What changed in this filing

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Item 1. Financial Statements

2021-11-02 compared with 2021-08-03 · 322 added, 188 removed, 447 unchanged (53% of the section changed)

Financial Statements

RMR MORTGAGE TRUST

SEVEN HILLS REALTY TRUST

CONDENSED CONSOLIDATED BALANCE SHEET

(dollars in thousands, except per share data)

September 30,

Cash and cash equivalents $ 19,298

6 unchanged sentences

Accounts payable, accrued liabilities and deposits $ 2,076

Master repurchase facility, net 48,775

Master repurchase facilities, net 215,735

Due to related persons 1,743

11 unchanged sentences

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

RMR MORTGAGE TRUST

SEVEN HILLS REALTY TRUST

CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES (Predecessor Basis)

24 unchanged sentences

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

RMR MORTGAGE TRUST

SEVEN HILLS REALTY TRUST

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share data)

Three Months Ended June 30, 2021 Six Months Ended June 30, 2021

Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021

INCOME FROM INVESTMENTS:

7 unchanged sentences

Total expenses 1,513 4,856

Income before income tax benefit (expense) 1,153 1,521

Income tax benefit (expense) 7 ( 11 )

Income before income tax expense 2,509 4,030

Income tax expense ( 25 ) ( 36 )

Net income $ 2,484 $ 3,994

Weighted average common shares outstanding 10,208 10,205

Net income per common share $ 0.11 $ 0.15

Weighted average common shares outstanding - basic 10,263 10,225

Weighted average common shares outstanding - diluted 10,264 10,225

Net income per common share - basic and diluted $ 0.24 $ 0.39

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

RMR MORTGAGE TRUST

SEVEN HILLS REALTY TRUST

CONSOLIDATED STATEMENTS OF OPERATIONS (Predecessor Basis)

(amounts in thousands)

Three Months Ended June 30, 2020 Six Months Ended June 30, 2020

Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020

INVESTMENT INCOME:

4 unchanged sentences

Advisory 599 1,851

Legal 138 175

Compliance and internal audit 34 102

10 unchanged sentences

Net realized gain on investments 6,887 7,808

Net change in unrealized gains (losses) on investments 38,386 ( 84,960 )

Net realized and change in unrealized gains (losses) on investments 38,392 ( 84,039 )

Net change in unrealized losses on investments ( 7,244 ) ( 92,204 )

Net realized and change in unrealized losses on investments ( 357 ) ( 84,396 )

Net increase (decrease) in net assets before preferred distributions resulting from operations 1,493 ( 77,650 )

2 unchanged sentences

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

RMR MORTGAGE TRUST

SEVEN HILLS REALTY TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

10 unchanged sentences

Balance at June 30, 2021 10,217 $ 10 $ 193,065 $ 1,510 $ ( 1,530 ) $ 193,055

Issuance of shares 4,285 5 44,170 — — 44,175

Net income — — — 2,484 — 2,484

Distributions — — — — ( 3,065 ) ( 3,065 )

Balance at September 30, 2021 14,502 $ 15 $ 237,235 $ 3,994 $ ( 4,595 ) $ 236,649

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

RMR MORTGAGE TRUST

SEVEN HILLS REALTY TRUST

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (Predecessor Basis)

(amounts in thousands)

Three Months Ended June 30, 2020 Six Months Ended June 30, 2020

Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020

Increase (decrease) in net assets resulting from operations

1 unchanged sentence

Net realized gain on investments 6,887 7,808

Net change in unrealized gains (losses) on investments 38,386 ( 84,960 )

Net change in unrealized losses on investments ( 7,244 ) ( 92,204 )

Distributions to preferred shareholders ( 84 ) ( 297 )

11 unchanged sentences

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

RMR MORTGAGE TRUST

SEVEN HILLS REALTY TRUST

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(dollars in thousands)

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 3,994

Adjustments to reconcile net income to net cash used in operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Share based compensation 181

6 unchanged sentences

Due to related persons 916

Net cash used in operating activities ( 2,093 )

Net cash provided by operating activities 1,297

CASH FLOWS FROM INVESTING ACTIVITIES:

1 unchanged sentence

Additional funding of loans held for investment ( 2,458 )

Repayment of loans held for investment 18,433

Payment of merger related costs ( 6,160 )

Cash assumed in merger 11,070

Net cash used in investing activities ( 167,104 )

1 unchanged sentence

Proceeds from master repurchase facility 97,715

Repayments under master repurchase facility ( 10,332 )

Payments of deferred financing costs ( 698 )

7 unchanged sentences

Income taxes paid $ 2,477

NON-CASH INVESTING ACTIVITIES

Loans held for investment acquired by issuance of common shares $ 169,150

Working capital net liabilities assumed $ 924

NON-CASH FINANCING ACTIVITIES

Assumption of master repurchase facility $ 128,962

Issuance of common shares $ 44,175

SEVEN HILLS REALTY TRUST

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)

(dollars in thousands)

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 sheet to the amounts shown in the condensed consolidated statement of cash flows:

As of June 30, 2021

As of September 30, 2021

Cash and cash equivalents $ 19,298

2 unchanged sentences

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

RMR MORTGAGE TRUST

SEVEN HILLS REALTY TRUST

CONSOLIDATED STATEMENT OF CASH FLOWS (Predecessor Basis)

(dollars in thousands)

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

CASH FLOWS FROM OPERATING ACTIVITIES:

4 unchanged sentences

Net sales of short term investments 34,612

Origination of loans held for investment ( 29,192 )

Changes in assets and liabilities:

7 unchanged sentences

Accrued expenses and other liabilities 51

Net unrealized losses on investments 84,960

Net change in unrealized losses on investments 92,204

Net realized gain on investments and foreign currency transactions ( 7,808 )

10 unchanged sentences

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

RMR MORTGAGE TRUST

SEVEN HILLS REALTY TRUST

CONSOLIDATED PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2020 (Predecessor Basis)

21 unchanged sentences

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

RMR MORTGAGE TRUST

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

RMR Mortgage Trust, or we, us, our, or the Trust, is a Maryland statutory trust.

Seven Hills Realty Trust (formerly known as RMR Mortgage Trust), or we, us, our, or the Trust, is a Maryland statutory trust.

We were previously registered under the Investment Company Act of 1940, as amended, or the 1940 Act, as a closed-end management investment company.

2 unchanged sentences

As a result, the Trust changed its SEC registration to a reporting company under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

The issuance of the deregistration order enabled us to proceed with full implementation of our new business mandate to operate as a real estate investment trust, or REIT, that focuses primarily on originating and investing in first mortgage whole loans secured by middle market and transitional commercial real estate, or CRE, or the Business Change.

On April 26, 2021, we and Tremont Mortgage Trust, or TRMT, entered into an Agreement and Plan of Merger, or the Merger Agreement, pursuant to which, on the terms and subject to the satisfaction or waiver of the conditions thereof, TRMT has agreed to merge with and into us, with us continuing as the surviving entity in the merger, or the Merger.

Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger, or the Effective Time, each common share of beneficial interest, $ 0.01 par value per share, of TRMT, or TRMT Common Shares, issued and outstanding immediately prior to the Effective Time will be converted into the right to receive 0.52 , or the Exchange Ratio, of one newly issued common share of beneficial interest, $ 0.001 par value per share, of our common shares, or the RMRM Common Shares, subject to adjustment as described in the Merger Agreement, with cash paid in lieu of fractional shares.

Under the Merger Agreement, the Exchange Ratio is fixed and will not be adjusted to reflect changes in the market price of the RMRM Common Shares or the TRMT Common Shares prior to the Effective Time.

Pursuant to the Merger Agreement, at the Effective Time, any unvested TRMT Common Share awards outstanding under TRMT's equity compensation plan generally will be converted into an unvested RMRM Common Share award under our equity compensation plan, subject to substantially similar vesting requirements and other terms and conditions, determined by multiplying the number of unvested TRMT Common Shares subject to such award by the Exchange Ratio (rounded down to the nearest whole number).

The Merger and the other transactions contemplated by the Merger Agreement are collectively referred to herein as the other Transactions.

We have incurred $ 2,183 of transaction costs related to the Merger that are included in prepaid expenses and other assets in the condensed consolidated balance sheet.

Following the consummation of the Merger, the combined company will continue to be managed by our and TRMT’s current manager, Tremont Realty Advisors LLC, or TRA or our Manager, pursuant to the terms of our existing management agreement with TRA.

Contemporaneously with the execution of the Merger Agreement, we, TRMT and TRA entered into a letter agreement, or the TRA Letter Agreement, pursuant to which, on the terms and subject to conditions contained therein, we, TRMT and TRA have acknowledged and agreed that, effective upon consummation of the Merger, TRMT shall have terminated its management agreement with TRA, and TRA shall have waived its right to receive payment of the termination fee pursuant to such agreement.

In consideration of this waiver, we have agreed that, effective upon consummation of the Merger and the termination of TRMT's management agreement with TRA, certain of the expenses TRA had paid pursuant to such management agreement will be included in the “Termination Fee” under and as defined in our existing management agreement with TRA.

The TRA Letter Agreement further provides that such termination by TRMT and waiver by TRA shall apply only in respect of the Merger and will not apply in respect of any competing proposal or superior proposal (as those terms are defined in the Merger Agreement) or to any other transaction or arrangement.

Contemporaneously with the execution of the Merger Agreement, we entered into a voting agreement with TRA, or the Voting Agreement, pursuant to which TRA has agreed to vote all of the TRMT Common Shares which it is entitled to vote in favor of approval of the Merger and the other Transactions to which TRMT is a party at the special meeting of TRMT's shareholders scheduled to be held on September 17, 2021 for that purpose and against any competing acquisition proposal.

Also contemporaneously with the execution of the Merger Agreement, TRMT entered into a voting agreement with Diane Portnoy, pursuant to which Ms.

Portnoy has agreed to vote all of our common shares which she is entitled to vote in favor of approval of the issuance of the RMRM Common Shares in the Merger, or the Merger Share Issuance, at the special meeting of our shareholders held for that purpose and against any competing acquisition proposal.

RMR MORTGAGE TRUST

The issuance of the deregistration order enabled us to proceed with full implementation of our new business mandate to operate as a real estate investment trust, or REIT, that focuses primarily on originating and investing in first mortgage loans secured by middle market and transitional commercial real estate, or CRE, or the Business Change.

Merger with Tremont Mortgage Trust

On April 26, 2021, we and Tremont Mortgage Trust, or TRMT, entered into an Agreement and Plan of Merger, or the Merger Agreement, pursuant to which, on the terms and subject to the satisfaction or waiver of the conditions thereof, TRMT agreed to merge with and into us, with us continuing as the surviving entity in the merger, or the Merger.

The Merger was consummated and became effective at 4:01 p.m., Eastern Time, on September 30, 2021, or the Effective Time.

At the Effective Time, the separate existence of TRMT ceased.

Pursuant to the terms set forth in the Merger Agreement and the Letter Agreement, dated as of August 26, 2021, by and between us and TRMT, or the Letter Agreement, at the Effective Time, each one (1) issued and outstanding common share of beneficial interest, $ 0.01 par value per share, of TRMT, or the TRMT Common Shares, was automatically converted into the right to receive 0.516 of one (1) of our common shares of beneficial interest, $ 0.001 par value per share or, the SEVN Common Shares.

No fractional shares of SEVN Common Shares were issued in the Merger, and holders of shares of TRMT Common Shares received cash in lieu of any such fractional shares.

Pursuant to the Merger Agreement and the Letter Agreement, at the Effective Time, each outstanding unvested TRMT Common Share awarded under TRMT's equity compensation plan was converted into an award of SEVN Common Shares determined by multiplying the number of unvested TRMT Common Shares subject to such award by 0.516 (rounded down to the nearest whole number).

Such award will continue to be subject to the same vesting and other terms and conditions as were in effect immediately prior to the Effective Time.

Effective as of the Effective Time, we changed our name to “Seven Hills Realty Trust.” The combined company continues to be managed by our manager and TRMT's manager (until TRMT ceased to exist), Tremont Realty Capital LLC (formerly known as Tremont Realty Advisors LLC), or TRC, or our Manager, and our common shares continue to trade on The Nasdaq Stock Market LLC, or Nasdaq, under the new ticker symbol “SEVN."

Upon consummation of the Merger, TRMT's separate management agreement with TRC was terminated and TRC waived its right to receive payment of the termination fee that would otherwise have been payable as a result of that termination.

In consideration of this waiver, we agreed that, effective upon consummation of the Merger and the termination of TRMT's management agreement with TRC, certain of the expenses TRC had paid pursuant to such management agreement will be included in the “Termination Fee” under and as defined in our existing management agreement with TRC.

The purchase price, based on the closing price of our common shares on September 30, 2021 of $ 10.31 per share, was approximately $ 169,150 , including the assumption of $ 128,962 outstanding under TRMT's master repurchase facility and closing costs of approximately $ 6,160 (excluding closing costs of $ 5,205 of which was paid by TRMT) and assumed working capital of $ 10,146 .

Following the Merger and the other transactions contemplated by the Merger Agreement, we assumed TRMT’s master repurchase facility and the portfolio of 10 loans with an aggregate principal balance of $ 204,692 .

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

The record date for determining the shareholders entitled to receive notice of, and to vote at, our and TRMT's special meetings is July 14, 2021.

Pending requisite approval by us and TRMT shareholders, the Merger is expected to close during the third quarter of 2021.

Basis of Presentation

1 unchanged sentence

Upon the Business Change, we discontinued the application of guidance in ASC Topic 946 and prospectively applied the guidance required under GAAP, applicable to companies that are not investment companies, or the Successor Basis.

As a result of these changes, our condensed consolidated financial statements as of and for the three and six months ended June 30, 2021 are presented separately from our financial statements on the Predecessor Basis, as of and for the periods prior to December 31, 2020.

The results of operations from January 1, 2021 through January 4, 2021 were not material to the Trust's condensed consolidated financial statements and have not been presented separately, but they are included in our condensed consolidated statement of operations for the six months ended June 30, 2021.

As a result of these changes, our condensed consolidated financial statements as of and for the three and nine months ended September 30, 2021 are presented separately from our financial statements on the Predecessor Basis, as of and for the periods prior to December 31, 2020.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim periods have been included.

6 unchanged sentences

Consolidation.

These consolidated financial statements include the accounts of us and our subsidiaries, all of which are 100 % owned directly by us.

These condensed consolidated financial statements include the accounts of ours and our subsidiaries, all of which are 100 % owned directly by us.

All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated.

6 unchanged sentences

Generally, our loans are classified as held for investment based upon our intent and ability to hold them until maturity, or if earlier, repayment.

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 are held for investment are carried at cost, net of unamortized loan origination, accreted exit fees, unamortized purchase premiums and unaccreted purchase discounts, 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 are held at the lower of cost or fair value less cost to sell.

5 unchanged sentences

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.

RMR MORTGAGE TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

"2" average risk—Criteria reflects a sponsor having a stable financial condition and our evaluation of management's experience;

1 unchanged sentence

and the property demonstrating improved occupancy at market rents, resulting in sufficient current cash flow and/or having a low LTV.

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

"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;

18 unchanged sentences

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.

As of June 30, 2021, we have not recorded any allowances for losses as we believe it is probable that we will collect all amounts due pursuant to the contractual terms of our loan agreements with borrowers.

As of September 30, 2021, we have not recorded any allowances for losses as we believe it is probable that we will collect all amounts due pursuant to the contractual terms of our loan agreements with borrowers.

Fair Value of Financial Instruments.

7 unchanged sentences

Level III—Inputs include unobservable prices and are supported by little or no market activity and are significant to the overall fair value measurement.

RMR MORTGAGE TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Loan Deferred Fees.

1 unchanged sentence

These fees are amortized and accreted, respectively, into interest income over the life of the related loans held for investment.

At September 30, 2021, we had approximately $ 1,101 loan origination and exit fees, net of amortization.

Deferred Financing Costs.

Costs incurred in connection with financings are capitalized and recorded as an offset to the related liability and amortized over the respective financing terms and are recorded in our condensed consolidated statements of operations as a component of interest and related expenses.

At June 30, 2021, we had approximately $ 397 of capitalized financing costs, net of amortization.

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

operations as a component of interest and related expenses.

At September 30, 2021, we had approximately $ 610 of capitalized financing costs, net of amortization.

Net Income Per Common Share.

We calculate net income per common share, or EPS, by dividing net income by the weighted average number of common shares outstanding during the period.

At June 30, 2021 and December 31, 2020, no warrants, options or other types or classes of securities existed that could be potentially dilutive to our common shares outstanding.

At September 30, 2021 and December 31, 2020, no warrants, options or other types or classes of securities existed that could be potentially dilutive to our common shares outstanding.

Revenue Recognition.

Interest income related to our first mortgage whole loans secured by CRE will generally be accrued based on the coupon rates applied to the outstanding principal balance of such loans.

Interest income related to our first mortgage loans secured by 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.

18 unchanged sentences

2016-13 will have on our condensed consolidated financial statements.

The effect of the adoption of ASU No.

2016-13, if material, will be presented as a cumulative-effect adjustment to equity as of the date of adoption.

Merger with Tremont Mortgage Trust

As described in Note 1, on September 30, 2021, we completed the Merger, pursuant to which we acquired TRMT's loans held for investment portfolio consisting of 10 loans with an aggregate principal balance of $ 204,692 .

The purchase price, based on the closing price of our common shares on September 30, 2021 of $ 10.31 per share, was $ 169,150 , including the assumption of $ 128,962 outstanding under TRMT's master repurchase facility and closing costs of approximately $ 6,160 (excluding closing costs of $ 5,205 of which was paid by TRMT) and assumed working capital of $ 10,146 .

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

The following table summarizes the consideration transferred and liabilities assumed as a result of the Merger:

TRMT common shares outstanding 8,303,629

Multiplied by the exchange ratio 0.516

TRMT fractional shares adjustment ( 73 )

SEVN Common Shares issued 4,284,600

Closing price of SEVN Common Shares on September 30, 2021 $ 10.31

Value of consideration transferred $ 44,174

Assumed working capital ( 10,146 )

Assumed master repurchase facility, principal balance 128,962

Merger related costs 6,160

Consideration transferred and liabilities assumed $ 169,150

After consideration of applicable factors pursuant to ASC Topic 805, Business Combinations , including the application of a screen test to evaluate if substantially all the fair value of TRMT as the acquired entity is concentrated in a single identifiable asset or group of similar identifiable assets, we have concluded that the Merger qualifies as an asset acquisition under GAAP.

Accordingly, SEVN accounted for the Merger as an asset acquisition, with Merger related costs capitalized as a component of the cost of the assets acquired and SEVN treated as the acquirer of TRMT.

The assets acquired and liabilities assumed were recorded at their relative fair values and added to our condensed consolidated balance sheet as of September 30, 2021.

The fair value of the loans acquired in the Merger exceeded the purchase price of the loans.

In accordance with GAAP, a purchase discount of $ 36,443 is recorded for the difference between the fair value and purchase price of the loans acquired.

The purchase discount will be allocated to each acquired TRMT loan and accreted into income over the remaining term of the respective loan.

The following table summarizes the purchase price allocation for the Merger:

Cash and cash equivalents $ 11,070

Loans held for investment, net 169,150

Accrued interest receivable 603

Prepaid expenses and other assets 31

Total assets 180,854

Accounts payable and other liabilities ( 901 )

Master repurchase facility, net ( 128,962 )

Due to related persons ( 657 )

Net assets acquired 50,334

Assumed working capital ( 10,146 )

Assumed master repurchase facility, principal balance 128,962

Consideration transferred and liabilities assumed $ 169,150

Loans Held for Investment

We originate first mortgage loans secured by middle market and transitional CRE, which are generally to be held as long term investments.

We funded our existing loan portfolio using cash on hand and advancements under our master repurchase facility with UBS AG, or UBS, or our Master Repurchase Facility.

See Note 6 for further information regarding our Master Repurchase Facility.

RMR MORTGAGE TRUST

We funded our loan portfolio prior to the Merger using cash on hand and advancements under our master repurchase facility with UBS AG, or UBS, or our UBS Master Repurchase Facility, and we acquired 10 first mortgage loans in the Merger.

See Note 7 for further information regarding our debt agreements.

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

The table below provides overall statistics for our loan portfolio as of June 30, 2021 and December 31, 2020:

As of June 30, 2021

The table below provides overall statistics for our loan portfolio as of September 30, 2021 and December 31, 2020:

As of September 30, 2021

(Successor Basis) As of December 31, 2020 (Predecessor Basis)

5 unchanged sentences

$ 472,018 $ 92,863

Unamortized net deferred origination and exit fees $ ( 1,773 ) $ ( 984 )

Carrying value $ 434,474 $ 91,879

5 unchanged sentences

Weighted average risk rating 3.0 3.0

Weighted average LTV (5)

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

(2) The principal balance at June 30, 2021 includes $ 96 of capitalized interest that does not reduce the amount of unfunded loan commitments.

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

(2) The principal balance at September 30, 2021 includes $ 96 of capitalized interest that does not reduce the amount of unfunded loan commitments and $ 204,692 of loans acquired in the Merger.

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

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

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

The table below represents our loan activities during the three months ended June 30, 2021:

Principal Balance Deferred Fees Carrying Value

Balance at March 31, 2021 (Successor Basis) $ 148,652 $ ( 1,405 ) $ 147,247

The table below represents our loan activities during the three months ended September 30, 2021:

Principal Balance Deferred Fees and Other Items Carrying Value

Balance at June 30, 2021 (Successor Basis) $ 212,515 $ ( 1,773 ) $ 210,742

Additional funding 1,710 — 1,710

Originations 71,534 ( 800 ) 70,734

Repayments ( 18,433 ) — ( 18,433 )

Net amortization of deferred fees — 571 571

Balance at June 30, 2021 (Successor Basis) $ 212,515 $ ( 1,773 ) $ 210,742

The table below represents our loan activities during the six months ended June 30, 2021:

Principal Balance Deferred Fees Carrying Value

Loans acquired in Merger (1)

204,692 901 205,593

Purchase discount on loans acquired in Merger — ( 36,443 ) ( 36,443 )

Balance at September 30, 2021 (Successor Basis) $ 472,018 $ ( 37,544 ) $ 434,474

(1) Deferred fees and other items for loans acquired in Merger represent exit fees contractually due upon repayment of loans acquired in the Merger.

The table below represents our loan activities during the nine months ended September 30, 2021:

Principal Balance Deferred Fees and Other Items Carrying Value

Balance at December 31, 2020 (Predecessor Basis) $ 92,863 $ ( 984 ) $ 91,879

1 unchanged sentence

Originations 190,219 ( 2,230 ) 187,989

Repayments ( 18,433 ) — ( 18,433 )

Net amortization of deferred fees — 1,212 1,212

Balance at June 30, 2021 (Successor Basis) $ 212,515 $ ( 1,773 ) $ 210,742

In July 2021, we originated a first mortgage loan of $ 27,385 to refinance a multi-tenant office building located in Plano, TX.

This loan requires the borrower to pay interest at the floating rate of LIBOR plus a premium of 475 basis points per annum.

This floating rate loan includes an initial funding of $ 24,635 and a future funding allowance of $ 2,750 for tenant improvements, leasing commissions and capital expenditures and has a three-year initial term with two , one-year extension options, subject to the borrower meeting certain conditions.

Also in July 2021, we originated a first mortgage loan of $ 19,688 to finance the acquisition of a 100 -unit apartment building located in Portland, OR.

This loan requires the borrower to pay interest at the floating rate of LIBOR

RMR MORTGAGE TRUST

Loans acquired in Merger (1)

204,692 901 205,593

Purchase discount on loans acquired in Merger — ( 36,443 ) ( 36,443 )

Balance at September 30, 2021 (Successor Basis) $ 472,018 $ ( 37,544 ) $ 434,474

(1) Deferred fees and other items for loans acquired in Merger represent exit fees contractually due upon repayment of loans acquired in the Merger.

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

plus a premium of 357 basis points per annum.

This floating rate loan was fully funded at closing and has a three-year initial term with two , one-year extension options, subject to the borrower meeting certain conditions.

The tables below detail the property type and geographic location of the properties securing the loans in our portfolio as of June 30, 2021 and December 31, 2020:

June 30, 2021

In August 2021, we received $ 19,137 of repayment proceeds from the borrower on our loan that was used to refinance a three-building lab property located in Berkeley, CA, which included outstanding principal of $ 18,433 , a prepayment premium and exit fee of $ 621 , as well as accrued interest and our associated legal expenses of $ 83 .

In October 2021, we received $ 13,130 of repayment proceeds from the borrower on our loan that was used to finance a grocery anchored shopping center in Omaha, NE, which included outstanding principal of $ 13,053 , as well as accrued interest and our associated legal expenses of $ 76 .

In October 2021, we originated a first mortgage loan of $ 24,750 to refinance a multi-tenant office building located in Carlsbad, CA.

This loan requires the borrower to pay interest at the floating rate of LIBOR plus a premium of 325 basis points per annum.

This floating rate loan includes an initial funding of $ 23,740 and a future funding allowance of $ 1,010 for tenant improvements, leasing commissions and capital expenditures and has a three-year initial term with two , one-year extension options, subject to the borrower meeting certain conditions.

The tables below detail the property type and geographic location of the properties securing the loans in our portfolio as of September 30, 2021 and December 31, 2020:

September 30, 2021

(Successor Basis) December 31, 2020

11 unchanged sentences

2 60,963 14 % — 5,666 6 %

Hotel 1 19,765 5 % — — — %

22 $ 434,474 100 % 5 $ 91,879 100 %

1 unchanged sentence

The carrying value of these loan investments are reflected in office and industrial based on the fair value of the buildings at the time of origination relative to the total fair value of the properties.

June 30, 2021

September 30, 2021

(Successor Basis) December 31, 2020

11 unchanged sentences

The higher the number, the greater the risk level.

The following table allocates the carrying value of our loan portfolio at June 30, 2021 and December 31, 2020 based on our internal risk rating policy:

June 30, 2021 (Successor Basis) December 31, 2020 (Predecessor Basis)

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

The following table allocates the carrying value of our loan portfolio at September 30, 2021 and December 31, 2020 based on our internal risk rating policy:

September 30, 2021 (Successor Basis) December 31, 2020 (Predecessor Basis)

Risk Rating Number of Loans Carrying Value Number of Loans Carrying Value

3 unchanged sentences

4 3 47,857 — —

The weighted average risk rating of our loans by carrying value was 2.9 and 3.0 as of June 30, 2021 and December 31, 2020, respectively.

We did not have any impaired loans or nonaccrual loans as of June 30, 2021 or December 31, 2020.

22 $ 434,474 5 $ 91,879

The weighted average risk rating of our loans by carrying value was 3.0 as of both September 30, 2021 and December 31, 2020.

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, some of which are the types of properties that have been most negatively impacted by the pandemic.

We expect that those negative impacts may continue and may apply to other borrowers and/or their tenants.

Further, although economic activity in the United States has improved significantly from the low points during the pandemic to date, certain industries have not recovered to their pre-pandemic positions.

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 of September 30, 2021, we had three loans representing approximately 11 % of the carrying value of our loan portfolio with a loan risk rating of “4” or “higher risk".

We did not have any impaired loans or nonaccrual loans as of September 30, 2021 or December 31, 2020.

See Note 3 for further information regarding our loan risk ratings.

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

RMR MORTGAGE TRUST

As of October 29, 2021, all of our borrowers had paid all of their debt service obligations owed and due to us and none of the loans included in our investment portfolio were in default.

Debt Agreements

UBS Master Repurchase Facility

On February 18, 2021, one of our wholly owned subsidiaries entered into a master repurchase agreement, or the UBS Master Repurchase Agreement, with UBS for our Master Repurchase Facility, pursuant to which we may sell to UBS, and later repurchase, commercial mortgage loans, or the purchased assets.

The expiration date of the UBS Master Repurchase Agreement is February 18, 2024, unless extended or earlier terminated in accordance with the terms of the UBS Master Repurchase Agreement.

Pursuant to the UBS Master Repurchase Agreement, we will pay UBS a non-refundable upfront fee that is equal to 0.50 % of the applicable tranche amount on each Purchase Date (as each term is defined in the UBS Master Repurchase Agreement).

Under our UBS Master Repurchase Facility, the initial purchase price paid by UBS for each purchased asset is up to 75 % of the lesser of the market value of the purchased asset and the unpaid principal balance of such purchased asset, subject to UBS’s approval.

Upon the repurchase of a purchased asset, we are required to pay UBS the outstanding purchase price of the purchased asset, accrued interest and all accrued and unpaid expenses of UBS relating to such purchased assets.

The pricing rate (or interest rate) relating to a purchased asset is equal to one month LIBOR plus a customary premium within a fixed range, determined by the debt yield and property type of the purchased asset’s real estate collateral.

UBS has the discretion under our UBS Master Repurchase Agreement to make advancements at margins higher than 75 %.

The weighted average interest rate for advancements under our UBS Master Repurchase Facility was 2.1 % and 2.2 % for the three and nine months ended September 30, 2021, respectively.

In connection with our UBS Master Repurchase Agreement, we entered into a guaranty, or the UBS Guaranty, which requires us to guarantee 25 % of the aggregate repurchase price, and 100 % of losses in the event of certain bad acts as well any costs and expenses of UBS related to our UBS Master Repurchase Agreement.

The UBS Guaranty also requires us to comply with customary financial covenants, which include the maintenance of a minimum tangible net worth, minimum cash liquidity and a total indebtedness to stockholders' equity ratio.

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Debt Agreements

The table below summarizes our debt agreements as of June 30, 2021:

Our UBS Master Repurchase Facility also contains margin maintenance provisions that provide UBS with the right, in certain circumstances related to a Credit Event (as defined in the UBS Master Repurchase Agreement) to redetermine the value of purchased assets.

Where a decline in the value of such purchased assets has resulted in a margin deficit, UBS may require us to eliminate any margin deficit through a combination of purchased asset repurchases and cash transfers to UBS subject to UBS’s approval.

As of September 30, 2021, we were in compliance with all covenants and other terms under our UBS Master Repurchase Agreement and the UBS Guaranty.

Citibank Master Repurchase Facility

As previously mentioned in Note 5, as a result of the Merger, we assumed the master repurchase facility with Citibank N.A., or Citibank, or our Citibank Master Repurchase Facility.

TRMT had a master repurchase facility pursuant to a Master Repurchase Agreement, dated as of February 9, 2018, between TRMT CB Lender and Citibank N.A., or Citibank, or the Citibank Master Repurchase Agreement, as amended by the First Amendment to the Citibank Master Repurchase Agreement, dated as of November 6, 2018, and the Second Amendment to the Citibank Master Repurchase Agreement, dated as of October 30, 2020.

On September 30, 2021, as a result of the Merger, we became party to TRMT's master repurchase facility and entered into a guaranty, or the Citibank Guaranty, in favor of Citibank, pursuant to which, among other things, we replaced TRMT as guarantor of certain obligations of TRMT CB Lender LLC, a wholly owned subsidiary, or TRMT CB Lender, under the Citibank Master Repurchase Agreement.

In connection with the closing of the Merger, TRMT CB Lender also entered into a Third Amendment to the Citibank Master Repurchase Agreement and Fifth Amendment to Fee Agreement with Citibank.

Pursuant to the Citibank Master Repurchase Agreement, as amended, we may sell to Citibank and later repurchase, floating rate mortgage loans and other related assets.

The maximum amount of available advancements under the Citibank Master Repurchase Agreement, as amended, is $ 213,482 , and the expiration date thereof is November 6, 2022, unless extended or earlier terminated in accordance with the terms of the Citibank Master Repurchase Agreement.

Under our Citibank 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 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 Citibank Master Repurchase Agreement to make advancements at margins higher than 75 % and at premiums of less than 200 basis points.

The Citibank Guaranty, which requires us to 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 Citibank Master Repurchase Agreement.

The Citibank 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 Citibank Master Repurchase Agreement, to re-determine the value of purchased assets.

Where a decline in the value of such purchased assets has resulted in a margin deficit, Citibank may require us to eliminate any margin deficit through a combination of purchased asset repurchases and cash transfers to Citibank, subject to Citibank's approval.

As of September 30, 2021, we have not received a margin call under our Citibank Master Repurchase Agreement.

Our Citibank Master Repurchase Agreement also provides for acceleration of the date of repurchase of the purchased assets by us 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 The RMR Group LLC, or RMR LLC.

As of September 30, 2021 , we were in compliance with all of the covenants and ot her terms under our Citibank Master Repurchase Agreement and the Citibank Guaranty.

We refer to the Citibank Master Repurchase Agreement and UBS Master Repurchase Agreement collectively as our Master Repurchase Agreements and the Citibank Guaranty and UBS Guaranty collectively as our Guarantees.

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

As of September 30, 2021 and October 29, 2021, we had a $ 216,345 and a $ 223,584 , respectively, aggregate outstanding principal balance under our Master Repurchase Facilities.

The table below summarizes our debt agreements as of September 30, 2021:

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, 2021:

Master Repurchase Facility $ 193,055 $ 49,172 $ 48,775 L + 2.05 %

Agreement Maximum Facility Size Principal Balance Carrying Value Coupon Rate Remaining Maturity (1) (years)

Principal Balance

UBS Master Repurchase Facility $ 192,000 $ 87,383 $ 86,773 L + 2.03 %

2.2 $ 134,749

Citibank Master Repurchase Facility 213,482 128,962 128,962 L + 1.94 %

$ 405,482 $ 216,345 $ 215,735 $ 317,706

(1) The weighted average remaining maturity is determined using the current maturity date of the corresponding loans, assuming no borrower loan extension options have been exercised.

Our Master Repurchase Facility matures on February 18, 2024.

(2) See Note 7 for further discussion of our financial assets and liabilities not carried at fair value.

On February 18, 2021, one of our wholly owned subsidiaries entered into a master repurchase agreement, or the Master Repurchase Agreement, with UBS for our Master Repurchase Facility, pursuant to which we may sell to UBS, and later repurchase, commercial mortgage loans, or the Purchased Assets.

The expiration date of the Master Repurchase Agreement is February 18, 2024, unless extended or earlier terminated in accordance with the terms of the Master Repurchase Agreement.

Pursuant to the Master Repurchase Agreement, we will pay UBS a non-refundable upfront fee that is equal to 0.50 % of the applicable tranche amount on each Purchase Date (as each term is defined in the Master Repurchase Agreement).

While the Master Repurchase Facility has no maximum facility amount, we expect the advancements under the Master Repurchase Facility to not exceed our equity, which, as of June 30, 2021, is $ 193,055 .

Our equity will change from time-to-time and may increase or decrease.

We expect that the size of our Master Repurchase Facility may similarly change as our equity changes.

Under our Master Repurchase Facility, the initial purchase price paid by UBS for each Purchased Asset is up to 75 % of the lesser of the market value of the Purchased Asset and the unpaid principal balance of such Purchased Asset, subject to UBS’s approval.

Upon the repurchase of a Purchased Asset, we are required to pay UBS the outstanding purchase price of the Purchased Asset, accrued interest and all accrued and unpaid expenses of UBS relating to such Purchased Assets.

The pricing rate (or interest rate) relating to a Purchased Asset is equal to one month LIBOR plus a customary premium within a fixed range, determined by the debt yield and property type of the Purchased Asset’s real estate collateral.

UBS has the discretion under our Master Repurchase Agreement to make advancements at margins higher than 75 %.

The weighted average interest rate for advancements under our Master Repurchase Facility was 2.39 % for both the three and six months ended June 30, 2021, respectively.

In connection with our Master Repurchase Agreement, we entered into a guaranty, or the Guaranty, which requires us to guarantee 25 % of the aggregate repurchase price, and 100 % of losses in the event of certain bad acts as well any costs and expenses of UBS related 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 cash liquidity and a total indebtedness to stockholders' equity ratio.

Our Master Repurchase Facility also contains margin maintenance provisions that provide UBS with the right, in certain circumstances related to a Credit Event (as defined in the Master Repurchase Agreement) to redetermine the value of Purchased Assets.

Where a decline in the value of such Purchased Assets has resulted in a margin deficit, UBS may require us to eliminate any margin deficit through a combination of Purchased Asset repurchases and cash transfers to UBS subject to UBS’s approval.

As of June 30, 2021, we were in compliance with all covenants and other terms under our Master Repurchase Agreement and the Guaranty.

As of June 30, 2021 and July 30, 2021, we had a $ 49,172 and a $ 69,172 , respectively, aggregate outstanding principal balance under our Master Repurchase Facility.

For the three and six months ended June 30, 2020, we recorded interest expense of $ 297 and $ 851 , respectively, related to our former revolving credit facility with BNP Paribas Prime Brokerage International Ltd.

Our UBS Master Repurchase Facility and Citibank Master Repurchase Facility mature on February 18, 2024 and November 6, 2022, respectively.

For the three and nine months ended September 30, 2021, we recorded interest expense of $ 488 and $ 680 , respectively, related to our UBS Master Repurchase Facility and recorded $ 0 interest expense related to our Citibank Master Repurchase Facility.

For the three and nine months ended September 30, 2020, we recorded interest expense of $ 215 and $ 1,066 , respectively, related to our former revolving credit facility with BNP Paribas Prime Brokerage International Ltd.

In November 2020, we repaid all outstanding amounts and terminated that facility.

RMR MORTGAGE TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Fair Value of Financial Instruments

3 unchanged sentences

Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

As of June 30, 2021 and December 31, 2020, the carrying values of cash and cash equivalents, restricted cash and accounts payable approximate their fair values due to the short term nature of these financial instruments.

At June 30, 2021, the outstanding principal balance under our Master Repurchase Facility approximated the fair value, as interest was based on floating rates based on LIBOR plus a spread, and the spread was consistent with those demanded by the market.

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).

As of September 30, 2021 and December 31, 2020, the carrying values of cash and cash equivalents, restricted cash and accounts payable approximate their fair values due to the short term nature of these financial instruments.

At September 30, 2021, the outstanding principal balance under our Master Repurchase Facilities approximated the fair value, as interest was based on floating rates of LIBOR plus a spread, and the spread was consistent with those demanded by the market.

We estimate the fair values of our loans held for investment and outstanding principal balances under our Master Repurchase Facilities 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).

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

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, 2021 (Successor Basis) December 31, 2020 (Predecessor Basis)

September 30, 2021 (Successor Basis) December 31, 2020 (Predecessor Basis)

Carrying Value Fair Value Carrying Value Fair Value

2 unchanged sentences

Financial liabilities

Master Repurchase Facility $ 48,775 $ 48,238 — —

There were no transfers of financial assets or liabilities within the fair value hierarchy during the three or six months ended June 30, 2021.

Master Repurchase Facilities $ 215,735 $ 216,552 — —

There were no transfers of financial assets or liabilities within the fair value hierarchy during the three or nine months ended September 30, 2021.

Shareholders' Equity

1 unchanged sentence

We have common shares available for issuance under the terms of our 2021 Equity Compensation Plan, or the 2021 Plan.

The values of the share awards are based upon the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq, on the date of award.

The common shares that we have awarded to our Trustees vested immediately.

We have not made any awards of common shares to date under the 2021 Plan to our officers and other employees of our Manager and of RMR LLC.

We expect that the awards of common shares that we award to these persons will vest in five equal annual installments beginning on the date of award.

We will recognize the value of awarded shares in general and administrative expenses ratably over the vesting period.

We will recognize any share forfeitures as they occur.

On May 27, 2021, in accordance with our Trustee compensation arrangements, we awarded to each of our five Trustees 3,000 of our common shares, valued at $ 12.10 per common share, the closing price of our common shares on the Nasdaq that day.

RMR MORTGAGE TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

The values of the share awards are based upon the closing price of our common shares on Nasdaq on the date of award.

The common shares awarded to our Trustees vest immediately.

The common shares awarded to our officers and other employees of our Manager and of RMR LLC vest in five equal annual installments beginning on the date of award.

We recognize the value of awarded shares in general and administrative expenses ratably over the vesting period.

We recognize any share forfeitures as they occur.

On May 27, 2021, in accordance with our Trustee compensation arrangements, we awarded to each of our then five Trustees 3,000 of our common shares, valued at $ 12.10 per common share, the closing price of our common shares on Nasdaq that day.

On October 1, 2021, we awarded to each of our then six Trustees 3,000 of our common shares, valued at $ 10.41 per common share, the closing price of our common shares on Nasdaq that day.

Also on October 1, 2021, we awarded under our equity compensation plan an aggregate of 83,000 of our common shares, valued at $ 10.41 per share, the closing price of our common shares on Nasdaq that day, to our officers and certain other employees of our Manager and of RMR LLC.

On October 5, 2021, we purchased 5,349 of our common shares from certain of our officers and certain former and current officers and employees of our Manager and of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares, valued at $ 10.32 per share, the closing price of our common shares on Nasdaq that day.

The aggregate value of common shares purchased was $ 55 .

Distributions

For the six months ended June 30, 2021, we declared and paid a distribution to common shareholders as follows:

For the nine months ended September 30, 2021, we declared and paid a distribution to common shareholders as follows:

Record Date Payment Date Distribution per Share Total Distribution

April 26, 2021 May 20, 2021 $ 0.15 $ 1,530

On July 15, 2021, we declared a quarterly distribution of $ 0.15 per common share, or approximately $ 1,533 in aggregate, to shareholders of record as of July 26, 2021.

We expect to pay this distribution on or about August 19, 2021.

July 26, 2021 August 19, 2021 0.15 1,532

September 7, 2021 (1)

September 29, 2021 0.15 1,533

$ 0.45 $ 4,595

(1) We declared a cash distribution of $ 0.15 in lieu of our regular quarterly distribution to our common shareholders for the quarter ending September 30, 2021, and in anticipation of the closing of the Merger.

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Management Agreement with our Manager

8 unchanged sentences

Each of those agreements was terminated, effective March 16, 2021.

We incurred administration service fees of $ 24 and $ 48 for the three and six months ended June 30, 2020, respectively, and $ 15 for the period from January 1, 2021 to March 16, 2021, all of which related to the subadministration service fees payable by RMR Advisors to State Street and reimbursable by us;

We incurred administration service fees of $ 25 and $ 73 for the three and nine months ended September 30, 2020, respectively, and $ 15 for the period from January 1, 2021 to March 16, 2021, all of which related to the subadministration service fees payable by RMR Advisors to State Street and reimbursable by us;

we did not incur any additional administration service fees beyond those reimbursable amounts for those periods.

3 unchanged sentences

Pursuant to the investment advisory agreement, RMR Advisors was compensated at an annual rate of 0.85 % of our average daily managed assets.

We incurred advisory fees of $ 547 and $ 1,252 for the three and six months ended June 30, 2020, respectively, and for the period from January 1, 2021 to January 5, 2021, we incurred advisory fees of $ 22 which is included in base management fees in our condensed consolidated statements of operations.

We incurred internal audit and compliance costs reimbursable to RMR Advisors of $ 34 and $ 68 for the three and six months ended June 30, 2020, respectively.

We incurred advisory fees of $ 599 and $ 1,851 for the three and nine months ended September 30, 2020, respectively, and for the period from January 1, 2021 to January 5, 2021, we incurred advisory fees of $ 22 which is included in base management fees in our condensed consolidated statements of operations.

We incurred internal audit and compliance costs reimbursable to RMR Advisors of $ 34 and $ 102 for the three and nine months ended September 30, 2020, respectively.

Current Management Agreement with our Manager

Effective January 5, 2021, our Manager provides services to us pursuant to a new management agreement.

We recognized base management fees of $ 721 and $ 1,414 for the three and six months ended June 30, 2021, respectively.

The annual base management fee payable quarterly ( 0.375 % per quarter) in arrears to TRC by us is equal to 1.5 % of our “Equity,” as defined under our management agreement.

For purposes of calculating the base management fee for September 30, 2021, we included the net book value of TRMT as acquired by us in the Merger when calculating “Equity.” We recognized base management fees of $ 731 and $ 2,145 for the three and nine months ended September 30, 2021, respectively.

Pursuant to the terms of our management agreement, no management incentive fees are payable until the first full quarter following the effective date of the management agreement and, thereafter, any management incentive fees would be subject to our Manager earning those fees in accordance with the management agreement adopted by us.

We did not incur any management incentive fees for the three and six months ended June 30, 2021.

We did not incur any management incentive fees for the three and nine months ended September 30, 2021.

We are required to pay or to reimburse our Manager and its affiliates for all other costs and expenses of our operations.

Some of these overhead, professional and other services are provided by The RMR LLC Group, or 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.

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.

These reimbursements 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.

These shared services costs are subject to approval by a majority of our Independent Trustees at least annually.

We incurred shared services costs of $ 312 and $ 664 and payable to our Manager for the three and six months ended June 30, 2021, respectively.

We include these amounts in reimbursement of shared

RMR MORTGAGE TRUST

We incurred shared services costs of $ 385 and $ 1,049 and payable to our Manager for the three and nine months ended September 30, 2021, 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.

In connection with the Merger, TRMT terminated its management agreement with TRC, and TRC waived its right to receive payment of the termination fees that would have otherwise resulted due to the Merger.

In consideration of this waiver, we agreed that, effective upon consummation of the Merger and the termination of TRMT's management agreement with TRC, certain of the expenses TRC had paid pursuant to its management agreement with TRMT will be included in the “Termination

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

services expenses or general and administrative expenses, as applicable, in our condensed consolidated statements of operations.

Contemporaneously with the execution of the Merger Agreement, we, TRMT and TRA entered into the TRA Letter Agreement, pursuant to which, on the terms and subject to conditions contained therein, we, TRMT and TRA have acknowledged and agreed that, effective upon consummation of the Merger, TRMT shall have terminated its management agreement with TRA, and TRA shall have waived its right to receive payment of the termination fee pursuant to such agreement.

In consideration of this waiver, we have agreed that, effective upon consummation of the Merger and the termination of TRMT’s management agreement with TRA, certain of the expenses TRA had paid pursuant to such management agreement will be included in the “Termination Fee” under and as defined in our existing management agreement with TRA.

See Note 1 for further information regarding the TRA Letter Agreement and the Merger.

Fee” under and as defined in our existing management agreement with TRC.

See Note 1 for further information regarding this waiver and change to the "Termination Fee" and the Merger.

Related Person Transactions

2 unchanged sentences

is the managing member of RMR LLC.

RMR LLC provides certain shared services to our Manager that 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.

RMR LLC provides certain shared services to our Manager that are applicable to us, and we reimburse our Manager or pay RMR LLC for the amounts our Manager or RMR LLC pays for those services.

One of our Managing Trustees and Chair of our Board of Trustees, Adam D.

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.

In connection with the Business Change, our Board of Trustees appointed Thomas J.

14 unchanged sentences

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.

Portnoy serves as the chair of the boards of trustees and boards of directors and as a managing director or managing trustee of those companies.

Other officers of RMR LLC, including Mr.

Jordan and certain of our other officers and officers of our Manager, serve as managing trustees, managing directors or officers of certain of these companies.

Our Manager, Tremont Realty Advisors LLC.

Our Manager, Tremont Realty Capital LLC.

We have a management agreement with our Manager to provide management services to us.

See Note 10 for further information regarding our management agreement with our Manager.

Our Manager also provides management services to TRMT.

Our Manager also provided management services to TRMT until the Merger.

Tremont Mortgage Trust .

As described further in Note 1, on April 26, 2021, we and TRMT entered into the Merger Agreement.

As described further in Note 1, TRMT merged with and into us as of the Effective Time.

Prior to the Merger, Adam D.

Portnoy and Matthew P.

Jordan, our Managing Trustees, are also TRMT’s managing trustees.

Lorenzini, our President, also serves as president of TRMT, and G.

Douglas Lanois, our Chief Financial Officer and Treasurer, also serves as chief financial officer and treasurer of TRMT.

Harrington serves as one of our Independent Trustees and is also an independent trustee of TRMT, and Joseph L.

Morea, one of our Independent Trustees, previously served as an independent trustee of TRMT;

Jordan, our Managing Trustees, were also TRMT’s managing trustees.

Lorenzini, our President, also served as president of TRMT, and G.

Douglas Lanois, our Chief Financial Officer and Treasurer, also served as chief financial officer and treasurer of TRMT.

Morea, one of our Independent Trustees, previously served as an independent trustee of TRMT, and Jeffrey P.

Somers, one of our Independent Trustees, previously served as an independent trustee of TRMT.

Effective as of the Effective Time, John L.

Harrington resigned from our Board of Trustees served as one of our Independent Trustees;

he previously served as an independent trustee of TRMT.

See Note 1 for further information regarding the Merger and the other Transactions.

For further information about these and other such relationships and certain other related person transactions, refer to our definitive Proxy Statement for our 2021 Annual Meeting of Shareholders, to our Current Report on Form 8-K dated April 26, 2021 and to our joint proxy statement/prospectus that is included in our registration statement on Form S-4 filed with the SEC on June 9, 2021, as subsequently amended and declared effective on July 26, 2021, or the Form S-4.

RMR MORTGAGE TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

We intend to elect to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or the IRC, effective for our 2020 taxable year.

For further information about these and other such relationships and certain other related person transactions, refer to our definitive Proxy Statement for our 2021 Annual Meeting of Shareholders, to our Current Report on Form 8-K dated April 26, 2021, to our joint proxy statement/prospectus that is included in our registration statement on Form S-4 filed with the SEC on June 9, 2021, as subsequently amended and declared effective on July 26, 2021, or the Form S-4, and to our Current Report on Form 8-K dated October 4, 2021.

We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or the IRC, effective for our 2020 taxable year.

Accordingly, we generally are not, and will not be, subject to U.S.

1 unchanged sentence

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.

Weighted Average Common Shares

We calculate basic EPS by dividing net income 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.

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Unvested share awards and other potentially dilutive common share issuances, and the related impact on earnings, are considered when calculating diluted net income per share.

The table below provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted net income per share (amounts in thousands):

For the Three Months Ended September 30, 2021 For the Nine Months Ended September 30, 2021

Weighted average common shares for basic net income per share 10,263 10,225

Effect of dilutive securities:

unvested share awards 1 —

Weighted average common shares for diluted net income per share 10,264 10,225

Commitments and Contingencies

As of June 30, 2021, we had unfunded commitments of $ 38,291 related to our loans held for investment that are not reflected in our condensed consolidated balance sheet.

These unfunded commitments had a weighted average initial maturity of 2.5 years as of June 30, 2021.

Unfunded Loan Commitments

As of September 30, 2021, we had unfunded loan commitments of $ 53,963 related to our loans held for investment that are not reflected in our condensed consolidated balance sheet.

These unfunded loan commitments had a weighted average initial maturity of 1.9 years as of September 30, 2021.

See Note 6 for further information related to our loans held for investment.

Secured Borrowings

As of September 30, 2021, we had an aggregate of $ 216,345 in principal amount outstanding under our Master Repurchase Facilities with a weighted average life to maturity of 1.3 years.

See Note 7 for further information regarding our secured debt agreements.

Legal Proceedings and Claims

As of July 30, 2021, four lawsuits have been filed by purported shareholders of ours and TRMT in connection with the proposed Merger between us and TRMT.

As of September 30, 2021, eight lawsuits had been filed by purported shareholders of ours (then, RMR Mortgage Trust, or RMRM) and TRMT in connection with the proposed Merger between us and TRMT.

The lawsuits were brought by the plaintiffs individually and are captioned Bishins v.

4 unchanged sentences

Tremont Mortgage Trust, et al ., Case No.

1:21-cv-13116 (D.N.J., filed June 29, 2021) and Parthenakis v.

1:21-cv-13116 (D.N.J., filed June 29, 2021) Parthenakis v.

RMR Mortgage Trust, et al ., Case No.

1:21-cv-05694 (S.D.N.Y, filed July 1, 2021), each, a complaint, and collectively, the complaints.

The Bishins , Lee and Merewether complaints name as defendants TRMT and the TRMT board of trustees.

The Bishins and Lee complaints also name RMRM as a defendant.

The Parthenakis complaint names as defendants us and our Board of Trustees.

The plaintiffs generally assert claims under Section 14(a) and Section 20(a) of the Exchange Act, contending that the registration statement on Form S-4 filed with the SEC on June 9, 2021, and serving as the preliminary joint proxy statement/prospectus, omitted or misrepresented material information regarding the proposed merger between us and TRMT.

The complaints generally seek injunctive relief preventing us and TRMT from consummating the Merger, rescission or rescissory damages, an award of plaintiffs’ costs, including attorneys’ fees and expenses, and such other relief the court may deem just and proper.

The Bishins complaint also seeks a declaration that the Merger Agreement was entered into in breach of the Bishins individual defendants’ fiduciary duties and is therefore unlawful and unenforceable.

The Lee and Merewether complaints additionally seek a declaration that the defendants violated Sections 14(a) and 20(a) of the Exchange Act and an order directing the defendants to disseminate a registration statement that does not contain any untrue or misleading statements of material fact.

The Parthenakis complaint also seeks an order requiring the Parthenakis defendants to account to plaintiffs for all damages suffered as a result of their wrongdoing.

We and our Board of Trustees deny that we have violated any laws or breached any duties to our shareholders and believe the claims asserted in the complaints are without merit.

1:21-cv-05694 (S.D.N.Y, filed July 1, 2021);

Tremont Mortgage Trust, et al ., Case No.

1:21-cv-0748 (S.D.N.Y., filed September 3, 2021), Finger v.

Tremont Mortgage Trust, et al.

1:21-cv-07421 (S.D.N.Y., filed September 3, 2021);

Tremont Mortgage Trust, et al.

2:21-cv-03970 (S.D.N.Y., filed September 3, 2021);

and Wilson v.

Tremont Mortgage Trust, et al.

1:21-cv-07446 (S.D.N.Y., filed September 6, 2021), each, a complaint, and collectively, the complaints.

The Bishins , Lee, Merewether, Carlisle , Finger , Whitfield and Wilson complaints named as defendants TRMT and the TRMT board of trustees.

The Bishins and Lee complaints also named RMRM as a defendant.

The Parthenakis complaint named as defendants RMRM and RMRM's Board of Trustees.

The plaintiffs generally asserted claims under Section 14(a) and Section 20(a) of the Exchange Act, contending that the registration statement on Form S-4, and serving as the preliminary joint proxy statement/prospectus, omitted or misrepresented material information regarding the proposed merger between us and TRMT.

The complaints generally sought injunctive relief preventing us and TRMT from consummating the Merger, rescission or rescissory damages, an award of plaintiffs’ costs, including attorneys’ fees and expenses, and such other relief the court may deem just and proper.

The Bishins complaint also sought a declaration that the Merger Agreement was entered into in breach of the Bishins individual defendants’ fiduciary duties and is therefore unlawful and unenforceable.

The Lee, Merewether, Wilson , Finger and Whitfield complaints additionally sought a declaration that the defendants violated Sections 14(a) and 20(a) of the Exchange Act.

The Lee, Merewether , Wilson and Whitfield complaints sought an order directing the defendants to disseminate a registration statement that does not contain any untrue or misleading statements of material fact.

The Parthenakis complaint also sought an order requiring the Parthenakis defendants to account to plaintiffs for all damages suffered as a result of their wrongdoing.

On September 27, 2021, plaintiff in the Merewether action filed a notice of voluntary dismissal.

On October 12, 2021, plaintiffs in the Lee , Finger , Carlisle , and Wilson actions each filed a notice of voluntary dismissal.

On October 12, 2021, plaintiff in the Whitfield action filed a notice of voluntary dismissal and the court entered an order dismissing the case.

On October 14, 2021,

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

the plaintiff in the Bishins action filed a notice of voluntary dismissal.

On October 15, 2021, plaintiff in the Parthenakis action filed a notice of voluntary dismissal.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements