan extension options have been exercised.

Note 6. Fair Value of Financial Instruments

ASC 820, Fair Value Measurements, establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level I), and the lowest priority to unobservable inputs (Level III). A financial asset’s or financial liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the carrying values of cash and cash equivalents, restricted cash and accounts payable approximated their fair values due to the short term nature of these financial instruments. ~~At June 30, 2019 and~~As of December 31, ~~2018,~~2019, the outstanding principal balances ofunder our Master Repurchase Facility ~~and the TCB note payable~~ approximated their

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~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~(dollars in thousands, except per share data)~~

fair values, as interest iswas based on floating rates based on LIBOR plus a spread, and the spread iswas consistent with those demanded by the market.

We estimate the fair ~~value of our loans held for investment using Level III inputs. We estimate the fair~~ values of our loans held for investment and outstanding principal balances under our Master Repurchase Facility by using Level III inputs, including discounted cash flow analyses and currently prevailing market terms as of the measurement date, determined by significant unobservable market inputs, which include holding periods, discount rates based on LTV, 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).

The table below provides information regarding financial assets and liabilities not carried at fair value on a recurring basis in our condensed consolidated balance sheets:


	June 30, 2019				December 31, 2018				June 30, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets
Loans held for investment	$	258,957	$	260,737	$	135,844	$	137,872	$	278,225	$	273,860	$	242,078	$	242,763
Financial liabilities
Master Repurchase Facility	152,620		153,666		71,691		72,582		$	200,465	$	197,102	$	164,694	$	165,536
Note payable	31,523		31,690		31,485		31,690

There were no transfers of financial assets or liabilities within the fair value hierarchy during the three or six months ended June 30, ~~2019.~~2020.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 7. Shareholders' Equity

~~May 2019 Offering~~

On May 21, 2019, we completed the Offering. In the Offering, we issued and sold 5,000,000 of our common shares at a price of $5.65 per share for total net proceeds of $26,074, after deducting the underwriting discounts and commissions and other expenses. Our Manager purchased 1,000,000 of our common shares in the Offering at the public offering price, without the payment of any underwriting discounts. We used the net proceeds of the Offering to repay the approximate $14,220 balance then outstanding under the RMR Credit Agreement and to reduce borrowings under our Master Repurchase Facility by approximately $11,900. After repayment of the outstanding balance under the RMR Credit Agreement, the RMR Credit Agreement was terminated. See Note 5 for further information regarding the RMR Credit Agreement.

Common Share Issuances and Repurchases

On ~~April 5, 2019,~~January 9, 2020, we purchased an aggregate of ~~644~~384 of our common shares, valued at ~~$9.39~~$5.33 per common share, the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq, on that day, from former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

On May 13, 2020, in accordance with our Trustee compensation arrangements, we awarded to each of our five Trustees 3,000 of our common shares, valued at $1.92 per common share, the closing price of our common shares on Nasdaq that day.

On June 30, 2020, we purchased 390 of our common shares, valued at $3.08 per common share, the closing price of our common shares on Nasdaq on that day, from a former officer of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

~~On April 24, 2019,~~Distributions

During the six months ended June 30, 2020, we ~~granted 3,000 of our common shares, valued at $10.36 per share, the closing price of our common shares on Nasdaq on that day, to each of our five Trustees as part of their annual compensation.~~

~~Distributions~~

~~On February 21, 2019, we~~declared and paid ~~an initial distribution to common shareholders of record as of January 28, 2019 of $0.11 per common share, or $350.~~

~~On May 16, 2019, we paid~~ a ~~regular~~ quarterly distribution to common shareholders as follows:



Record Date	Payment Date	Distribution Per Share		Total Distribution
January 27, 2020	February 20, 2020	$	0.22	$	1,813
April 10, 2020	May 21, 2020	0.01		82
		$	0.23	$	1,895

On July 16, 2020, we declared a quarterly distribution of ~~record as of April 29, 2019 of $0.22~~$0.01 per common share for the second quarter of 2020, or ~~$702.~~

~~On July 18, 2019, we declared a regular quarterly distribution~~approximately $83, to ~~common~~ shareholders of record on July ~~29, 2019 of $0.22 per common share, or approximately $1,802.~~27, 2020. We expect to pay this distribution on or about August ~~15, 2019.~~20, 2020.

~~TREMONT MORTGAGE TRUST~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~(dollars in thousands, except per share data)~~

Note 8. Management Agreement with our Manager

We have no0 employees. The personnel and various services we require to operate our business are provided to us by our Manager pursuant to a management agreement, 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.

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. In addition, our Manager also agreed that no incentive fee will be paid or payable by us for the 2018 or 2019 calendar years. As a result, weWe did not recognize any base management ~~fees~~ or incentive fees for the three or six months ended June 30, 2020 or 2019. Our Manager has waived any base management or incentive fees otherwise due and payable by us under our management agreement for and through the periods ending December 31, 2020. If our Manager had not ~~agreed to waive~~waived these base management and incentive fees, we would have recognized $323 and $267 of base management fees for the three months ended June 30, 2020 and 2019, respectively, $643 and $490 of base management fees for the ~~three and~~ six months ended June 30, 2020 and 2019, respectively, and no$36 of incentive fees for the three and six months ended June 30, ~~2019. Pursuant to our management agreement, we recognized $222 and $447 of base management fees for the three and six months ended June 30, 2018, respectively, and no~~2020. NaN incentive fees would have been paid or payable for either of the three or six months ended June 30, ~~2018~~.2019.

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 RMR LLC pursuant to a shared services agreement between our Manager and RMR LLC. We reimburse our Manager for shared services costs our Manager pays to RMR LLC and its ~~affiliates, and these~~affiliates. These reimbursements ~~may~~ include an allocation of the cost of personnel employed by RMR LLC and our share of RMR LLC’s costs for providing our internal audit ~~function, with such~~function. These shared services costs are subject to approval by a majority of our Independent Trustees at least annually. We incurred shared services costs of ~~$370~~$280 and ~~$375~~$409 payable to our Manager ~~as reimbursement for shared services costs it paid to RMR LLC~~ for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$740~~$638 and ~~$750~~$811 for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. We include these amounts in reimbursement of shared services expenses or general and administrative expenses, as applicable, in our condensed consolidated statements of operations.

TREMONT MORTGAGE TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 9. 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 or its subsidiaries provide management services and some of which have trustees, directors ~~and~~or officers who are also our Trustees or officers. 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. 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. One of our Managing Trustees, Adam Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., and he is also a director of our Manager, a managing director and the president and chief executive officer of RMR Inc., and an officer and employee of RMR LLC. David M. Blackman, our other Managing Trustee and our President and Chief Executive Officer, also serves as a director and the president, and chief executive officer of our Manager and is an officer and employee of RMR LLC, and each of our other officers is also an officer and/or employee of our Manager or RMR LLC. Our Independent Trustees also serve as independent directors or independent trustees of other public companies to which RMR LLC or its subsidiaries provide management services. Adam Portnoy serves as the chair of the boards of trustees and boards of directors of several of these public companies and as a managing director or managing trustee of all of these companies and other officers of RMR LLC, including Mr. Blackman and certain of our other officers, serve as managing trustees, managing directors or officers of certain of these companies. In addition, officers of our Manager, RMR LLC and RMR Inc. serve as our officers and officers of other companies to which RMR LLC or its subsidiaries provide management services.

Our Manager, Tremont Realty Advisors ~~LLC.~~LLC. We have a management agreement with our Manager to provide management services to us. See Note 8 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, as of June 30, ~~2019,~~2020, owned 1,600,100 of our common shares or approximately ~~19.5%~~19.4% of our outstanding common shares. ~~Each of our Managing Trustees and officers is also a director or officer of our Manager and of RMR LLC.~~

Until May 23, 2019, we were a party to the RMR Credit Agreement with our Manager, pursuant to which from time to time until August 4, 2019, we were able to borrow up to $25,000 and, beginning May 3, 2019, up to $50,000 in subordinated unsecured loans at a rate of 6.5% per annum. After repayment of the approximate $14,220 balance then outstanding under the RMR Credit Agreement, the RMR Credit Agreement was terminated. In connection with this repayment, we paid our Manager approximately $39 of interest and $7 of fees related to the RMR Credit Agreement. ~~See Note 5 for information regarding the RMR Credit Agreement.~~

~~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. The controlling shareholder of RMR Inc. is ABP Trust. Adam D. Portnoy, one of our Managing Trustees, is the sole trustee, an officer and the controlling shareholder of ABP Trust, a managing director, president and chief executive officer of RMR Inc., a director of our Manager and an officer and employee of RMR LLC. David M. Blackman, our other Managing Trustee and our President and Chief Executive Officer, also serves as the president, chief executive officer and a director of our Manager and is an officer and employee of RMR LLC. RMR LLC provides certain shared services to our Manager that are applicable to us, and we reimburse our Manager for the amount it pays for those services. See Note 8 for further information regarding this shared services arrangement.

~~TREMONT MORTGAGE TRUST~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~(dollars in thousands, except per share data)~~

For further information about these and other such relationships and certain other related person transactions, refer to our ~~2018~~ Annual Report.

Note 10. Income Taxes

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

Note 11. Weighted Average Common Shares

We calculate basic ~~earnings per share, or~~ EPS by dividing net income ~~(loss)~~ by the weighted average number of common shares outstanding during the relevant period. We calculate diluted EPS using the more dilutive of the two class method or the treasury stock method. Unvested share awards and other potentially dilutive common share issuances, and the related impact on earnings, ~~(loss),~~ are considered when calculating diluted earnings ~~(loss)~~ per share. For the three months ended June 30, 2020 and 2019, 105,126 and 12,351 unvested common shares, respectively, and for the six months ended June 30, 2020 and 2019, ~~12,351~~63,739 and 3,051 unvested common shares, respectively, were excluded from the calculation of diluted earnings ~~(loss)~~ per share because to do so would have been antidilutive. Due to net losses incurred during the three and six months ended June 30, 2018, basic weighted average shares is equal to diluted weighted average shares for such periods. As a result, 599 and 352 restricted unvested common shares were excluded from the computation of diluted EPS for the three and six months ended June 30, 2018, respectively.

Note 12. Commitments and Contingencies

Unfunded Loan Commitments

As of June 30, ~~2019,~~2020, we had unfunded commitments of ~~$21,879~~$17,566 related to our loans held for ~~investment. Unfunded commitments will generally be funded to finance property and building improvements and leasing capital over the term of the applicable loan. Unfunded commitments~~investment that are not reflected in our condensed consolidated balance sheets. ~~Loans held for investment related to our~~These unfunded commitments had a weighted average initial maturity of ~~2.2 years.~~1.5 years as of June 30, 2020. See Note 4 for further information ~~regarding~~related to our loans held for investment.

TREMONT MORTGAGE TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Secured Borrowings

As of June 30, ~~2019,~~2020, we had an aggregate of ~~$185,356~~$201,138 in principal amount outstanding under our Master Repurchase Facility ~~and the TCB note payable. Principal balances outstanding at June 30, 2019 had~~with a weighted average life to maturity of ~~2.0~~1.1 years. See Note 5 for further information regarding our secured debt agreements.

Note 13. Subsequent Events

In July ~~2019, we received a repayment notice with respect to the JFK loan. Pursuant to the notice,~~2020, the borrower ~~stated~~under our loan related to a property located in Coppell, TX sold a parcel of land that ~~it will~~was a part of the property securing the loan. The borrower used $2,089 of the sale proceeds to repay ~~the loan in August 2019. At the time~~part of notice, there was approximately $39,613 of principal amount outstanding under the JFK loan, which the borrower is required to pay, together with accrued interest, an exit fee and any expenses incurred by us with respect to this loan. When the JFK loan is repaid, we will be required to repay the outstanding balance under the ~~TCB note payable.~~

~~In July 2019,~~loan and we ~~received a repayment notice with respect to our loan held for investment associated with an office building located in Scarsdale, NY. Pursuant to the notice,~~allowed the borrower ~~stated that it will repay~~to use the ~~loan in August 2019. At~~remaining $100 of sale proceeds to increase the ~~time~~reserve for future debt service obligation payments owed to us under the loan. We used $1,358 of notice, there was approximately $13,997 of principal amount outstanding under this loan, which the borrower is required to pay, together with accrued interest, an exit fee and any expenses incurred by us with respect to this loan. When this loan is repaid, we will be requiredthese repayment proceeds to repay a part of the ~~associated~~ outstanding balance under our Master Repurchase Facility.

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

The following discussion should be read in conjunction with our condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q and in our ~~2018~~ Annual Report.

OVERVIEW (dollars in thousands, except ~~per~~ share data)

We are a REIT that was organized under Maryland law in 2017. ~~We focus~~Our business strategy is focused on originating and investing in first mortgage whole loans secured by middle market and transitional CRE. We define middle market CRE as commercial properties that have values up to $75,000 and transitional CRE as commercial properties subject to redevelopment or repositioning activities that are expected to increase the value of the properties. 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.

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

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

COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, the United States declared a national emergency concerning this pandemic, and several states and municipalities have declared public health emergencies. The COVID-19 pandemic and various governmental and market responses intended to contain and mitigate the spread of the virus and its detrimental public health impact have severely negatively impacted the global economy, including the U.S. economy. As a result, most market observers believe the global economy is currently in the midst of a recession. States and municipalities across the United States have been allowing certain businesses to re-open and easing certain restrictions they had previously implemented in response to the COVID-19 pandemic, often in stages that are phased in over time. Recently, economic data have indicated that the U.S. economy has improved since the lowest periods experienced in March and April 2020. However, certain areas of the United States have experienced increased numbers of COVID-19 infections following the re-openings of their economies and easing of restrictions and, in some cases, certain states have imposed or re-imposed closings of certain business activities and other restrictions in response. It is unclear whether the increases in the number of COVID-19 infections will continue and/or amplify or whether any “second wave” of COVID-19 infection outbreaks will occur in the United States or elsewhere and, if so, what the impact of that would be on human health and safety, the economy or our business.

The current economic conditions are adversely impacting some of our borrowers’ tenants, which in turn, has negatively impacted our borrowers’ businesses and liquidity and their ability to pay interest owed under our loans. See elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations for further information about the impact these conditions have had on our borrowers, our loans and Master Repurchase Agreement, as well as on the broader market conditions, including for the CRE lending industry, and certain actions we have taken in response.

We and our Manager are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including:

our borrowers and their ability to withstand the current economic conditions and continue to fund their debt service obligations owed and due to us,

our operations, liquidity and capital needs and resources,

conducting financial modeling and sensitivity analysis,

actively communicating with our borrowers, Citibank and other key constituents and stakeholders in order to help assess market conditions, opportunities, best practices and mitigate risks and potential adverse impacts, and

monitoring, with the assistance of counsel and other specialists, possible government relief funding sources and other programs that may be available to us or our borrowers to enable us and them to operate through the current economic conditions and enhance their ability to fund their debt service obligations owed and due to us.

In order to preserve our near term capital due to the economic downturn and uncertainty as to future economic conditions as a result of the COVID-19 pandemic, beginning with the first quarter of 2020, we reduced our quarterly distribution rate payable to our common shareholders to $0.01 per share and on July 16, 2020, declared a quarterly distribution payable to our common shareholders of $0.01 per share for the second quarter of 2020. In addition, our Manager extended its waiver of the management and incentive fees under our management agreement, which waiver was set to expire June 30, 2020, for and through the periods ending December 31, 2020.

We believe that some of our impacted borrowers or their tenants have benefited, and/or may in the future benefit, from provisions of the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, passed by Congress in March 2020, or other Federal or state assistance allowing them to continue or resume business activity.

We do not have any employees and the personnel and various services we require to operate our business are provided to us by our Manager or by RMR LLC, pursuant to our management agreement with our Manager and our Manager’s shared services agreement with RMR LLC. RMR LLC has implemented enhanced cleaning protocols and social distancing guidelines at its corporate headquarters and its regional offices, as well as business continuity plans to ensure that employees of our Manager and of RMR LLC remain safe and able to support us and RMR LLC’s other managed companies, including providing appropriate information technology such as notebook computers, smart phones, computer applications, information technology security applications and technology support. RMR LLC has also taken measures to reduce the possibility of persons gathering in groups and in close proximity to each other, for the purpose of mitigating the potential for spreading of COVID-19 infections.

There are extensive uncertainties surrounding the COVID-19 pandemic and its aftermath. These uncertainties include among others:

the duration and severity of the negative economic impact;

the strength and sustainability of any economic recovery;

the timing and process for how the federal, state and local governments and other market participants may oversee and conduct the return of economic activity when the COVID-19 pandemic abates, such as what continuing restrictions and protective measures may remain in place, be re-imposed or be added and what restrictions and protective measures may be lifted or reduced in order to foster a return of increased economic activity in the United States; and

whether, following a recommencing of more normal levels of economic activities, the United States or other countries experience any “second wave” of COVID-19 infection outbreaks and, if so, the responses of governments, businesses and the general public to those events.

As a result of these uncertainties, we are unable to determine what the ultimate impact will be on our borrowers’ and other stakeholders’ businesses, operations, financial results and financial position. For further information and risks relating to the COVID-19 pandemic and its aftermath on us and our business, see elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and Part II, Item 1A Risk Factors, in this Quarterly Report on Form 10-Q.

Book Value per Common Share

The table below calculates our book value per common share (amounts in thousands, except per share data):


	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019
Shareholders' equity	$	86,376	$	59,668	$	88,465	$	86,221
Total outstanding common shares	8,193		3,179		8,254		8,240
Book value per common share	$	10.54	$	18.77	$	10.72	$	10.46

Our Loan Portfolio

The table below details overall statistics for our loan portfolio as of June 30, 2020 and December 31, 2019:



	Balance at June 30, 2020			Balance at December 31, 2019
Number of loans	14			12
Total loan commitments	$	296,050		$	260,167
Unfunded loan commitments ⁽¹⁾	$	17,566		$	17,268
Principal balance	$	278,484		$	242,899
Unamortized net deferred origination fees	$	(259	)	$	(821	)
Carrying value	$	278,225		$	242,078
Weighted average coupon rate	5.70		%	5.76		%
Weighted average all in yield ⁽²⁾	6.39		%	6.41		%
Weighted average maximum maturity (years)⁽³⁾	3.1			3.6
Weighted average LTV ⁽⁴⁾	68		%	70		%


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


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


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


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

Loan Portfolio Details

The table below details our loan portfolio as of June 30, 2020:

Location

Property Type

Origination Date

Committed Principal Amount

Principal
Balance

Coupon Rate

All in

Yield ⁽¹⁾

Maximum Maturity⁽²⁾(date)

LTV⁽³⁾

Risk Rating

First mortgage whole loans

Coppell, TX

Retail

02/05/2019

22,915

22,204

L + 3.50%

L + 4.25%

02/05/2021

73%

Houston, TX

Multifamily

05/10/2019

28,000

27,695

L + 3.50%

L + 4.37%

11/10/2022

56%

Paradise Valley, AZ⁽⁴⁾

Retail

11/30/2018

11,853

10,441

L + 4.25%

L + 5.72%

11/30/2022

48%

Dublin, OH

Office

02/18/2020

22,820

17,534

L + 3.75%

L + 5.08%

02/18/2023

33%

Metairie, LA

Office

04/11/2018

18,102

17,115

L + 5.00%

L + 5.65%

04/11/2023

79%

Barrington, NJ

Industrial

05/06/2019

37,600

34,962

L + 3.50%

L + 4.05%

05/06/2023

79%

Houston, TX

Office

06/26/2018

15,200

14,199

L + 4.00%

L + 4.60%

06/26/2023

69%

St. Louis, MO

Office

12/19/2018

29,500

27,611

L + 3.25%

L + 3.75%

12/19/2023

72%

Atlanta, GA

Hotel

12/21/2018

24,000

23,904

L + 3.25%

L + 3.72%

12/21/2023

62%

Rochester, NY

Multifamily

01/22/2019

24,550

L + 3.25%

L + 3.86%

01/22/2024

74%

Omaha, NE

Retail

06/14/2019

14,500

13,054

L + 3.65%

L + 4.05%

06/14/2024

77%

Yardley, PA

Office

12/19/2019

14,900

14,178

L + 3.75%

L + 4.47%

12/19/2024

75%

Orono, ME

Multifamily

12/20/2019

18,110

17,037

L + 3.25%

L + 3.89%

12/20/2024

72%

Allentown, PA

Industrial

01/24/2020

14,000

L + 3.50%

L + 4.02%

01/24/2025

67%

Total/weighted average

296,050

278,484

L + 3.60%

L + 4.29%

68%

3.5


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


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


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


(4)	The borrower under this loan exercised its option to reduce the unfunded loan commitment allowance by $937, pursuant to the terms of the loan agreement.

As of June 30, ~~2019, our~~2020, we had $296,050 in aggregate loan commitments, consisting of a diverse portfolio, geographically and by property type, of ~~investments consisted of 12~~14 first mortgage whole loans. The impact from the COVID-19 pandemic has negatively impacted some of our borrowers’ business operations or tenants, particularly in the cases of our retail and hospitality collateral, which are the types of properties that have been significantly negatively impacted by the pandemic. We expect that those negative impacts may continue and may apply to other borrowers and/or their tenants. Therefore, certain of our borrowers’ business plans will likely take longer to execute than initially expected and certain of our borrowers may be unable

to pay their debt service obligation owed and due to us as currently scheduled. As a result, at June 30, 2020, we had six loans ~~with an aggregate~~representing 42% of the carrying value of ~~$258,957. Based on~~ our ~~internal~~loan portfolio to a loan risk rating ~~policy, each~~of “4” or “higher risk”. These six loans were downgraded from a risk rating of "3" or "acceptable risk" during the three months ended March 31, 2020 and we did not downgrade any loans during the three months ended June 30, 2020.

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

As of August 3, 2020, all of our borrowers had paid all of their debt service obligations owed and due to us and none of the loans included in our investment portfolio were in default.

In July 2020, the borrower under our loan related to a property located in Coppell, TX sold a parcel of land that was a part of the property securing the loan. The borrower used $2,089 of the sale proceeds to repay part of the outstanding balance under the loan and we allowed the borrower to use the remaining $100 of sale proceeds to increase the reserve for future debt service obligation payments owed to us under the loan. We used $1,358 of these ~~loans was assigned~~repayment proceeds to repay a ~~"3" acceptable risk rating at June 30, 2019.~~ part of the outstanding balance under our Master Repurchase Facility.

We did not have any impaired loans, non-accrual loans or loans in ~~maturity~~ default as of June 30, ~~2019;~~2020; thus, we did not record a reserve for loan ~~loss. See~~loss as of that date. For further information regarding our risk rating policy, see Notes 2 and 4 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form ~~10-Q for~~10-Q. However, depending on the duration and severity of the COVID-19 pandemic and the current economic downturn, our borrowers' businesses, operations and liquidity may be materially adversely impacted. As a ~~discussion~~result, they may become unable to pay their debt service obligations owed and due to us, which may result in the impairment of those loans, and our recording loan loss reserves with respect to those loans and recording of any income with respect to those loans on a nonaccrual basis. For further information regarding the ~~risk rating system that we use in evaluating our loans held for investment.~~

~~The table below details overall statistics for~~risks associated with our loan portfolio, assee the risk factors identified in Part II, Item 1A, “Risk Factors” of ~~June 30, 2019:~~

Balance at June 30, 2019
Number of loans 12
Total loan commitments $ 282,367
Unfunded loan commitments ⁽¹⁾
$ 21,879
Principal balance $ 260,488
Unamortized net deferred origination fees $ (1,531 )
Carrying value $ 258,957
Weighted average coupon rate 6.03 %
Weighted average all in yield ⁽²⁾
6.64 %
Weighted average maximum maturity (years)⁽³⁾
3.9
Weighted average LTV 71 %


⁽¹⁾	~~Unfunded commitments will primarily be funded to finance property and building improvements and leasing capital. These commitments will generally be funded over the term~~this Quarterly Report on Form 10-Q and the risk factors identified in Part I, Item IA, "Risk Factors" of ~~each loan.~~


⁽²⁾	~~All in yield includes the amortization of deferred fees over the initial term of the loan.~~


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

~~Loan Portfolio Details~~

~~The table below details~~ our ~~loan portfolio as of June 30, 2019:~~Annual Report.

Location Property Type Origination Date Committed Principal Amount Principal
Balance Coupon Rate
All in
Yield ⁽¹⁾

Maximum Maturity⁽²⁾(date)

LTV⁽³⁾
Risk Rating
First mortgage whole loans
Metairie, LA Office 04/11/2018 $ 18,102
$ 16,603
L + 5.00% L + 5.66% 04/11/2023 79% 3
Houston, TX Office 06/26/2018 15,200
13,430
L + 4.00% L + 4.61% 06/26/2023 69% 3
Queens, NY ⁽⁴⁾
Hotel 07/18/2018 40,363
39,613
L + 3.50% L + 3.89% 07/19/2023 71% 3
Scarsdale, NY ⁽⁴⁾
Office 07/31/2018 14,847
13,984
L + 4.00% L + 4.57% 07/31/2023 76% 3
Paradise Valley, AZ Retail 11/30/2018 12,790
6,257
L + 4.25% L + 6.19% 11/30/2022 48% 3
St. Louis, MO Office 12/19/2018 29,500
26,440
L + 3.25% L + 3.76% 12/19/2023 72% 3
Atlanta, GA Hotel 12/21/2018 24,000
23,011
L + 3.25% L + 3.73% 12/21/2023 62% 3
Rochester, NY Multifamily 01/22/2019 24,550
24,550
L + 3.25% L + 3.86% 01/22/2024 74% 3
Coppell, TX Retail 02/05/2019 22,915
21,210
L + 3.50% L + 4.27% 02/05/2021 73% 3
Barrington, NJ Industrial 05/06/2019 37,600
34,900
L + 3.50% L + 4.05% 05/06/2023 79% 3
Houston, TX Multifamily 05/10/2019 28,000
27,475
L + 3.50% L + 4.37% 11/10/2022 56% 3
Omaha, NE Retail 06/14/2019 14,500
13,015
L + 3.65% L + 4.05% 06/14/2024 77% 3
Total/weighted average $ 282,367
$ 260,488
L + 3.60% L + 4.21%
71% 3


⁽¹⁾	~~All in yield includes the amortization of deferred fees.~~


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


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

⁽⁴⁾

In July 2019, we received repayment notices with respect to two of our loans held for investment stating that the loans would be repaid in August 2019. At the time of notice, there was approximately $53,600 of aggregate principal amount outstanding under these loans which the borrowers are required to pay, together with the applicable accrued interest, an exit fee and any expenses incurred by us with respect to the applicable loan. When these loans are repaid, we will be required to repay the associated outstanding balances under the TCB note payable and our Master Repurchase Facility.

Financing Activities

On May 21, 2019, we issued and sold 5,000,000 of our common shares at a price of $5.65 per share in the Offering for total net proceeds of $26,074, after deducting the underwriting discounts and commissions and other expenses. Our Manager purchased 1,000,000 of our common shares in the Offering at the public offering price, without the payment of any underwriting discounts. We used the net proceeds of the Offering to repay the approximate $14,220 balance then outstanding under the RMR Credit Agreement and to reduce borrowings under our Master Repurchase Facility by approximately $11,900. After repayment of the outstanding balance under the RMR Credit Agreement, the RMR Credit Agreement was terminated. As of June 30, 2019, we had $59,816 available for advancement under our Master Repurchase Facility, which amount is subject to our identifying suitable first mortgage whole loans for investment and obtaining sufficient capital for immediate investment.

During the three and six months ended June 30, 2019, we sold to, and committed to later repurchase from, Citibank, under our Master Repurchase Facility, three and five loans, respectively, with an aggregate principal amount of $75,390 and $119,990, respectively, and Citibank advanced us $61,117 and $92,983, respectively.

The table below is an overview of our ~~debt agreements that provide~~Master Repurchase Facility, which provided financing for our loans held for investment, as of June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:

Initial Maturity Date Principal Balance Unused Capacity Maximum Facility Size Collateral Principal Balance
June 30, 2019:
Master repurchase facility 11/06/2021 $ 153,666
$ 59,816
$ 213,482
$ 220,875
Note payable 07/19/2021 31,690
600
32,290
39,613
December 31, 2018:

Master repurchase facility 11/06/2021 $ 72,582
$ 62,418
$ 135,000
$ 97,516
Note payable 07/19/2021 31,690
600
32,290
39,613



	Initial Maturity Date	Principal Balance		Unused Capacity		Maximum Facility Size		Collateral Principal Balance
June 30, 2020:
Master repurchase facility	11/06/2021	$	201,138	$	12,344	$	213,482	$	278,484
December 31, 2019:
Master repurchase facility	11/06/2021	$	165,536	$	47,946	$	213,482	$	242,899

The table below details our Master Repurchase Facility activities during the three months ended June 30, 2020:



	Total
Balance at March 31, 2020	$	195,566
Advancements	4,796
Deferred Fees	(19		)
Amortization of Deferred Fees	122
Balance at June 30, 2020	$	200,465

The table below details our Master Repurchase Facility activities during the six months ended June 30, 2020:



	Total
Balance at December 31, 2019	164,694
Advancements	35,602
Deferred Fees	(72		)
Amortization of Deferred Fees	241
Balance at June 30, 2020	$	200,465

As of June 30, ~~2019,~~2020, outstanding ~~borrowings~~advancements under our Master Repurchase Facility ~~and the TCB note payable~~ had a weighted average interest ~~rates~~rate of LIBOR plus ~~202 and 215~~200 basis points per annum, ~~respectively,~~ excluding associated fees and expenses. For ~~more~~further information regarding our Master Repurchase Agreement, ~~and the TCB note payable,~~ see Note 5 to the

Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

As of June 30, 2020, we had a $201,138 aggregate outstanding principal balance under our Master Repurchase Agreement. In light of the impact of the COVID-19 pandemic, we continue to actively engage with Citibank regarding our liquidity position and the status of the loans in our portfolio that are financed under our Master Repurchase Facility. Our Master Repurchase Agreement is structured with risk mitigation mechanisms, including a cash flow sweep, which would allow Citibank to control interest payments from our borrowers under our loans that are financed under our Master Repurchase Facility, and the ability to accelerate dates of repurchase and institute margin calls, which may require us to pay down balances associated with one or more of our loans that are financed under our Master Repurchase Facility. As of August 3, 2020, we believe we were in compliance with all the covenants and other terms under our Master Repurchase Agreement and, to date, Citibank has not utilized any such risk mitigation mechanisms under our Master Repurchase Agreement.

We could experience a loss on repurchase transactions under our Master Repurchase ~~Facility~~Agreement if a counterparty to these transactions defaults on its obligation to resell the underlying ~~assets~~collateral back to us at the end of the transaction term, or if the value of the underlying ~~assets~~collateral has declined as of the end of that term, or if we default on our obligations under the applicable agreement governing any such arrangement.

We have fully committed the capital available to us. Our ability to obtain additional financing advancements under our Master Repurchase Facility is contingent upon our making additional advancements to our existing borrowers or our ability to effectively reinvest any additional capital, including any loan repayment proceeds, that we may obtain or receive. However, we cannot be sure that we will be able to obtain additional capital or additional financing advancements under our Master Repurchase Facility. It may take an extended period for us to reinvest any additional capital we may receive, and any reinvestments we may be able to make may not provide us with similar returns or comparable risks as those of our current investments. See “—Factors Affecting Operating Results—Market Conditions” below for information regarding the impact of the current market conditions on the access of capital for CRE lenders such as us.

~~Results of Operations~~

RESULTS OF OPERATIONS (dollars in thousands, except share data)

Three Months Ended June 30, ~~2019~~2020 Compared to Three Months Ended June 30, ~~2018:~~2019:


	Three Months Ended June 30,									Three Months Ended June 30,
	2019			2018			Change			2020			2019			Change			% Change
INCOME FROM INVESTMENTS:
Interest income from investments	$	3,913		$	495		$	3,418		$	4,496		$	3,913		$	583		15	%
Less: interest and related expenses	(2,031		)	(66		)	(1,965		)	(1,368		)	(2,031		)	663			(33	%)
Income from investments, net	1,882			429			1,453			3,128			1,882			1,246			66	%

OTHER EXPENSES:
Management fees⁽¹⁾	—			222			(222		)
General and administrative expenses	618			613			5			524			618			(94		)	(15	%)
Reimbursement of shared services expenses	370			375			(5		)	242			370			(128		)	(35	%)
Total expenses	988			1,210			(222		)
Total expenses⁽¹⁾										766			988			(222		)	(22	%)

Net income (loss)	$	894		$	(781	)	$	1,675
Net income										$	2,362		$	894		$	1,468		164	%

Weighted average common shares outstanding - basic and diluted	5,401			3,123			2,278			8,177			5,401			2,776			51	%

Net income (loss) per common share - basic and diluted	$	0.16		$	(0.25	)	$	0.41
Net income per common share - basic and diluted										$	0.29		$	0.16		$	0.13		81	%

⁽¹⁾

~~In June 2018, our~~Our Manager ~~agreed to waive~~has waived any base management or incentive fees otherwise due and payable ~~pursuant to~~by us under our management agreement ~~for~~through the period ~~beginning July 1, 2018 until June 30,~~ending December 31, 2020. If our Manager had not ~~agreed to waive~~waived these base management and incentive fees, we would have recognized $323 and $267 of base management fees for the three months ended June 30, 2020 and 2019, respectively, and $36 of incentive fees for the three months ended June 30, 2020. No incentive fees would have been paid or payable for the three months ended June 30, 2019.

Interest income from investments. The increase in interest income from investments ~~of $3,913~~ for the ~~three months ended June 30, 2019~~2020 period reflects interest earned on the 14 loans included in our loan portfolio at June 30, 2020, as compared to 12 loans included in our ~~investment portfolio. Interest income from investments of $495 in the three months ended~~loan portfolio at June 30, ~~2018 primarily consists of interest earned on~~2019, partially offset by a decline in average LIBOR rates for the ~~two loans that were included in our investment portfolio during~~2020 period as compared to the ~~three months ended June 30, 2018 and from the proceeds of our IPO and concurrent private placement.~~2019 period.

Interest and related expenses. The ~~increase~~decrease in interest and related expenses is a result of ~~interest expense incurred from borrowings made~~a decline in average LIBOR rates for the 2020 period as compared to the 2019 period, partially offset by higher outstanding advancements under our Master Repurchase ~~Facility and the TCB note payable which were used to finance the 12 loan originations discussed above.~~

~~Management fees.~~ The decrease in management fees is a result of our Manager agreeing to waive any base management fee otherwise due and payable pursuant to our management agreement for the period beginning July 1, 2018 until June 30, 2020.Facility.

General and administrative expenses. General and administrative expenses primarily include legal and audit fees, insurance, dues and subscriptions, Trustee fees, internal audit costs, share based compensation expense and ~~other~~ professional fees. General and administrative expenses decreased for the 2020 period as compared to the 2019 period as a result of decreases in share based compensation.

Reimbursement of shared services expenses. Reimbursement of shared services expenses represents ~~reimbursements~~reimbursement of the costs for the ~~costs~~services that our Manager arranges on our behalf from RMR LLC. Reimbursement of shared services expenses for the 2020 period declined as compared to the 2019 period due to our reduced usage of shared services resulting from our loan portfolio being fully invested.

Net ~~income (loss).~~income. The ~~realization of~~increase in net income for the ~~2019~~2020 period as compared to ~~net loss for~~ the ~~2018~~2019 period is due to the changes noted above.

Six Months Ended June 30, ~~2019~~2020 Compared to Six Months Ended June 30, ~~2018:~~2019:


	Six Months Ended June 30,									Six Months Ended June 30,
	2019			2018			Change			2020			2019			Change			% Change
INCOME FROM INVESTMENTS:
Interest income from investments	$	6,913		$	728		$	6,185		$	8,780		$	6,913		$	1,867		27	%
Less: interest and related expenses	(3,580		)	(103		)	(3,477		)	(3,125		)	(3,580		)	455			(13	%)
Income from investments, net	3,333			625			2,708			5,655			3,333			2,322			70	%

OTHER EXPENSES:
Management fees⁽¹⁾	—			447			(447		)
General and administrative expenses	1,121			1,158			(37		)	1,064			1,121			(57		)	(5	%)
Reimbursement of shared services expenses	740			750			(10		)	563			740			(177		)	(24	%)
Total expenses	1,861			2,355			(494		)
Total expenses⁽¹⁾										1,627			1,861			(234		)	(13	%)

Net income (loss)	$	1,472		$	(1,730	)	$	3,202
Net income										$	4,028		$	1,472		$	2,556		174	%

Weighted average common shares outstanding - basic and diluted	4,275			3,117			1,158			8,173			4,275			3,898			91	%

Net income (loss) per common share - basic and diluted	$	0.34		$	(0.55	)	$	0.89
Net income per common share - basic and diluted										$	0.49		$	0.34		$	0.15		44	%

⁽¹⁾

~~In June 2018, our~~Our Manager ~~agreed to waive~~has waived any base management or incentive fees otherwise due and payable ~~pursuant to~~by us under our management agreement ~~for~~through the period ~~beginning July 1, 2018 until June 30,~~ending December 31, 2020. If our Manager had not ~~agreed to waive~~waived these base management and incentive fees, we would have recognized $643 and $490 of base management fees for the six months ended June 30, 2020 and 2019, respectively, and $36 of incentive fees for the six months ended June 30, 2020. No incentive fees would have been paid or payable for the six months ended June 30, 2019.

Interest income from investments. The increase in interest income from investments ~~of $6,913~~ for the six months ended June 30, ~~2019~~2020 reflects interest earned on the 14 loans included in our loan portfolio at June 30, 2020, as compared to 12 loans included in our ~~investment portfolio. Interest income from investments of $728~~loan portfolio at June 30, 2019, partially offset by a decline in average LIBOR rates for the six months ended June 30, ~~2018 primarily consists of interest earned on the proceeds of our IPO and concurrent private placement and interest for the two loans closed in~~2020 as compared to the six months ended June 30, ~~2018.~~2019.

Interest and related expenses. The ~~increase~~decrease in interest and related expenses is a result of ~~interest expense incurred from borrowings made~~a decline in average LIBOR rates for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 partially offset by higher outstanding advancements under our Master Repurchase ~~Facility and the TCB note payable which were used to finance the 12 loan originations discussed above.~~

General and administrative expenses. General and administrative expenses ~~primarily include legal and audit fees, insurance, dues and subscriptions, Trustee fees, internal audit costs,~~decreased for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 as a result of decreases in share based compensation expense and other professional fees. The decrease in general and administrative expenses reflects higher legal and other professional fees in 2018 resulting from our first year as a public company.compensation.

Reimbursement of shared services ~~expenses.~~ expenses. Reimbursement of shared services expenses ~~represents reimbursements~~ for the ~~costs~~six months ended June 30, 2020 declined as compared to the six months ended June 30, 2019 due to our ~~Manager arranges on~~reduced usage of shared services resulting from our ~~behalf from RMR LLC.~~loan portfolio being fully invested.

Net ~~income (loss).~~income. The ~~realization of~~increase in net income for the ~~2019 period~~six months ended June 30, 2020 as compared to ~~net loss for~~ the ~~2018 period~~six months ended June 30, 2019 is due to the changes noted above.

Our results of operations for the three and six months ended June 30, 2019 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.

Non-GAAP Financial Measures

We present Core Earnings, ~~(Loss)~~ which is considered a “non-GAAP financial measure” within the meaning of the applicable SEC rules. Core Earnings ~~(Loss)~~ does not represent net income ~~(loss)~~ or cash generated from operating activities and should not be considered as an alternative to net income ~~(loss)~~ determined in accordance with GAAP or an indication of our cash flows from operations determined in accordance with GAAP, a measure of our liquidity or operating performance or an indication of funds available for our cash needs. In addition, our methodology for calculating Core Earnings ~~(Loss)~~ may differ

from the methodologies employed by other companies to calculate the same or similar supplemental performance measures; therefore, our reported Core Earnings ~~(Loss)~~ may not be comparable to the core earnings ~~(loss)~~ as reported by other companies.

We believe that Core Earnings ~~(Loss)~~ provides meaningful information to consider in addition to net income and cash flows from operating activities determined in accordance with GAAP. This measure helps us to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan

portfolio and operations. In addition, Core Earnings ~~(Loss)~~ is used in determining the amount of ~~business~~base management and incentive fees payable by us to our Manager under our management agreement.

Core Earnings ~~(Loss)~~

We calculate Core Earnings ~~(Loss)~~ as net income, ~~(loss),~~ computed in accordance with GAAP, including realized losses not otherwise included in net income ~~(loss)~~ determined in accordance with GAAP, and excluding: (a) the incentive fees earned by our Manager (if any); (b) depreciation and amortization (if any); (c) non-cash equity compensation expense; (d) unrealized gains, losses and other similar non-cash items that are included in net income ~~(loss)~~ for the period of the calculation (regardless of whether such items are included in or deducted from net income ~~(loss)~~ or in other comprehensive income ~~(loss)~~ under GAAP) (if any); and (e) ~~one time~~one-time events pursuant to changes in GAAP and certain non-cash items (if any).

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Reconciliation of Net Income (Loss) to Core Earnings (Loss): ⁽²⁾

Net income (loss) $ 894
$ (781 ) $ 1,472
$ (1,730 )
Non-cash equity compensation expense 185
203
220
231
Core Earnings (Loss) $ 1,079
$ (578 ) $ 1,692
$ (1,499 )

Weighted average common shares outstanding - basic and diluted 5,401
3,123
4.275
3,117

Core Earnings (Loss) per common share - basic and diluted $ 0.20
$ (0.19 ) $ 0.40
$ (0.48 )



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Reconciliation of Net Income to Core Earnings:
Net income	$	2,362	$	894	$	4,028	$	1,472
Non-cash equity compensation expense	71		185		113		220
Core earnings	$	2,433	$	1,079	$	4,141	$	1,692

Weighted average common shares outstanding - basic and diluted	8,177		5,401		8,173		4,275

Core earnings per common share - basic and diluted	$	0.30	$	0.20	$	0.51	$	0.40

Factors Affecting Operating Results

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

Credit Risk. We are subject to the credit risk of our borrowers in connection with our investments. We seek to mitigate this risk by utilizing a comprehensive underwriting, diligence and investment selection process and by ongoing monitoring of our investments. Nevertheless, unanticipated credit losses could occur that could adversely impact our operating results. For further information regarding the risks associated with our loan portfolio, see the risk factors identified in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q and the risk factors identified in Part I, Item IA, "Risk Factors" of our Annual Report.

Changes in Fair Value of our Assets. We generally hold our investments for their contractual ~~terms.~~terms, unless repaid earlier by the borrower. We evaluate our investments for impairment quarterly. Impairments occur when it is probable that we will not be able to collect all amounts due according to the applicable contractual terms. If we determine that a loan is impaired, 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 hold our 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 condensed consolidated balance sheets, with changes in fair value recorded through earnings. Fees received from our borrowers on any loans held for sale will be recognized as part of the gain or loss on sale. We do not currently expect to hold any of our investments for trading purposes.

For further information regarding the risks associated with our loan portfolio, see the risk factors identified in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q and the risk factors identified in Part I, Item IA, "Risk Factors" of our Annual Report.

Availability of Leverage and Equity. We use leverage to make additional investments that may increase our returns. We may not be able to obtain the expected amount of leverage we desire or its cost may exceed our expectation and, consequently, the returns generated from our investments may be reduced. ~~To continue~~In order to grow our loan portfolio, ~~of investments,~~ we ~~may also seek~~will need to ~~raise~~obtain additional ~~equity~~ capital. However, our access to additional ~~equity~~ capital depends on many factors including the price at which our common shares trade relative to their book value and wemarket lending conditions. See " —Market Conditions" below. We have experienced and may continue to experience challenges raising equity capital in the future.

Market Conditions. ~~Under current market conditions, we believe that we will be able~~Prior to ~~identify additional attractive financing opportunities by continuing to focus on middle market and transitional~~the COVID-19 pandemic, CRE transaction volumes were increasing, driving demand for CRE loans. ~~We believe that there continues to be strong demand for~~In 2019, alternative ~~sources of CRE debt capital. The decrease in traditional CRE debt providers, such as banks~~

~~and insurance companies, is a primary reason borrowers are seeking alternative sources of debt, particularly in middle market and transitional situations. Alternative CRE~~ lenders, like us, ~~generally are able~~had gained considerable market share and loan pricing had begun to ~~operate with fewer regulatory constraints than traditional~~stabilize. The COVID-19 pandemic has had a severe impact on the CRE debt ~~providers,~~markets due to the decline in the economy and the uncertainty of future economic conditions. Since late March 2020, there have been sharp declines in real estate transaction volume and the availability of liquidity provided by traditional lending sources such as banks and ~~insurance companies. This allows~~commercial mortgage backed securities, or CMBS. The reduced supply of liquidity has caused an increase in credit spreads on recently issued, 10-year, investment grade CMBS, which not only increased the pricing for investments funded with debt but also increased pricing on lending sources, such as credit facilities, used to leverage such investments. Since late April 2020, market volatility has declined significantly, and CMBS loan spreads have somewhat stabilized, but are still trending substantially wider than before the COVID-19 pandemic. In addition, there have been signs of increased activity in the CMBS securitization market as lenders have begun to aggregate new loans for securitization. However, the continued low level of CRE sale transactions and the curtailing of economic activities as a result of certain states imposing or reinstating restrictions on economic activities in response to increased COVID-19 infections poses additional challenges to the underwriting process, which may continue to cause alternative ~~CRE~~ lenders to ~~create customized solutions~~refrain from providing new loans in the short term.

Many alternative lenders appear to ~~fit borrowers’ specific business plans for~~currently be unable or unwilling to lend due to the decline in the economy and the uncertainty of future economic conditions, as well as additional financial burdens related to margin calls by repurchase and credit facility lenders resulting from decreased collateral ~~properties.~~value, increased borrowing costs or the loss of repurchase or credit facilities altogether. We believe that most alternative lenders finance properties with respect to which the borrowers have value enhancing business plans, which business plans can be challenging to evaluate in the current economic environment. Alternative lenders with significant exposure to retail and hospitality collateral have seen COVID-19 pandemic related travel and stay-at-home restrictions significantly negatively impact collateral performance and are in active dialogue with borrowers that are most significantly negatively impacted by the economic downturn. Alternative lenders that use mark-to-market repurchase facilities have been forced to cover margin calls due to volatility in pricing, regardless of the credit quality or performance of the loan collateral. Those alternative lenders that are not subject to these additional financial burdens or disproportionately negative impacts are cautiously evaluating new loan opportunities, but a lack of CRE sales volume has resulted in limited financing opportunities for those lenders that are able to deploy capital and increased competition for high quality loan opportunities.

We believe that, compared to 2008 through 2010, the CRE debt markets are better positioned to weather an economic downturn. Lenders with high exposure to hospitality and retail collateral will need to continue to closely monitor loan performance, but overall, lenders' disciplined underwriting standards during the period preceding the outbreak of the COVID-19 pandemic should help mitigate the impact. We believe that the increased government regulations imposed on banks and insurers in response to the last financial crisis generally have them better positioned for the current economic downturn. Furthermore, increased government regulation was a catalyst for the growth of the alternative lender segment of the CRE debt markets. Alternative lenders filled the void left by banks to provide financing to borrowers secured by properties with value enhancing and opportunistic business plans.

Despite the volatility and recent liquidity challenges impacting the CRE debt markets, we believe that the alternative lending market is well positioned for future growth, subject to the duration and severity of the current economic downturn. The hospitality and retail sectors have been significantly negatively impacted by the economic downturn, and loans secured by hospitality and retail collateral are expected to continue to be challenges for lenders with significant exposure to such collateral. It is unclear how consumer and travel habits will be impacted over the long term during and after the COVID-19 pandemic; if consumer and travel activity do not substantially rebound, we believe that this ~~flexibility affords~~uncertainty will continue to burden these sectors. In the near term, borrowing costs are likely to increase as banks and alternative lenders begin to increase lending activity and determine how to quantify and price risk in the midst of an economic recession. We believe that once the U.S. economy meaningfully improves and returns to a more stable state, there will be significant opportunities for alternative lenders, like us, to provide creative, flexible debt capital for a ~~competitive advantage over regulated traditional CRE debt providers, especially with regard to middle market and transitional CRE debt financing.~~

A significant amount of capital continues to be raised by alternative lenders. As new alternative CRE debt providers enter the marketplace and as existing alternative CRE debt providers increase their presence in the marketplace, borrowers are becoming more familiar with alternative CRE debt products and are choosing to utilize alternative CRE debt financing in a widerwide array of ~~circumstances. However, increased supply of alternative CRE debt capital has resulted in more competition for loans~~circumstances and applied downward pressure on loan credit spreads. Although LIBOR, the index rate upon which bridge loans are priced, has increased over 100 basis points during the last several years, there has been a net reduction in total borrowing costs as a result of reductions in loan fees and decreased loan credit spreads. We expect that the reductions in total borrowing costs will continue as it is widely expected that LIBOR will decrease in the future. To offset the reduction in loan credit spreads, some alternative CRE debt providers are considering construction and higher LTV loans to meet their investors’ return expectations. Because of this credit spread compression, borrowers are more frequently seeking alternative CRE debt financing for stabilized or near stabilized properties to take advantage of the flexibility offered by these loan structures. However, we believe many alternative lenders are targeting loan amounts in excess of $50,000 in major markets. We expect that our primary focus will continue to be originating and investing in floating rate first mortgage whole loans of less than $50,000.business plans.

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

Conversely, decreases in interest rates, in general, may cause: (a) the interest expense associated with our variable rate borrowings, if any, to decrease; (b) the value of our fixed rate investments, if any, to increase; (c) ~~coupons~~the coupon rates 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~~it to become easier and more

affordable ~~positively impacting~~for our ~~borrowers' ability~~borrowers to refinance, and as a result repay, our loans, but may negatively impact our future returns if any such repayment proceeds were to be reinvested in lower yielding investments.

The interest income on our loans and interest expense on our borrowings float with one month LIBOR. Because we generally ~~lever~~leverage approximately 75% of our investments, as LIBOR increases, our income from investments, net of interest and related expenses, will increase. LIBOR decreases are mitigated by interest rate floor provisions in our loan agreements with borrowers; therefore, changes to income from investments, net, may not move proportionately with the decrease in LIBOR.

LIBOR is currently expected to be phased out in 2021. We do not know what standard, if any, will replace LIBOR if it is phased out. We currently expect that, as a result of any phase out of LIBOR, the interest rates under our loan agreements with borrowers would be revised as provided under the agreements or amended as necessary to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR. In addition, we currently expect that the interest rates we pay under our Master Repurchase Facility and any other then existing debt financing arrangements would be similarly revised as provided under the agreement or amended as necessary for that same purpose.

Size of Portfolio. The size of our loan portfolio, ~~of investments,~~ as measured both by the aggregate principal balance and the number of our CRE loans and our other investments, is also an important factor in determining our operating results. Generally, asif the size of our loan portfolio ~~continues to grow,~~grows, the amount of interest income we receive ~~will~~would increase and we may achieve certain economies of scale and diversify risk within our ~~portfolio of investments.~~loan portfolio. A larger portfolio, however, may result in increased expenses; for example, we may incur additional interest expense or other costs to finance our investments. Also, if the aggregate principal balance of our loan portfolio ~~continues to grow~~grows but the number of our loans or the number of our borrowers does not grow, we could face increased risk by reason of the concentration of our investments. At this time, we are focused on managing our current loan ~~portfolio and funding distributions to our shareholders.~~portfolio. We believe our growth is limited by our ability to access ~~accretive~~additional cost-effective capital.

~~Liquidity and Capital Resources~~LIQUIDITY AND CAPITAL RESOURCES (dollars in thousands, except per share amounts)

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to fund our lending commitments, repay or meet margin calls resulting from our borrowings, fund and maintain our assets and operations, make distributions to our shareholders and fund other business operating requirements. We require a significant amount of cash to originate, purchase and invest in our target investments, make additional unfunded loan commitment payments, repay principal and interest on our borrowings, make distributions to our shareholders and fund other business operating requirements. We have been limited in our ability to access capital and, as a result, we have limited capital to invest. The long-term impact of the COVID-19 pandemic and its aftermath on financial markets is uncertain. To the extent that impact is sustained for an extended period, we expect that we will be further challenged in accessing capital. Our sources of cash flows ~~may~~ include payments of principal, interest and fees we receive on our investments, other cash ~~generated~~we may generate from our ~~operating results~~business and operations and any unused borrowing capacity, including under our Master Repurchase Facility ~~the TCB note payable~~ or other repurchase agreements or financing arrangements, and may also include bank loans or public or private issuances of debt or equity securities. We believe that these sources of funds will be sufficient to meet our operating and capital expenses and pay our debt service obligations owed and make any distributions to our shareholders for the next 12 months and for the foreseeable future, subject to the duration and severity of the COVID-19 pandemic and economic impact on our borrowers and their ability to fund their debt service obligations owed to us. For further information regarding the risks associated with our loan portfolio, see the risk factors identified in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q and the risk factors identified in Part I, Item IA, "Risk Factors" of our Annual Report.

Pursuant to our Master Repurchase Agreement, we may sell to, and later repurchase from, Citibank floating rate mortgage loans and other related assets, or purchased assets. 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. As of June 30, 2020, the maximum amount available for advancement under our Master Repurchase Facility was $213,482, of which we had a $201,138 aggregate outstanding principal balance, and the weighted average interest rate of advancements under our Master Repurchase Facility was 2.97% for the six months ended June 30, 2020. Our Master Repurchase Facility is scheduled to expire on November 6, 2021. For further information regarding our Master Repurchase Facility, see Note 5 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I Item 1 of this Quarterly Report on Form 10-Q and "—Overview-Financing Activities" above.

The following is a summary of our sources and uses of cash flows for the periods presented (dollars in thousands):



	Six Months Ended June 30,
	2020			2019
Cash, cash equivalents and restricted cash at beginning of period	$	8,875		$	27,335
Net cash provided by (used in):
Operating activities	2,931			805
Investing activities	(34,805		)	(122,431		)
Financing activities	33,632			105,758
Cash, cash equivalents and restricted cash at end of period	$	10,633		$	11,467

Cash Provided by ~~(Used in)~~ Operating Activities

During the six months ended June 30, 2020, net cash provided by operating activities of $2,931 was primarily due to our net income for the period and favorable changes in working capital from amounts due to our Manager accrued but not yet paid, partially offset by unfavorable changes in working capital primarily due to interest income accrued and not yet received and expenses paid in the period but accrued in previous periods.

During the six months ended June 30, 2019, net cash provided by operating activities of $805 was primarily due to our net income for the period, partially offset by unfavorable changes in working capital primarily due to interest income accrued and not yet received.

~~Net cash used~~Cash Used in ~~operating activities of $1,663 during~~Investing Activities

During the six months ended June 30, ~~2018 was due to~~2020, net cash used in investing activities consisted of $25,738 of loan originations, net of deferred fees, and $9,067 of additional fundings on our ~~net loss~~loans held for ~~the period and payments made to our Manager under our management agreement, partially offset by favorable changes in working capital primarily due to amounts accrued but not yet paid.~~

~~Cash Used in Investing Activities~~investment.

During the six months ended June 30, 2019, net cash used in investing activities consisted of $119,062 of loan originations, net of deferred fees, ~~received on our loans held for investment,~~ and $3,369 ~~of additional fundings on our loans held for investment.~~

~~During the six months ended June 30, 2018, net cash used in investing activities consisted of $28,203 of loan originations, net of deferred fees received on our loans held for investment, and $221~~ of additional fundings on our loans held for investment.

Cash Provided by ~~(Used in)~~ Financing Activities

During the six months ended June 30, 2020, our cash provided by financing activities primarily consisted of $35,602 of advancements under our Master Repurchase Facility, partially offset by distributions paid to our shareholders.

During the six months ended June 30, 2019, our cash flows provided by financing activities ~~primarily~~ consisted of $92,983 of advancements under our Master Repurchase Facility, $14,220 of borrowings under the RMR Credit Agreement and $26,074 of net proceeds from the issuance and sale of our common shares in an underwritten public offering, or the ~~Offering.~~Offering, partially offset by distributions paid to our shareholders. We used the Offering proceeds to repay the ~~approximate~~ $14,220 balance then outstanding under the RMR Credit Agreement and to reduce borrowings under our Master Repurchase Facility by approximately $11,900.

As of June 30, 2020, we have fully committed the capital available to us. Our ability to obtain additional financing advancements under our Master Repurchase Facility is contingent upon our making additional fundings to our existing borrowers or our ability to effectively reinvest any additional capital, including any loan repayment proceeds, that we may obtain or receive. However, we cannot be sure that we will be able to obtain additional capital or additional financing advancements under our Master Repurchase Facility. It may take an extended period for us to reinvest any additional capital we may receive, and any reinvestments we may be able to make may not provide us with similar returns or comparable risks as those of our current investments.

Distributions

During the six months ended June 30, ~~2018, our cash flows used in financing activities consisted of $770 of deferred financing cost payments related~~2020, we paid quarterly distributions to our ~~Master Repurchase Facility.~~

~~On February 21, 2019, we paid a distribution of $0.11~~shareholders aggregating $1,895, or $0.23 per common share, ~~or $350. This distribution was paid to shareholders of record as of the close of business on January 28, 2019,~~ using cash on hand. For further information regarding distributions, see Note 7 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

~~On May~~In order to preserve our near term capital due to the economic downturn and uncertainty as to future economic conditions as a result of the COVID-19 pandemic, beginning with the first quarter of 2020, we reduced our quarterly distribution rate payable to our common shareholders to $0.01 per share and on July 16, ~~2019, we paid~~2020, declared a quarterly distribution payable to our common shareholders of $0.01 per share for the second quarter of 2020.

Our Board of Trustees will continue to monitor our financial performance and economic outlook as the year progresses to determine a prudent level for any subsequent quarterly distributions for 2020 or to declare and pay a distribution ~~of $0.22 per common share, or $702. This distribution was paid~~required to ~~shareholders of record~~maintain our qualification for taxation as ~~of the close of business on April 29, 2019, using cash on hand.~~

~~On July 18, 2019, we declared~~ a ~~distribution of $0.22 per common share, or approximately $1,802, to shareholders of record on July 29, 2019.~~REIT. We currently expect ~~to pay this distribution on or about August 15, 2019.~~

As of June 30, 2019, we had $6,000 available for immediate investment, which together with our then available borrowing capacity under our Master Repurchase Facility, is expected to provide us with approximately $22,000 available for investment in new first mortgage whole loans. Any further investments would require us to obtain additional equity or debt capital. We cannot be sure that we ~~would be able~~will need to ~~obtain~~make an increased distribution in the future to maintain our qualification for taxation as a REIT for 2020. However, any ~~such additional equity or debt capital.~~future distributions are subject to the approval of our Board of Trustees.

Contractual Obligations and Commitments

Our contractual obligations and commitments as of June 30, ~~2019~~2020 were as follows:


	Payment Due by Period										Payment Due by Period
	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 years		Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 years
Unfunded loan commitments⁽¹⁾	$	21,879	$	—	$	21,879	$	—	$	—	$	17,566	$	3,415	$	14,151	$	—	$	—
Principal payments on Master Repurchase Facility ⁽²⁾	153,666		—		153,666		—		—
Principal payments on TCB note payable⁽²⁾	31,690		—		31,690		—		—
Principal payments on master repurchase facility ⁽²⁾											201,138		29,680		171,458		—		—
Interest payments ⁽³⁾	17,332		8,369		8,963		—		—		5,142		3,864		1,278		—		—
	$	224,567	$	8,369	$	216,198	$	—	$	—	$	223,846	$	36,959	$	186,887	$	—	$	—


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


⁽²⁾	The allocation of outstanding ~~borrowings~~advancements under our Master Repurchase ~~Facility and the TCB note payable~~Agreement is based on the current maturity date of each loan investment with respect to which the individual borrowing ~~under the respective agreement.~~relates.


⁽³⁾	Projected interest expense is attributable to only our debt service obligations at existing rates as of June 30, ~~2019~~2020 and is not intended to estimate future interest costs which may result from debt prepayments, additional borrowings, new debt issuances or changes in interest rates.

Off-Balance Sheet Arrangements

As of June 30, ~~2019,~~2020, 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

Our principal debt obligations at June 30, ~~2019~~2020 were ~~borrowings~~the outstanding balances under our Master Repurchase ~~Agreement and the TCB note payable.~~

In connection with our Master Repurchase Agreement, 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 our Master Repurchase Agreement. This guaranty also requires us to comply with customary financial covenants, which include the maintenance of a minimum tangible net worth, minimum cash liquidity, a total indebtedness to tangible net worth ratio and a minimum interest coverage ratio.Facility. Our Master Repurchase Agreement provides for acceleration of the date of repurchase of any then 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 to be a wholly owned subsidiary of RMR LLC. Our Master Repurchase Agreement also provides that upon the repurchase of any then purchased asset, we are required to pay Citibank the outstanding purchase price of such purchased asset and accrued interest and any and all accrued and unpaid expenses of Citibank relating to such purchased asset.

In connection with ~~the TCB note payable,~~our Master Repurchase Agreement, we entered into ~~a guaranty with Texas Capital Bank pursuant~~the Guaranty, which requires us to ~~which we have guaranteed~~guarantee 25% of our subsidiary's prompt and complete payment of the ~~TCB note payable amount plus all~~purchase price, purchase price differential and any costs and expenses of Citibank related ~~interest and costs. This guaranty~~to our Master Repurchase Agreement. The Guaranty also requires us to comply with customary financial covenants, which include the maintenance of a minimum tangible net worth, minimum ~~liquid assets,~~cash liquidity, a ~~maximum leverage~~total indebtedness to tangible net worth ratio and a ~~required debt yield. The TCB note payable provides for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of customary events of default.~~ minimum interest coverage ratio.

As of June 30, ~~2019,~~2020, we had a $201,138 aggregate outstanding principal balance under our Master Repurchase Facility. In light of the impact of the COVID-19 pandemic, we continue to actively engage with Citibank regarding our liquidity position and the status of the loans in our portfolio that are financed under our Master Repurchase Facility. Our Master Repurchase Agreement is structured with risk mitigation mechanisms, including a cash flow sweep, which would allow Citibank to control interest payments from our borrowers under our loans that are financed under our Master Repurchase Facility, and the ability to accelerate dates of repurchase and institute margin calls, which may require us to pay down balances associated with one or more of our loans that are financed under our Master Repurchase Facility. As of June 30, 2020, we believe we were in compliance with ~~the terms and conditions of~~all the covenants ofand other terms under our Master Repurchase Agreement and, ~~the TCB note payable and the related guarantees.~~

~~In July 2019, we received repayment notices with respect~~ to ~~two of our loans held for investment stating that the loans would be repaid in August 2019. At the time of notice, there was approximately $53,600 of aggregate principal amount outstanding~~date, Citibank has not utilized any such risk mitigation mechanisms under these loans which the borrowers are required to pay, together with the applicable accrued interest, an exit fee and any expenses incurred by us with respect to the applicable loan. When these loans are repaid, we will be required to repay the associated outstanding balances under the TCB note payable and our Master Repurchase ~~Facility.~~Agreement.

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: 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; our Manager is our largest shareholder and, at June 30, ~~2019,~~2020, owned approximately ~~19.5%~~19.4% of our outstanding common shares; RMR Inc. is the managing member of RMR LLC; Adam 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., and he is also a director of our Manager, a managing director and the president and anchief executive officer of RMR Inc., and an ~~executive~~ officer and employee of RMR LLC; David M. Blackman, our other Managing Trustee and our President and Chief Executive Officer, also serves as the president, chief executive officer and a director of our Manager and is an ~~executive~~ officer and employee of RMR LLC; and each of our other officers is also an officer and/or employee of our Manager or RMR LLC. In addition, other companies to which RMR LLC or its subsidiaries provide management services have trustees, directors and officers some of whom are also trustees, directors or officers of us, our Manager, RMR LLC or RMR Inc. and some of our Trustees and officers serve as trustees, directors or officers of these companies.

For further information about these and other such relationships and related person transactions, see Notes 8 and 9 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our ~~2018~~ Annual Report, our definitive Proxy Statement for our ~~2019~~2020 Annual Meeting of Shareholders and our other filings with the SEC. In addition, see the section captioned “Risk Factors” of our ~~2018~~ 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 our 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. We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.

Item 3. Quantitative and Qualitative Disclosures About Market Risk ~~(dollars~~(dollars in thousands, except per share data)

We believe that our business is exposed to two principal market risks: (a) changes in the level of economic activity in the U.S. economy generally or in geographic areas where the properties that are the subject of our real estate investments are located; and (b) changes in market interest rates.

Changes in the general economy may impact the ability and willingness of our borrowers to pay interest on and repay principal of our loans. A U.S. recession or a slowing of economic activity, including as a result of the COVID-19 pandemic, in ~~areas~~the markets where the underlying collateral for our loans are located may cause our borrowers to default or may cause the value of ~~our loan~~the collateral to decrease and be ~~reduced below~~less than the ~~amounts we are owed.~~outstanding amount of the loan. To mitigate these market risks, when evaluating a potential investment, we perform thorough diligence on the value of ~~our~~the proposed collateral, ~~properties and of properties~~including as compared to comparable ~~to our~~ collateral ~~properties~~ in the ~~areas where our collateral properties are located~~same market, and on the historical business practices and credit worthiness of our borrowers and their ~~affiliates. We~~affiliates, as well as compare our borrowers' proposed business plans for and projected income from the proposed collateral to our expectations ~~for~~regarding the ~~economy~~market conditions of the geographic area where ~~our~~the collateral ~~properties are~~is located and ~~regarding~~ the potential for future income ~~potential of~~from the ~~specific collateral properties. We also~~collateral. In addition, with respect to our existing loans, we continuously monitor the credit quality and performance of our borrowers and loan collateral, ~~properties. Nonetheless, no amount of diligence, no matter how extensive, detailed~~ and ~~well informed it~~we structure our loans with risk mitigation mechanisms, such as cash flow sweeps or interest reserves, to help protect us against investment losses. However, despite these risk mitigation efforts and measures, our borrowers may ~~be, can provide complete assurance against borrower defaults or against the deterioration of collateral values in declining market conditions.~~

~~As of June 30, 2019, the interest income~~default on our loans and/or the value of the underlying collateral may decrease significantly if market conditions decline or for other reasons. For further information regarding the risks associated with our loan portfolio, see the risk factors identified in Part II, Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q and ~~interest expense on our borrowings float with one month LIBOR. Because we generally lever approximately 75%~~the risk factors identified in Part I, Item IA, "Risk Factors" of our investments, as LIBOR increases our income from investments, net of interest and related expenses, will increase and as LIBOR decreases our income from investments, net of interest and related expenses, will decrease.Annual Report.

Floating Rate Investments

As of June 30, ~~2019,~~2020, our loans held for investment had an aggregate principal balance of ~~$260,488~~$278,484 and the weighted average maximum maturity of our ~~investment~~loan portfolio was ~~3.9~~3.1 years, assuming ~~full term extensions of~~ all ~~loans.~~borrower loan extension options have been exercised. All of our loans held for investment were made in U.S. dollars and earn interest at LIBOR plus a premium. Accordingly, we are exposed to interest rate risk for changes in U.S. dollar based short term rates, specifically LIBOR. As LIBOR decreases, our risk is partially mitigated by interest rate floor provisions in our loan agreements with borrowers. In addition, upon repayment from our borrowers we are vulnerable to decreases in interest rate premiums due to market conditions onat the time any ~~reinvestment of the~~such repayment proceeds ~~from the repayment.~~are reinvested.

Floating Rate Debt

At June 30, ~~2019,~~2020, our floating rate debt obligations consisted of ~~$153,666~~$201,138 in outstanding ~~borrowings~~advancements under our Master Repurchase ~~Facility, and $31,690 in outstanding advancements under the TCB note payable.~~

Facility. Our Master Repurchase Facility matures in November 2021, subject to early termination as provided for in our Master Repurchase Agreement. In July 2019, we received a repayment notice with respect to one of our loans held for investment associated with an office building located in Scarsdale, NY. When this loan is repaid, we will be required to repay the associated outstanding balance under our Master Repurchase Facility.

The TCB note payable matures in July 2021 and, subject to our payment of extension fees and meeting other conditions, we have the option to extend the stated maturity date for two, one year periods. In July 2019, we received a repayment notice with respect to the JFK loan. When the JFK loan is repaid, we will be required to repay the outstanding balance under the TCB note payable.

All of our floating rate debt was ~~made~~borrowed in U.S. dollars and ~~earns~~requires interest to be paid at a rate of LIBOR plus a premium. Accordingly, we are exposed to interest rate risk for changes in U.S. dollar based short term rates, specifically LIBOR. In addition, upon selling additional mortgage loans and other assets under our Master Repurchase Facility, we are vulnerable to increases in interest rate premiums due to market conditions or perceived credit characteristics of our borrowers.

The table below details the impact, ~~assuming~~based on our ~~existing investment~~current loan portfolio and ~~liabilities,~~debt outstanding at June 30, 2020, on our interest income and interest expense ~~for the 12 month period following June 30, 2019, assuming~~of an immediate increase or decrease of 100 basis points in LIBOR, the applicable interest rate benchmark:


	Principal Balance as of June 30, 2019			Interest Rate Per Year ⁽¹⁾	100 Basis Point Increase			100 Basis Point Decrease⁽³⁾			Principal Balance as of June 30, 2020			Interest Rate Per Year ⁽¹⁾	100 Basis Point Increase			18 Basis Point Decrease⁽³⁾
Assets (Liabilities) Subject to Interest Rate Sensitivity:
Loans held for investment	$	260,488		6.01%	$	2,605		$	(726	)	$	278,484		5.70%	$	—		$	—
Master repurchase facility	(153,666		)	4.43%	(1,537		)	1,537			(201,138		)	2.18%	(2,011		)	355
Note payable	(31,690		)	4.56%	(317		)	317
Total change in net income from investments					$	751		$	1,128						$	(2,011	)	$	355

Annual earnings per share impact ⁽²⁾					$	0.14		$	0.21						$	(0.25	)	$	0.04


⁽¹⁾	Weighted based on interest rates and principal balances as of June 30, ~~2019.~~2020.


⁽²⁾	Based on weighted average number of shares outstanding (diluted) for the three months ended June 30, ~~2019.~~2020.

⁽³⁾

Our loan agreements with borrowers include interest rate floor provisions which set a minimum LIBOR for each loan. We do not currently have ~~similar provisions in~~a LIBOR floor provision relating to any of the outstanding balances under our Master Repurchase ~~Agreement or the TCB note payable.~~Facility. As a result, if LIBOR decreases below the floor established for any of our investments, our income from investments will decrease less than our borrowing costs and the net amount may result in an increase in our net investment income. The above table illustrates the incremental impact on our annual income from investments, net, due to increases and decreases in LIBOR of 100 basis points, taking into consideration our borrowers' interest rate floors as of June 30, 2020. The 100 basis point increase in LIBOR used in the analysis above does not result in any increase in interest we would receive in our loans held for investment because the increased rate would not exceed the current interest rate floor provision. The 100 basis point decrease in LIBOR used in the analysis above has been limited in that analysis to 18 basis points to result in a LIBOR rate of 0.00%. The results are based on our current loan portfolio and debt outstanding at June 30, 2020. Any changes to the mix of our investments of debt outstanding could impact this interest rate sensitivity analysis and this illustration is not meant to forecast future results.

To mitigate the impact of future changes in market interest rates on our business, we require borrowers to pay floating interest rates to us rather than fixed interest rates on ~~a significant majority of~~ our loans held for investment and, to the extent that we use leverage to make investments, we will continue to "match index" certain investments with our debt or leverage obligations so that they create similar movements in interest rates based upon similar indexes and other terms. Furthermore, depending upon our beliefs regarding future market conditions affecting interest rates, we may purchase interest rate hedge instruments that allow us to change the character of interest receipts and debt service obligations owed to us from fixed to floating rates or the reverse.

LIBOR Phase Out

LIBOR is currently expected to be phased out in 2021. ~~We do not know what standard, if any, will replace LIBOR if it is phased out.~~All the agreements governing our loans held for investment require our borrowers, and under our Master Repurchase Facility we are required, to pay interest at floating rates based on LIBOR. Future agreements governing loans that we may make and debt that we may incur may also require interest to be paid at floating rates based on LIBOR. We currently expect that ~~as a result~~the determination of ~~any phase out of LIBOR, the~~ interest ~~rates~~ under ~~our loan~~such agreements would be revised as provided under such agreements or amended as necessary to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR. ~~In addition,~~Despite our current expectations, we ~~currently expect~~cannot be sure that, if LIBOR is phased out or transitioned, the changes to the determination of interest ~~rates we pay~~ under ~~our Master Repurchase Agreement and~~such agreements would approximate the ~~TCB note payable, as well as under~~current calculation in accordance with LIBOR. We do not know what standard, if any, ~~other then existing debt financing arrangements, would be similarly amended as necessary for that same purpose.~~will replace LIBOR if it is phased out or transitioned.

Item 4. Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of our President and 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 President and 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 June 30, ~~2019~~2020 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 Quarterly Report on Form 10-Q relate to various aspects of our business, including:

The duration and severity of the economic downturn resulting from the COVID-19 pandemic and its impact on us and our borrowers,

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

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

Our expectations regarding the diversity and other characteristics of our loan investment portfolio,

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

Our ~~operating~~expectations of the opportunities that will exist in the CRE debt market, including the middle market, when the U.S. economy improves and ~~investment targets, guidelines, investment and financing strategies and leverage policies,~~

~~The ability of our Manager~~returns to ~~locate suitable investments~~a more stable state for ~~us, monitor, service and administer our existing investments and implement our investment strategy,~~a sustained period,

Our ~~expected operating results,~~

~~The amount and timing of any cash flows we receive from~~ability to obtain additional capital to enable us to make additional investments or to increase our ~~investments,~~potential returns, including by using available leverage,

Our ability to pay distributions to our shareholders and to sustain the amount of ~~any~~ such distributions,

Our expectations as to the amount of capital we may be able to preserve as a result of reducing the distribution rate on our common shares,

Our operating and investment targets, investment and financing strategies and leverage policies,

Our expected operating results,

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

Our expectations regarding the impact of the COVID-19 pandemic on our borrowers and our financial condition,

The ability of our Manager to ~~obtain and maintain financing to enable~~locate suitable investments for us, to ~~use leverage~~monitor, service and administer our existing investments and to ~~make additional investments or to increase~~otherwise implement our ~~potential returns,~~investment strategy,

Our ability to maintain and increase the net interest spread between the interest we earn on our investments and the interest we pay on our borrowings,

The origination, extension, exit, prepayment or other fees we may earn from our investments,

Yields that may be available to us from mortgages on ~~specialized real estate,~~middle market and transitional CRE,

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

The credit qualities of our borrowers,

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

Our projected leverage,

The cost and availability of ~~financing~~additional advancements under our Master Repurchase Facility, or other debt financing under additional repurchase or bank facilities we may obtain from time to time, and our ability to obtain such additional debt financing,

Our qualification for taxation as a REIT,

Our expectation that we will need to make an increased distribution in the future to maintain our qualification for taxation as a REIT for 2020,

Our ability to maintain our exemption from registration under the Investment Company Act,

Our understanding of the competitive nature of our ~~competition~~industry and our ability to successfully compete under such circumstances,

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

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

Other matters.

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

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

Competition within the CRE lending industry,

Changes in the availability, sourcing and structuring of CRE lending,

Defaults by our borrowers,

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

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

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

Acts of terrorism, outbreaks of ~~so called~~ pandemics, including the COVID-19 pandemic, or other manmade or natural disasters beyond our control, and

Additional factors, including, but not limited to, those set forth in ~~the section captioned~~Part II, Item IA, "Risk Factors" inof this Quarterly Report on Form 10-Q and the risk factors identified in ~~the section captioned~~Part I, Item IA, "Risk Factors" inof our ~~2018~~ Annual Report.

For example:

We have a 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,

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

Beginning with the first quarter of 2020, we reduced our quarterly distribution rate on our common shares to ~~common shareholders is $0.22~~$0.01 per ~~share per quarter, or $0.88 per share per year.~~share. Our distribution rate is set and reset from time to time by our Board of Trustees. The timing, amount and form of future distributions iswill be determined at the discretion of our Board of Trustees and will depend upon various factors that our Board of Trustees deems relevant, including our historical and projected income, our Core Earnings, ~~(Loss),~~ the then-current and expected needs and availability of cash to pay our obligations and fund our investments, distributions which may be required to be paid by us to maintain our qualification for taxation as a REIT, limitations on distributions contained in our financing arrangements and other factors deemed relevant by our

Board of Trustees in its discretion. Therefore, we cannot be sure that we will ~~continue to pay~~resume paying distributions in the future at historic levels or that ~~the amount of any distributions we do pay will not decrease,~~

~~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 obtaining new equity or other financing sources. We cannot be sure that we would be successful~~increase distributions in ~~obtaining any such additional financing. If we are unable to obtain additional financing, we may not be able to further grow our investments and business,~~

As of June 30, 2019, we had $6,000,000 available for immediate investment, which, together with our then available borrowing capacity under our Master Repurchase Facility, is expected to provide us with approximately $22,000,000 available for investment in new first mortgage whole loans. However, our available borrowing capacity under our Master Repurchase Facility is subject to conditions. Therefore, we may have less than the currently expected amount available for additional investments. Further, it may take an extended period of time for us to reinvest any such amount, and any reinvestments we may make may not provide us with returns similar to those on our current investments or at comparable risks,future,

Competition may limit our ability to identify and make desirable investments with any additional capital we may obtain or with any proceeds we may receive from repayments of our investments,

Our belief that there ~~continues to~~will be strong demand for alternative sources of CRE debt capital when the U.S. economy improves and returns to a more stable state for a sustained period may not be ~~correct; further, any demand that now exists could be reduced. Reduced demand for alternative sources of CRE debt capital would further 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,correct,

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

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

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

Our actions to actively manage our investments to minimize the impact of the economic challenges imposed by the COVID-19 pandemic may not succeed or any success they may have may not help us avoid realizing negative impacts resulting from economic challenges imposed by the COVID-19 pandemic, including with respect to our liquidity and financial results,

Our engagement with Citibank, the lender under our Master Repurchase Facility, and our borrowers may not enable us to maximize our ability to collect interest and principal on our investments and minimize any actions that Citibank may take if our borrowers default or the value of any of the collateral underlying our loans declines below prescribed levels. These actions may not succeed or, any success they may have, may not prevent us from realizing negative impacts from the current business conditions, including with respect to our liquidity and financial results. Further, despite our active engagement with Citibank, Citibank may ultimately determine to utilize one or more of the risk mitigation mechanisms available to it under our Master Repurchase Agreement,

The risk mitigation mechanisms that apply to our investments may not adequately cover our borrowers' debt service amounts and the borrowers may not be able to fully fund their debt service obligations owed to us,

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

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

Our Manager's and RMR LLC's only experience managing or servicing a mortgage REIT is with respect to us, and we have a limited operating history,

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

~~Continued availability~~Although, as of ~~financing~~August 3, 2020, Citibank has not instituted cash sweeps on our accounts and we have not received a margin call under our Master Repurchase Facility, ~~and~~it may do so in the future in accordance with our ~~TCB note payable are~~Master Repurchase Agreement,

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

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

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

~~Our options~~As of June 30, 2020, we have fully committed the capital available to ~~extend the maturity date of the TCB note payable are subject to our payment of extension fees and meeting other conditions, but the applicable conditions may not be met,~~

us. Our ability to obtain additional financing advancements under our Master Repurchase Facility is contingent upon our making additional advancements to our existing borrowers or our ability to effectively ~~originate~~reinvest any additional ~~investments.~~capital, including any loan repayment proceeds, that we may obtain or receive. However, we cannot be sure that we will be able to ~~use~~obtain additional capital or additional financing advancements under our Master Repurchase ~~Facility~~Facility. It may take an extended period for us to reinvest any additional capital we may receive, and any reinvestments we may be able to make may not provide us with similar returns or comparable risks as ~~we expect or effectively originate additional~~those of our current investments, ~~in the near future or at all,~~

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

We believe that the market price for our common shares may need to increase to approximately book value for us to practically access additional capital in the public market. We believe this because of expected negative market reactions, among other reasons, if we were to complete an equity offering at a price that is below approximately book value. However, we are not prohibited from selling our common shares at less than book value and could do so if we determined it to be in our interests,

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

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

Our intention to remain exempt from registration under the Investment Company Act imposes limits on our operations, and we may fail to remain exempt from registration under the Investment Company Act, and

Our failure to 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 acts of terrorism, the COVID-19 pandemic, natural disasters or changes in capital markets or the economy generally.

The information contained elsewhere in this Quarterly Report on Form 10-Q and in our ~~2018~~ Annual Report or in our other filings with the SEC, including ~~under~~in the ~~caption~~section captioned “Risk Factors” herein or therein, 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, provide 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

Our business faces many risks, a number of which are described ~~under~~in the ~~caption~~section captioned “Risk Factors” in our ~~2018~~ Annual Report. The risks described in our ~~2018~~ Annual Report and below may not be the only risks we face. Other risks of which we are not yet aware, or that we currently believe are not material, may also materially and adversely impact our business operations or financial results. If any of the events or circumstances described in the risk factors contained in our ~~2018~~ Annual Report or described below ~~occurs,~~occur, our business, financial condition or results of operations could be adversely impacted and the value of an investment in our securities could decline. Investors and prospective investors should consider the risks described in our ~~2018~~ Annual Report and below, and the information contained ~~under~~in the ~~caption~~section captioned “Warning Concerning ~~Forward Looking~~Forward-Looking Statements” and elsewhere in this Quarterly Report before deciding whether to invest in our securities.

~~We may~~Our business, operations, financial results and liquidity could be materially adversely impacted by the COVID-19 pandemic, and it is not known what the duration of this pandemic will be or what its ultimate adverse impact on us and our business will be, but we expect it will be substantial.

COVID-19 has been declared a pandemic by the World Health Organization and, in response to the outbreak, the U.S. Health and Human Services Secretary has declared a public health emergency in the United States. COVID-19 has had a devastating impact on the global economy, including the U.S. economy, and has resulted in a global economic recession.

These conditions could materially and adversely impact our business, results of operations and liquidity. In addition, some of our borrowers and their tenants have ~~sufficient capital~~experienced substantial declines in their businesses and some of our borrowers have sought relief from us from their debt service obligations owed to ~~acquire all~~us, and we expect these declines and requests to continue or increase in the future. As a result of the ~~investments~~COVID-19 pandemic and restrictions implemented in response, there have been construction moratoriums and decreases in available construction workers and construction activity, including required inspectors and governmental personnel for permitting and other requirements. These conditions may prevent our borrowers from completing ongoing and planned construction projects and improving their properties that ~~we determine are attractive.~~

~~Our capital resources are limited~~secure our loans. As a result, borrowers may be unable to generate sufficient cash flow to make payments on or refinance our loans, and we may not recover some or all of our investment. We have, ~~sufficient~~as of August 3, 2020, provided relief to one of our borrowers who was in default during April 2020 but is no longer in default and we continue to actively engage in discussions with our borrowers to maximize our ability to collect interest and principal payments from them. We cannot be sure these efforts will succeed and, if the current economic conditions continue or worsen for a prolonged period, there is a significant risk that some of our other borrowers may default on their debt service obligations owed to us.

During economic recessions, real estate values typically decline, sometimes significantly. Declining real estate values may increase the likelihood that our borrowers will default on their debt service obligations owed to us and that we will incur losses as a result because the value of the collateral that secures our loans may then be less than the debt owed to us plus our costs of recovery. Further, if borrowers do not repay our loans or we realize amounts that are less than the amount of the investment plus our costs, our investment portfolio will reduce in size. In addition, if a borrower defaults on our loan and we take actions related to the collateral securing that loan, we may be delayed for an extended period of time on converting that collateral to investable cash, which would impair our ability to redeploy that capital and grow our portfolio.

We have been limited in our ability to access capital and, as a result, we have limited capital to ~~acquire investments~~invest. The long-term impact of the COVID-19 pandemic and its aftermath on financial markets is uncertain. To the extent that impact is sustained for an extended period, we expect that we ~~determine are attractive. This could limit~~will be further challenged in accessing capital. As a result, our ability to grow our business and investment portfolio ~~including~~may be limited for an indefinite period.

In addition, we believe that the risks associated with our investments will increase during periods of economic slowdown or recession, especially if these periods are accompanied by ~~pursuing opportunities currently available~~declining real estate values. Consequently, our investment strategy may be adversely affected by a prolonged economic downturn or recession related to the COVID-19 pandemic where declining real estate values would likely reduce the level of new mortgage and other real estate related loan originations since borrowers often use the appreciation in ~~our loan origination pipeline, and~~the value of their existing properties to support the purchase or investment in additional properties. Any sustained period of increased payment delinquencies, foreclosures or losses resulting from the impact of the COVID-19 pandemic would adversely affect our ability to ~~sustain~~originate or ~~increase~~acquire loans, which would materially and adversely affect our ~~distribution rate. Our ability to further grow our portfolio over time will depend, to a significant degree, upon~~results of operations, financial condition, liquidity and business and our ability to ~~access additional equity and debt capital.~~ make or sustain distributions to our shareholders.

We cannot predict the extent and duration of the COVID-19 pandemic or the severity and duration of its economic impact, but we expect it will be ~~sure~~substantial. Potential consequences of the current unprecedented measures taken in response to the spread of COVID-19 and the current market disruptions and volatility affecting us include, but are not limited to:

the current low market price of our common shares may continue for an indefinite period and could decline further;

possible significant declines in the value of our portfolio;

our inability to accurately or reliably value our portfolio;

our inability to comply with financial covenants that could result in our defaulting under our Master Repurchase Agreement;

our maintaining the current reduced rate of distributions on our common shares for an extended period of time or suspending our payment of distributions entirely;

our failure to pay interest and principal when due on our outstanding debt, which would result in events of default under our Master Repurchase Facility and our possible loss of our Master Repurchase Facility;

our inability to access debt and equity capital on attractive terms, or at all;

increased risk of default or bankruptcy of our borrowers;

increased risk of our borrowers being unable to weather an extended cessation of normal economic activity and thereby impairing their ability to continue functioning as going concerns and to pay their debt service obligations owed to us;

our and our borrowers’ inability to operate our businesses if the health of our respective management personnel and other employees is affected, particularly if a significant number of individuals are impacted; and

reduced economic demand resulting from mass employee layoffs or furloughs in response to governmental action taken to slow the spread of COVID-19, which could impact the continued viability of our borrowers.

Further, the extent and strength of any economic recovery after the COVID-19 pandemic abates, including following any "second wave" or other intensifying of the pandemic, is uncertain and subject to various factors and conditions. Our business, operations and financial position may continue to be negatively impacted after the COVID-19 pandemic abates and may remain at depressed levels compared to prior to the outbreak of the COVID-19 pandemic and those conditions may continue for an extended period.

We reduced our quarterly distribution rate on our common shares to $0.01 per share; future distributions may remain at this level for an indefinite period, subject to applicable REIT tax requirements, or be eliminated and the form of payment could change.

Beginning with the first quarter of 2020, we reduced our quarterly distribution rate on our common shares to $0.01 per share. We currently intend to continue to make quarterly distributions to our shareholders at this rate, subject to applicable REIT tax requirements. However:

our ability to make or sustain the rate of distributions may continue to be adversely affected by the negative impact of the COVID-19 pandemic and its aftermath on our business, results of operations and liquidity;

our making of distributions is subject to restrictions contained in our Master Repurchase Agreement and may be subject to restrictions in future debt service obligations we may incur; during the continuance of any event of default under our Master Repurchase Agreement, we may be limited or in some cases prohibited from making distributions to our shareholders; and

our distribution rate is set and reset from time to time by our Board of Trustees. The timing, amount and form of future distributions will be determined at the discretion of our Board of Trustees and will depend upon various factors that our Board of Trustees deems relevant, including our historical and projected income, our Core

Earnings, the then-current and expected needs and availability of cash to pay our obligations and fund our investments, distributions which may be required to be paid to maintain our qualification for taxation as a REIT, limitations on distributions contained in our financing arrangements and other factors deemed relevant by our Board of Trustees in its discretion. Accordingly, future distribution rates may be increased or decreased and there is no assurance as to the rate at which future distributions will be paid.

For these reasons, among others, our distribution rate may not increase for an indefinite period and could be eliminated.

In order to preserve liquidity, we may elect to pay distributions to our shareholders, in part, in a form other than cash, such as issuing additional common shares of ours to our shareholders, as permitted by the applicable tax rules.

Some of our borrowers have requested relief from their debt service obligations owed to us in response to the current economic conditions resulting from the COVID-19 pandemic and we expect to receive additional similar requests in the future; we may determine to grant relief in response to these requests in the future if we determine it prudent or appropriate to do so.

The current economic conditions resulting from the COVID-19 pandemic have significantly negatively impacted some of our borrowers’ businesses, operations and liquidity. Some of our borrowers have requested relief from their debt service obligations owed to us. As of August 3, 2020, we have provided one borrower with relief in the form of an increase to the interest reserve balance that may be used to make interest payments. We expect to receive additional similar requests in the future, and we may determine to grant relief in the future if we determine it prudent or appropriate to do so. In addition, if our borrowers are unable to continue as going concerns as a result of the current economic conditions or otherwise, we may incur losses of all or some of our loan investments to them, including if the collateral securing our loans less our costs of recovery are less than the defaulted amounts.

Our Master Repurchase Agreement requires, and the agreements governing any additional repurchase facilities, bank credit facilities or debt arrangements that we may enter into will ~~have access~~likely require, us to ~~such equity~~provide additional collateral or pay down debt.

Our Master Repurchase Facility, or other repurchase or bank credit facilities (including term loans and revolving facilities) or debt ~~capital~~arrangements that we may enter into to finance investments, may involve the risk that the value of the investments sold by us or pledged to the provider of such repurchase or other bank credit facilities or debt arrangements may decline, and, in such circumstances, we would likely be required to provide additional collateral or to repay all or a portion of the funds advanced thereunder. With respect to our Master Repurchase Facility, subject to certain conditions, Citibank has sole discretion to determine the market value of the investments that serve as collateral under the facility for purposes of determining whether we are required to pay margin to Citibank. Where a decline in the value of collateral, including as a result of the impact of COVID-19 pandemic, results in a margin deficit, Citibank may require us to eliminate that margin deficit through a combination of purchased asset repurchases and cash transfers to Citibank, subject to Citibank's approval. We may not have funds available to eliminate any such margin deficit and may be unable to raise funds from alternative sources on favorable terms ~~at the desired times,~~ or at all, which ~~may cause us~~would likely result in a default under our Master Repurchase Agreement. In the event of any such default, Citibank could accelerate our outstanding debts and terminate our ability to ~~reduce or suspend~~obtain additional advancements under our ~~investment activities or dispose of assets at an inopportune time or price, which could negatively affect~~Master Repurchase Facility, and our financial condition and ~~results of operations.~~prospects would be materially and adversely affected. Any debt arrangements that we may enter into in the future ~~debt financing could be costly and require a large portion~~would likely contain similar provisions. In addition, if any of our current or future lenders file for bankruptcy or become insolvent, our investments that serve as collateral under the applicable repurchase or other bank credit facilities or debt arrangement may become subject to bankruptcy or insolvency proceedings, thus depriving us, at least temporarily, of the benefit of those assets. Such an event could restrict our access to additional debt arrangements and therefore increase our cost of capital. Lenders under any future repurchase or other bank credit facilities or debt arrangements may also require us to maintain a certain amount of cash ~~flow from operations~~or set aside assets sufficient to ~~be used for debt service, which~~maintain a specified liquidity position that would ~~reduce funds available for investment activities or for distribution~~allow us to satisfy our ~~shareholders. Additionally,~~collateral obligations. As a result, we may not be able to ~~raise equity capital by issuing additional equity securities.~~leverage our assets to maximum capacity, which could reduce our return on assets. If we are unable to meet any such collateral obligations, our financial condition and prospects could deteriorate rapidly.

~~We may not be able to sustain or increase distributions to our shareholders in the future.~~

Our current quarterly distribution is $0.22 per common share ($0.88 per common share per year). However, there can be no assurance that we will be able to continue to pay distributions in the future or that the amount of any distributions we do pay will not decrease. Our current distribution rate exceeds our Core Earnings (Loss) and we expect that our current distribution rate will continue to exceed our Core Earnings (Loss). Accordingly, if our Core Earnings (Loss) do not increase we may have to fund distributions from other sources (such as from selling certain of our assets) or reduce, or eliminate, our distributions. Our ability to make future distributions at our current distribution amount will depend, to a significant degree, on our interest income from investments, our expenses (including interest expense) and we cannot be sure that we will meet our expectations with respect to these matters. For these reasons, we cannot be sure that we will continue to pay distributions in the future or that the amount of any distributions we do pay will not decrease.

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

Issuer purchases of equity securities. The following table provides information about our purchases of our equity securities during the quarter ended June 30, ~~2019.~~2020.


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		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
April 2019	644	$	9.39	—	$	—
June 2020							390	$	3.08	—	$	—
Total	644	$	9.39	—	$	—	390	$	3.08	—	$	—

⁽¹⁾ These common share withholdings and purchases were made to satisfy the tax withholding and payment obligations of a former officer of RMR LLC in connection with the vesting of awards of our common shares. We withheld and purchased these shares at their fair market value based upon the trading price of our common shares at the close of trading on Nasdaq on the purchase date.


(1)	This common share withholding and purchase was made to satisfy the tax withholding and payment obligations of a former officer and employee of RMR LLC in connection with the vesting of awards of our common shares. We withheld and purchased these shares at their fair market value based upon the trading price of our common shares at the close of trading on Nasdaq on the purchase date.

Item 6. Exhibits



Exhibit Number		Description

3.1		Articles of Amendment and Restatement of the Company effective September 14, 2017. (Incorporated by reference to the Company’s Current Report on Form 8-K ~~dated~~filed on September 13, 2017.)
3.2		Amended and Restated Bylaws of the Company dated September 14, 2017. (Incorporated by reference to the Company’s Current Report on Form 8-K ~~dated~~filed on September 13, 2017.)
4.1		Form of Common Share Certificate. (Incorporated by reference to Amendment No. 1 to the Company’s Registration Statement on Form S-11 ~~dated~~filed on August 3, 2017, File No. 333-219205.)
10.1		Form of Indemnification Agreement. (Filed herewith)
31.1		Rule 13a-14(a) Certification. (Filed herewith.)
31.2		Rule 13a-14(a) Certification. (Filed herewith.)
32.1		Section 1350 Certification. (Furnished herewith.)
~~101.1~~ 99.1		~~The following materials from~~ Letter, dated June 29, 2020, between the ~~Company’s Quarterly~~Company and Tremont Realty Advisors LLC regarding Management Agreement. (Incorporated by reference to the Company's Current Report on Form ~~10-Q for the quarter ended~~8-K filed on June 30, ~~2019 formatted~~2020.)
101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL ~~(eXtensible Business Reporting Language): (i)~~tags are embedded within the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Shareholders' Equity, (iv) the Condensed Consolidated Statements of Cash Flows and (v) related notes to these financial statements, tagged as blocks of text and in detail.Inline XBRL document.
101.SCH		XBRL Taxonomy Extension Schema Document. (Filed herewith.)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.)
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.)
101.LAB		XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.)
104		Cover Page Interactive Data File. (Formatted as Inline XBRL and contained in Exhibit 101.)

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: August ~~6, 2019~~4, 2020

	By:	/s/ G. Douglas Lanois
		G. Douglas Lanois Chief Financial Officer and Treasurer (principal financial and accounting officer)
		Dated: August ~~6, 2019~~4, 2020

3140



Year	Principal payments on Master Repurchase Facility ⁽¹⁾		Principal payments on TCB note payable⁽¹⁾
2019	$	—	$	—
2020	26,396		—
2021	127,270		31,690
2022	—		—
2023	—		—
	$	153,666	$	31,690