Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, our management carried out an evaluation, under the supervision and with the participation of our Managing Trustees, our President and our Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Exchange Act. Based upon that evaluation, our Managing Trustees, our President and our Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective.
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Management Report on Assessment of Internal Control Over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system is designed to provide reasonable assurance to our management and Board of Trustees regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) in Internal Control - Integrated Framework . Based on our assessment, we believe that, as of December 31, 2021, our internal control over financial reporting is effective.
This Annual Report on Form 10-K does not include an attestation report from our registered public accounting firm on our internal control over financial reporting due to the exemption for non-accelerated filers.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
We have a Code of Conduct that applies to our officers and Trustees, our Manager, RMR Inc. and RMR LLC, senior level officers of RMR LLC, senior level officers and directors of RMR Inc. and certain other officers and employees of our Manager or RMR LLC. Our Code of Conduct is posted on our website, www.sevnreit.com. A printed copy of our Code of Conduct is also available free of charge to any person who requests a copy by writing to our Secretary, Seven Hills Realty Trust, Two Newton Place, 255 Washington Street, Suite 300, Newton, MA 02458-1634. We intend to satisfy the requirements under Item 5.05 of Form 8-K regarding disclosure of any amendments to, or waivers from, our Code of Conduct that apply to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, on our website.
The remainder of the information required by Item 10 will be included in our 2022 Proxy Statement and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by Item 11 will be included in our 2022 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity Compensation Plan Information. We may grant common shares to our officers and other employees of our Manager and of RMR LLC under our Amended and Restated 2021 Equity Compensation Plan, or the 2021 Plan. In addition, each of our Trustees receives common shares as part of his or her annual compensation for serving as a Trustee and such shares are awarded under the 2021 Plan. The terms of awards made under the 2021 Plan are determined by the Compensation Committee of our Board of Trustees at the time of the awards. The table below is as of December 31, 2021:
Number of Number of securities
securities remaining available for
to be issued upon Weighted-average future issuance under equity
exercise of exercise price of compensation plans
outstanding options, outstanding options, (excluding securities
Plan category warrants and rights
warrants and rights reflected in column (a))
(a) (b) (c)
Equity compensation plans approved by security holders - 2021 Plan None None 363,160 (1)
Equity compensation plans not approved by security holders None None None
Total None None 363,160 (1)
(1) Consists of common shares available for issuance pursuant to the terms of the 2021 Plan. Share awards that are repurchased or forfeited will be added to the common shares available for issuance under the 2021 Plan.
Payments by us to RMR LLC and RMR LLC employees are described in Notes 9 and 11 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. The remainder of the information required by Item 12 will be included in our 2022 Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 will be included in our 2022 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by Item 14 will be included in our 2022 Proxy Statement and is incorporated herein by reference.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Index to Financial Statements and Financial Statement Schedules
The following consolidated financial statements of Seven Hills Realty Trust are included on the pages indicated:
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 )
F-1
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 49 )
F-2
Consolidated Balance Sheet as of December 31, 2021
F-3
Consolidated Statement of Assets and Liabilities as of December 31, 2020
F-4
Consolidated Statement of Operations for the year ended December 31, 2021
F-5
Consolidated Statement of Operations for the year ended December 31, 2020
F-6
Consolidated Statement of Shareholders' Equity for the year ended December 31, 2021
F-7
Consolidated Statement of Changes in Net Assets for the year ended December 31, 2020
F-8
Consolidated Statement of Cash Flows for the year ended December 31, 2021
F-9
Consolidated Statement of Cash Flows for the year ended December 31, 2020
F-11
Consolidated Portfolio of Investments as of December 31, 2020
F-12
Notes to Consolidated Financial Statements
F-13
Schedule IV - Mortgage Loans on Real Estate
S-1
All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions, or are inapplicable, and therefore have been omitted.
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(b) Exhibits
Exhibit
Number Description
2.1 Agreement and Plan of Merger, dated as of April 26, 2021, between the Company and Tremont Mortgage Trust. (Incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed by the Company on April 27, 2021.)
2.2 Plan of Conversion of Seven Hills Realty Trust, a Maryland statutory trust, into the Company, dated December 21, 2021. (Incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed by the Company on December 22, 2021.)
2.3 Articles of Conversion of Seven Hills Realty Trust, a Maryland statutory trust, into the Company, dated December 21, 2021. (Incorporated by reference to Exhibit 2.2 of the Current Report on Form 8-K filed by the Company on December 22, 2021.)
3.1 Declaration of Trust of the Company, dated December 21, 2021. (Incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed by the Company on December 22, 2021.)
3.2 Bylaws of the Company, dated December 22, 2021. (Incorporated by reference to Exhibit 3.2 of the Current Report on Form 8-K filed by the Company on December 22, 2021.)
4.1 Form of Common Share Certificate. (Filed herewith.)
4.2 Description of Securities. (Incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K filed by the Company on December 22, 2021.)
8.1 Opinion of Sullivan & Worcester LLP as to certain tax matters. (Filed herewith.)
10.1 Management Agreement, dated January 5, 2021, by and between the Company and Tremont Realty Capital LLC, and, solely in respect to Section 29 thereof, The RMR Group Inc.(+) (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by the Company on January 6, 2021.)
10.2 Letter Agreement, dated as of April 26, 2021, among the Company, Tremont Mortgage Trust and Tremont Realty Capital LLC.(+) (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by the Company on April 27, 2021.)
10.3 Amended and Restated Seven Hills Realty Trust 2021 Equity Compensation Plan.(+) (Incorporated by reference to the Company's Registration Statement on Form S-8 filed by the Company on December 23, 2021.)
10.4 Form of Share Award Agreement.(+) (Filed herewith.)
10.5 Form of Indemnification Agreement.(+) (Filed herewith.)
10.6 Summary of Trustee Compensation.(+) (Incorporated by reference to Exhibit 10.7 of the Current Report on Form 8-K filed by the Company on October 4, 2021.)
10.7 Master Repurchase Agreement, dated February 18, 2021, by and between RMTG Lender LLC and UBS AG. (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by the Company on February 22, 2021.)
10.8 Limited Guaranty, dated February 18, 2021, by the Company, in favor of UBS AG. (Incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed by the Company on February 22, 2021.)
10.9 Master Repurchase Agreement, dated as of February 9, 2018, between TRMT CB Lender LLC and Citibank N.A. (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by Tremont Mortgage Trust on February 12, 2018.)
10.10 First Amendment to Master Repurchase Agreement, dated as of November 6, 2018, among TRMT CB Lender LLC, Citibank, N.A. and, for certain specified purposes, Tremont Mortgage Trust. (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by Tremont Mortgage Trust on November 7, 2018.)
10.11 Second Amendment to Master Repurchase Agreement, dated October 30, 2020, among Citibank, N.A., TRMT CB Lender LLC and, for certain specified purposes, Tremont Mortgage Trust. (Incorporated by reference to Tremont Mortgage Trust's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.)
10.12 Third Amendment to Master Repurchase Agreement and Fifth Amendment to Fee Agreement, dated as of September 30, 2021, between TRMT CB Lender LLC and Citibank, N.A. (Incorporated by reference to Exhibit 10.5 of the Current Report on Form 8-K filed by the Company on October 4, 2021.)
10.13 Amended and Restated Guaranty, dated as of September 30, 2021, by the Company in favor of Citibank, N.A.† (Filed herewith.)
10.14 Facility Loan Program Agreement and Security Agreement, dated November 9, 2021, by and between Seven Hills BH Lender LLC and BMO Harris Bank N.A. (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by the Company on November 12, 2021.)
10.15 Guaranty, dated November 9, 2021, by the Company, to and for the benefit of BMO Harris Bank N.A. (Incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed by the Company on November 12, 2021.)
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21.1 Subsidiaries of the Company. (Filed herewith.)
23.1 Consent of Deloitte & Touche LLP. (Filed herewith.)
23.2 Consent of RSM LLP. (Filed herewith.)
23.3 Consent of Sullivan & Worcester LLP. (Contained in Exhibit 8.1)
31.1 Rule 13a-14(a) Certification. (Filed herewith.)
31.2 Rule 13a-14(a) Certification. (Filed herewith.)
31.3 Rule 13a-14(a) Certification. (Filed herewith.)
31.4 Rule 13a-14(a) Certification. (Filed herewith.)
32.1 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer. (Furnished herewith.)
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH XBRL Taxonomy Extension Schema Document. (Filed herewith.)
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.)
101.DEF XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.)
101.LAB XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.)
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.)
104 Cover Page Interactive Data File. (Formatted as Inline XBRL and contained in Exhibit 101.)
(+) Contract with management or compensatory plan or arrangement.
† This document was previously filed as Exhibit 10.6 to our Current Report on Form 8-K, filed with the SEC on October 4, 2021, and is being refiled to correct a scrivener’s error.
Item 16. Form 10-K Summary
None.
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Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders of Seven Hills Realty Trust
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Seven Hills Realty Trust and subsidiaries (the "Company") as of December 31, 2021, the related consolidated statements of operations, shareholders' equity, and cash flows, for the year ended December 31, 2021, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Loans Held for Investment, Net – Identification of Impairment Indicators – Refer to Notes 3 and 6 to the financial statements
Critical Audit Matter Description
The Company evaluates loans on a loan by loan basis for possible indicators of impairment on at least a quarterly basis in order to determine whether events or changes in circumstances exist that may indicate that the carrying amounts of loans held for investment, net are no longer recoverable. The loans are typically collateralized by commercial real estate, and as a result, the Company regularly evaluates the extent and impact of any deterioration associated with the financial health and/or sale value of the underlying property, as well as the financial and operating capability of the borrower/sponsor for each individual loan investment.
Factors considered in the impairment evaluation 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,
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debt yield, collateral performance, structure, exit plan and sponsorship. The Company’s evaluation involves a certain level of judgment and/or estimation related to whether the financial performance of the collateral or the existing market conditions results in an impairment indicator. The determination of whether loans are impaired involves judgments and assumptions based on objective and subjective factors. Changes in these judgements and/or estimates could have a significant impact on the loans identified for further analysis. For the year ended December 31, 2021, no impairment loss has been recognized on the Company’s loans held for investment, net balance.
We identified the determination of impairment indicators for loans held for investment, net as a critical audit matter because of the level of judgment and significant assumptions involved in management’s assessment of whether events or changes in circumstances have occurred indicating that the carrying amounts of mortgage loans held for investment may not be recoverable. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate whether management appropriately identified impairment indicators.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the determination of impairment indicators included the following, among others:
• We evaluated a sample of loans for potential impairment by:
◦ Evaluating the accuracy and determining the relevance of the factors utilized during the Company’s evaluation.
◦ Analyzing period over period changes on items such as physical conditions of the underlying property, net operating income, debt service coverage ratio, debt yield ratio, occupancy, loan structure and modifications, leasing and tenant profiles, remaining loan term and exit plan, progress of redevelopment plans, and risk ratings to determine impact on loan performance.
◦
◦ Reviewing any updates (or lack thereof) to each loan’s risk rating period over period.
◦ Evaluating the financial performance of the collateral associated with each loan.
◦ Reviewing the changes in budgets/timelines and the summaries of third-party reports, where applicable, for loans on projects involving construction.
◦ Evaluating the impact of macroeconomic and microeconomic events on the borrower, sponsor, or asset type.
• We reviewed the payment history for all loans in the Company’s portfolio to ensure that the borrowers are making contractual payments in accordance with the loan agreements.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 17, 2022
We have served as the Company’s auditor since 2021.
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Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders of RMR Mortgage Trust
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of statement of assets and liabilities of RMR Mortgage Trust and its subsidiaries (the Trust), including the consolidated schedule of investments, as of December 31, 2020, the related consolidated statements of operations and cash flows for the year then ended, the consolidated statement of changes in net assets for each of the year in the period then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Trust as of December 31, 2020, the results of its operations and its cash flows for the year then ended and the changes in net assets for the year in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Trust’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Trust in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities and investments owned as of December 31, 2020, by correspondence with the custodian and borrowers. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ RSM US LLP
We served as the auditor of one or more RMR investment companies since 2018.
Boston, Massachusetts
February 24, 2021
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SEVEN HILLS REALTY TRUST
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except per share data)
December 31, 2021
ASSETS
Cash and cash equivalents $ 26,197
Restricted cash 98
Loans held for investment, net 570,780
Accrued interest receivable 1,433
Prepaid expenses and other assets 1,485
Total assets $ 599,993
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued liabilities and deposits $ 1,561
Secured financing facilities, net 339,627
Due to related persons 1,111
Total liabilities 342,299
Commitments and contingencies
Shareholders' equity:
Common shares of beneficial interest, $ 0.001 par value per share; 25,000,000 shares authorized; 14,597,079 shares issued and outstanding
15
Additional paid in capital 237,624
Cumulative net income 24,650
Cumulative distributions ( 4,595 )
Total shareholders' equity 257,694
Total liabilities and shareholders' equity $ 599,993
See accompanying notes.
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SEVEN HILLS REALTY TRUST
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES (Predecessor Basis)
(amounts in thousands, except per share data)
December 31, 2020
ASSETS
Cash and cash equivalents $ 103,314
Loans held for investment (cost $ 91,879 )
91,879
Restricted cash 250
Dividends and interest receivable 139
Prepaid expenses 345
Other assets 128
Total assets 196,055
LIABILITIES
Accrued income taxes 2,386
Accrued expenses and other liabilities 491
Advisory fee payable 141
Deferred revenue 82
Compliance and internal audit costs payable 31
Administrative fee payable 30
Total liabilities 3,161
Net assets attributable to common shares $ 192,894
Composition of net assets attributable to common shares
Common shares, $ 0.001 par value per share; unlimited number of shares authorized
$ 10
Additional paid in capital 192,884
Net assets attributable to common shares $ 192,894
Common shares outstanding 10,202
Net asset value per share attributable to common shares $ 18.91
See accompanying notes.
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SEVEN HILLS REALTY TRUST
CONSOLIDATED STATEMENT OF OPERATIONS
(amounts in thousands, except per share data)
Year Ended December 31, 2021
INCOME FROM INVESTMENTS:
Interest income from investments $ 16,775
Purchase discount accretion 18,932
Less: interest and related expenses ( 2,253 )
Income from investments, net 33,454
OTHER EXPENSES:
Base management fees 3,221
General and administrative expenses 3,091
Reimbursement of shared services expenses 1,565
Other transaction related costs 589
Total other expenses 8,466
Income before income tax expense 24,988
Income tax expense ( 338 )
Net income $ 24,650
Weighted average common shares outstanding - basic and diluted 11,304
Net income per common share - basic and diluted $ 2.18
See accompanying notes.
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SEVEN HILLS REALTY TRUST
CONSOLIDATED STATEMENT OF OPERATIONS (Predecessor Basis)
(dollars in thousands)
Year Ended December 31, 2020
Investment Income
Dividend income $ 6,804
Interest income from mortgage loan investments 563
Other income 353
Total investment income 7,720
Expenses
Advisory 2,364
Legal 362
Compliance and internal audit 145
Shareholder reporting 110
Custodian 86
Administrative 77
Preferred share remarketing and auction fees 65
Trustees' fees and expenses 55
Audit 49
Other 424
Total expenses before interest expense 3,737
Interest expense 1,208
Total expenses 4,945
Net investment income 2,775
Realized and change in unrealized gains (losses) on investments
Net realized gain on investments before taxes 13,208
Income tax expense ( 2,386 )
Net realized gains on investments after taxes 10,822
Net change in unrealized loss on investments ( 69,278 )
Net realized and change in unrealized loss on investments after taxes ( 58,456 )
Net decrease in net assets before preferred distributions resulting from operations ( 55,681 )
Distributions to preferred shareholders from net investment income ( 323 )
Net decrease in net assets attributable to common shares resulting from operations $ ( 56,004 )
See accompanying notes.
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SEVEN HILLS REALTY TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(amounts in thousands)
Number of Additional
Common Common Paid In Cumulative Cumulative
Shares Shares Capital Net Income Distributions Total
Balance at December 31, 2020 10,202 $ 10 $ 192,884 $ — $ — $ 192,894
Issuance of shares 4,285 5 44,170 — — 44,175
Share grants 116 — 627 — — 627
Share repurchases ( 6 ) — ( 57 ) — — ( 57 )
Net income — — — 24,650 — 24,650
Distributions — — — — ( 4,595 ) ( 4,595 )
Balance at December 31, 2021 14,597 $ 15 $ 237,624 $ 24,650 $ ( 4,595 ) $ 257,694
See accompanying notes.
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SEVEN HILLS REALTY TRUST
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS (Predecessor Basis)
(amounts in thousands)
Year Ended December 31, 2020
Decrease in net assets resulting from operations
Net investment income $ 2,775
Net realized gain on investments after taxes 10,822
Net change in unrealized loss on investments ( 69,278 )
Distributions to preferred shareholders from net investment income ( 323 )
Net decrease in net assets attributable to common shares resulting from operations ( 56,004 )
Distributions to common shareholders from:
Distributable earnings ( 6,427 )
Total distributions to common shareholders ( 6,427 )
Capital shares transactions
Redemption of auction rate preferred shares ( 16,675 )
Net decrease in capital share transactions ( 16,675 )
Liquidation preference of preferred shares repurchased 16,675
Total decrease in net assets attributable to common shares ( 62,431 )
Net assets attributable to common shares
Beginning of year 255,325
End of year $ 192,894
Common shares issued and repurchased
Shares outstanding, beginning of year 10,202
Shares outstanding, end of year 10,202
See accompanying notes.
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SEVEN HILLS REALTY TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
Year Ended December 31, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24,650
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion of purchase discount ( 18,932 )
Share based compensation 627
Amortization of deferred financing costs 211
Amortization of loan origination and exit fees ( 1,679 )
Changes in operating assets and liabilities:
Accrued interest receivable and interest advances ( 1,107 )
Prepaid expenses and other assets ( 932 )
Accounts payable, accrued liabilities and deposits ( 2,329 )
Due to related persons 283
Net cash provided by operating activities 792
CASH FLOWS FROM INVESTING ACTIVITIES:
Origination of loans held for investment ( 343,471 )
Additional funding of loans held for investment ( 4,343 )
Repayment of loans held for investment 59,041
Payment of merger related costs
( 6,160 )
Cash assumed in merger 11,070
Net cash used in investing activities ( 283,863 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from secured financing facilities 249,804
Repayments under secured financing facilities ( 37,897 )
Payments of deferred financing costs ( 1,453 )
Repurchase of common shares ( 57 )
Distributions ( 4,595 )
Net cash provided by financing activities 205,802
Decrease in cash, cash equivalents and restricted cash ( 77,269 )
Cash, cash equivalents and restricted cash at beginning of period 103,564
Cash, cash equivalents and restricted cash at end of period $ 26,295
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 1,718
Income taxes paid $ 2,681
NON-CASH INVESTING ACTIVITIES
Loans held for investment acquired by issuance of common shares $ 162,990
Working capital net liabilities assumed $ 924
NON-CASH FINANCING ACTIVITIES
Assumption of master repurchase facility $ 128,962
Issuance of common shares $ 44,175
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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 consolidated balance sheet to the amounts shown in the consolidated statement of cash flows:
As of December 31, 2021
Cash and cash equivalents $ 26,197
Restricted cash 98
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows $ 26,295
See accompanying notes.
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SEVEN HILLS REALTY TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS (Predecessor Basis)
(dollars in thousands)
Year Ended
December 31, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net decrease in net assets before preferred distributions resulting from operations $ ( 55,681 )
Adjustments to reconcile net decrease in net assets before preferred distributions resulting from operations to cash provided by operating activities:
Origination of loans held for investment ( 91,879 )
Purchases of long term investments ( 10,078 )
Proceeds from sales of long term investments 302,797
Net sales of short term investments 4,477
Decrease in payable for securities purchased ( 10 )
Changes in assets and liabilities:
Decrease in dividends and interest receivable and other assets 2,436
Increase in accrued income taxes 2,386
Increase in accrued expenses and other liabilities 430
Increase in prepaid expenses ( 296 )
Decrease in advisory fee payable ( 118 )
Decrease in interest payable ( 212 )
Decrease in compliance and internal audit costs payable ( 6 )
Increase in administrative fee payable 3
Net change in unrealized loss on investments 69,278
Net realized gain on investments and foreign currency transactions ( 13,208 )
Cash provided by operating activities 210,319
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to preferred shareholders ( 323 )
Distributions paid to common shareholders ( 6,427 )
Repayment of revolving credit facility ( 88,000 )
Redemption of auction preferred shares ( 16,675 )
Cash used in financing activities ( 111,425 )
Increase in cash and cash equivalents 98,894
Cash and cash equivalents at beginning of year 4,670
Cash and cash equivalents and restricted cash at end of year $ 103,564
Cash and cash equivalents and restricted cash at end of year
Cash and cash equivalents $ 103,314
Restricted cash 250
Cash and cash equivalents and restricted cash at end of year $ 103,564
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest and fees on borrowings $ 1,420
See accompanying notes.
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SEVEN HILLS REALTY TRUST
CONSOLIDATED PORTFOLIO OF INVESTMENTS - DECEMBER 31, 2020 (Predecessor Basis)
(dollars in thousands)
Location Property Type Committed Principal Amount Coupon Rate Origination Date Maturity Date Cost Value
MORTGAGE LOANS HELD FOR INVESTMENT 47.6 % (1)
Downers Grove, IL Office $ 30,000 L + 4.25 %
09/25/2020 11/25/2023 $ 29,232 $ 29,232
Durham, NC Lab $ 21,500 L + 4.35 %
12/17/2020 12/17/2023 13,281 13,281
Los Angeles, CA Retail $ 24,600 L + 4.25 %
12/17/2020 12/17/2022 17,029 17,029
Aurora, IL Office/Industrial $ 16,500 L + 4.35 %
12/18/2020 12/18/2023 14,540 14,540
Berkeley, CA Lab $ 19,120 L + 4.35 %
12/30/2020 12/30/2023 17,797 17,797
Total Mortgage Loans - 47.6 %
$ 91,879 91,879
Other assets less liabilities - 52.4 % (2)
101,015
Net assets attributable to common shareholders – 100.0 %
$ 192,894
(1) The mortgage loans we invest in are not registered under the securities laws. These mortgage loans are valued using Level III inputs as defined in the fair value hierarchy under GAAP.
(2) Please refer to our consolidated statement of assets and liabilities for further information on these amounts.
See accompanying notes.
F-13
SEVEN HILLS REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Note 1. Organization
Seven Hills Realty Trust (formerly known as RMR Mortgage Trust) is a Maryland real estate investment trust, or REIT. We were previously organized as a Maryland statutory trust and were registered under the Investment Company Act of 1940, as amended, or the 1940 Act, as a closed-end management investment company. Our investment objective while we operated as a registered investment company was investing in equity securities of real estate companies.
On January 5, 2021, the Securities and Exchange Commission, or SEC, issued an order granting our request to deregister as an investment company under the 1940 Act, or the Deregistration Order. As a result, we changed our 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 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.
On December 22, 2021, we converted from a Maryland statutory trust to a Maryland REIT.
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. The merger with TRMT, or 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 and we changed our name to “Seven Hills Realty Trust”. The combined company continues to be managed by Tremont Realty Capital LLC, or TRC, or our Manager, and our common shares continue to trade on The Nasdaq Stock Market LLC, or Nasdaq, under our current symbol “SEVN".
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 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 our common shares of beneficial interest, $ 0.001 par value per share, or our common shares. No fractional common shares of ours 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 our 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.
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 per share 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 with Citibank, N.A., or Citibank, or the Citibank Master Repurchase Facility, and closing costs of $ 6,160 and assumed working capital of $ 10,146 .
Following the Merger and the other transactions contemplated by the Merger Agreement, we assumed the Citibank Master Repurchase Facility and the portfolio of 10 loans with an aggregate principal balance of $ 204,692 .
F-14
SEVEN HILLS REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Note 2. Basis of Presentation
Prior to the Business Change, the Trust was accounted for as an investment company in accordance with the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 946, Financial Services - Investment Companies , or the Predecessor Basis. Upon the Business Change, we discontinued the application of guidance in ASC Topic 946 and prospectively applied the guidance required under U.S. generally accepted accounting principles, or GAAP, applicable to companies that are not investment companies, or the Successor Basis. As a result of these changes, our consolidated financial statements as of and for the year ended December 31, 2021 are presented separately from our financial statements on the Predecessor Basis, as of and for the year ended December 31, 2020. The results of operations from January 1, 2021 through January 4, 2021 were not material to the Trust's consolidated financial statements and have not been presented separately, but they are included in our consolidated statement of operations for the year ended December 31, 2021.
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. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated.
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 consolidated financial statements include the fair value of financial instruments .
Note 3. Summary of Significant Accounting Policies
Consolidation. These 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.
For each investment we make, we evaluate whether consolidation of the borrower's financial statements is required under GAAP. GAAP addresses the application of consolidation principles to an investor with a controlling financial interest.
Cash, Cash Equivalents and Restricted Cash. We consider highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.
Restricted cash primarily consists of deposit proceeds from potential borrowers when originating loans, which may be returned to the applicable borrower upon the closing of the loan, after deducting any transaction costs paid by us for the benefit of such borrower.
Secured Financing Agreements. Loans financed through secured financing 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 secured financing 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 secured financing agreements is recorded as interest expense.
Loans Held for 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 fees, accreted fees, unamortized premiums and unaccreted discounts, as applicable, 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.
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” (lower risk) through “5” (impaired/loss likely) 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
F-15
SEVEN HILLS REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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.
"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/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/or the property having a very high LTV.
See Note 6 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 the expected future cash flows discounted at the loan's contractual effective rate and the fair value of any available collateral, net of any costs we expect to incur to realize that value. The determination of 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 regarding 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 consolidated statement of operations.
As of December 31, 2021, we have not recorded any allowance 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. FASB 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 the ability to access.
Level II—Inputs include quoted prices in markets that are less active or inactive or for which all significant inputs are observable, either directly or indirectly.
Level III—Inputs include unobservable prices and are supported by little or no market activity and are significant to the overall fair value measurement.
F-16
SEVEN HILLS REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Loan Deferred Fees. Loan origination and exit fees are reflected in loans held for investment, net, in our consolidated balance sheet and include fees charged to borrowers. These fees are amortized and accreted, respectively, into interest income over the life of the related loans held for investment.
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 consolidated statement of operations as a component of interest and related expenses.
Net Income Per Common Share. We calculate net income per common share - basic by dividing net income by the weighted average number of common shares outstanding during the period. We calculate net income per common share - diluted using the more dilutive of the two class or treasury stock method. Unvested share awards and other potentially dilutive common share issuances, and the related impact on earnings, are considered when calculating net income per common share -diluted.
Revenue Recognition. 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.
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.
Securities Transactions and Investment Income. Under the Predecessor Basis, we recorded securities transactions on a trade date basis, dividend income on the ex-dividend date and any non-cash dividends at the fair market value of the securities received. We used the accrual method for recording interest income, including accretion of original issue discount, where applicable, and accretion of discount on short term investments and identified cost basis for realized gains and losses from securities transactions. The difference between cost and fair value for investments we continue to hold is reflected as unrealized gain (loss), and any change in that amount from a prior period is reflected in the accompanying consolidated statement of operations under the Predecessor Basis.
Note 4. Recent Accounting Pronouncements
In June 2016, the 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 “expected loss” model that generally will result in the earlier recognition of allowance for 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. As a smaller reporting company, we expect to adopt ASU No. 2016-13 on January 1, 2023. We are currently assessing the potential impact the adoption of ASU No. 2016-13 will have on our 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.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires that an acquirer account for the related revenue contracts in accordance with FASB ASC Topic 606 as if it had originated the contracts. The acquiring entity shall recognize and measure the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements, rather than at fair value at the acquisition date. ASU No. 2021-08 is effective for fiscal years
F-17
SEVEN HILLS REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
beginning after December 15, 2022, with early adoption permitted. On October 1, 2021, we early adopted ASU No. 2021-08. The adoption of ASU No. 2021-08 did not have an impact on our consolidated financial statements.
Note 5. 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 the Citibank Master Repurchase Facility and closing costs of $ 6,160 and assumed working capital of $ 10,146 .
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
4,284,673
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 Citibank 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 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 was recorded for the difference between the fair value and purchase price of the loans acquired. The purchase discount was allocated to each acquired TRMT loan based on their relative fair value and has been and is being accreted into income over the remaining term of the respective loan. For the year ended December 31, 2021, we recorded purchase discount accretion of $ 18,932 .
F-18
SEVEN HILLS REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
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 )
Citibank Master Repurchase Facility ( 128,962 )
Due to related persons ( 657 )
Net assets acquired 50,334
Assumed working capital ( 10,146 )
Assumed Citibank Master Repurchase Facility, principal balance 128,962
Consideration transferred and liabilities assumed $ 169,150
Note 6. 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 loan portfolio using cash on hand and advancements under our debt facilities and we acquired TRMT's loan portfolio in the Merger with our common shares. See Note 7 for further information regarding our secured debt agreements.
The table below provides overall statistics for our loan portfolio as of December 31, 2021 and 2020:
As of December 31,
2021
(Successor Basis) 2020 (Predecessor Basis)
Number of loans 26 5
Total loan commitments $ 648,266 $ 111,720
Unfunded loan commitments (1)(2)
$ 57,772 $ 18,857
Principal balance (2)
$ 590,590 $ 92,863
Carrying value $ 570,780 $ 91,879
Weighted average coupon rate 4.54 % 5.08 %
Weighted average all in yield (3)
5.08 % 5.71 %
Weighted average LIBOR floor 0.68 % 0.78 %
Weighted average maximum maturity (years) (4)
3.8 4.2
Weighted average risk rating 2.9 3.0
(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 as of December 31, 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, 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.
F-19
SEVEN HILLS REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
The table below represents our loan activities during the year ended December 31, 2021:
Principal Balance Deferred Fees and Other Items Carrying Value
Balance at December 31, 2020 (Predecessor Basis) $ 92,863 $ ( 984 ) $ 91,879
Additional funding 4,710 — 4,710
Originations 347,366 ( 3,895 ) 343,471
Repayments ( 59,041 ) ( 156 ) ( 59,197 )
Net amortization of deferred fees — 1,835 1,835
Loans acquired in Merger (1)
204,692 901 205,593
Purchase discount on loans acquired in Merger — ( 36,443 ) ( 36,443 )
Purchase discount accretion (2)
— 18,932 18,932
Balance at December 31, 2021 (Successor Basis) $ 590,590 $ ( 19,810 ) $ 570,780
(1) Deferred fees and other items for loans acquired in Merger represent exit fees contractually due upon repayment of loans acquired in the Merger.
(2) Purchase discount accretion reflects the impact of a waived exit fee of $ 120 due from a borrower of a loan acquired in the Merger.
The tables below detail the property type and geographic location of the properties securing the loans in our portfolio as of December 31, 2021 and 2020:
As of December 31,
2021
(Successor Basis) 2020
(Predecessor Basis)
Property Type Number of Loans
Carrying Value
Percentage of Value Number of Loans
Carrying Value
Percentage of Value
Office (1)
13 $ 269,865 47 % 2 $ 38,106 41 %
Multifamily 5 106,002 19 % — — — %
Lab 1 13,398 2 % 2 31,078 34 %
Retail 4 88,724 16 % 1 17,029 19 %
Industrial (1)
3 92,791 16 % — 5,666 6 %
26 $ 570,780 100 % 5 $ 91,879 100 %
(1) Two loan investments secured by mixed use properties consisting of office space and an industrial warehouse in Aurora, IL and Colorado Springs, CO are classified as office for the purpose of counting the number of loans in our portfolio because the majority of the square footage of the properties consists of office space. 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.
As of December 31,
2021
(Successor Basis) 2020
(Predecessor Basis)
Geographic Location Number of Loans
Carrying Value
Percentage of Value Number of Loans Carrying Value Percentage of Value
East 3 $ 55,132 10 % — $ — — %
South 7 153,495 27 % 1 13,281 14 %
West 8 145,453 25 % 2 34,826 38 %
Midwest 8 216,700 38 % 2 43,772 48 %
26 $ 570,780 100 % 5 $ 91,879 100 %
Loan Risk Ratings
We evaluate each of our loans for impairment at least quarterly by assessing a variety of risk factors in relation to each loan and assigning a risk rating to each loan based on those factors. The higher the number, the greater the risk level.
F-20
SEVEN HILLS REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
The following table allocates the carrying value of our loan portfolio as of December 31, 2021 and 2020 based on our internal risk rating policy:
As of December 31,
2021 (Successor Basis) 2020 (Predecessor Basis)
Risk Rating Number of Loans Carrying Value Number of Loans Carrying Value
1 — $ — — $ —
2 4 94,743 — —
3 21 463,600 5 91,879
4 1 12,437 — —
5 — — — —
26 $ 570,780 5 $ 91,879
The weighted average risk rating of our loans by carrying value was 2.9 and 3.0 as of December 31, 2021 and 2020, 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, 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 December 31, 2021, we had one loan representing approximately 2 % 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 December 31, 2021 or 2020. See Note 3 for further information regarding our loan risk ratings.
As of December 31, 2021 and February 14, 2022, 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.
Note 7. Secured Financing Agreements
UBS Master Repurchase Facility
On February 18, 2021, one of our wholly owned subsidiaries entered into our master repurchase agreement with UBS AG, or UBS, or our UBS Master Repurchase Agreement, for a facility, or our UBS Master Repurchase Facility, pursuant to which we may sell to UBS, and later repurchase, commercial mortgage loans, which are referred to as purchased assets. The maximum amount of available advancements under the UBS Master Repurchase Agreement is $ 192,000 , and 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 %.
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 as 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.
F-21
SEVEN HILLS REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
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.
In addition, our UBS Master Repurchase Agreement provides for acceleration of the date of repurchase of the purchased assets by us and UBS’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.
Citibank Master Repurchase Facility
As previously mentioned in Notes 1 and 5, as a result of the Merger, we assumed the Citibank Master Repurchase Facility. TRMT had a master repurchase facility pursuant to a master repurchase agreement with Citibank, or the Citibank Master Repurchase Agreement, dated as of February 9, 2018, 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 under the Citibank Master Repurchase Agreement. In connection with the closing of the Merger, TRMT's wholly owned subsidiary 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 is $ 213,482 , and the expiration date thereof is November 6, 2022, subject to earlier termination as provided for in 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.
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 RMR LLC.
BMO Facility
On November 9, 2021, one of our wholly owned subsidiaries entered into our facility loan program agreement and the security agreement with BMO Harris Bank N.A., or our BMO Loan Program Agreement, with BMO as administrative agent for the lenders.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Amounts advanced under an uncommitted credit facility in the maximum principal amount of $ 100 million, or the BMO Facility, may be used to fund new mortgage loan originations and/or fund future funding obligations under existing and new mortgage loans pursuant to separate agreements, or the BMO Facility Loan Agreements. BMO Facility Loan Agreements issued under the BMO Facility will be coterminous with the pledged mortgage loan investments, are not subject to margin calls and allow for up to an 80 % advance rate, subject to certain loan to cost and LTV limits. Interest on advancements under the BMO Facility will be calculated at SOFR plus a premium. BMO Facility Loan Agreements issued under our BMO Facility are secured by a security interest and collateral assignment of the underlying loans to our borrowers which are secured by real property owned by such borrowers.
In connection with our BMO Loan Program Agreement, we guaranteed certain of the obligations under our BMO Loan Program Agreement and the BMO Facility Loan Agreements pursuant to a limited guaranty from us to and for the benefit of the administrative agent for itself and such other lenders. Specifically, the BMO Guaranty requires us to guarantee 25 % of the then current outstanding principal balance of the facility loans and 100 % of losses or the entire indebtedness in the event of certain bad acts as well as any costs and expenses of the administrative agent or lenders related to our BMO Loan Program Agreement. In addition, the BMO Guaranty contains customary financial covenants that require us to maintain a minimum tangible net worth and a minimum cash liquidity and satisfy a total indebtedness to stockholders’ equity ratio.
Our BMO Loan Program Agreement provides for acceleration of all payment obligations due under the facility loans 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 R MR LLC.
We refer to the UBS Master Repurchase Facility, the Citibank Master Repurchase Facility and the BMO Facility, collectively, as our Secured Financing Facilities. We refer to the UBS Master Repurchase Agreement and the Citibank Master Repurchase Agreement, collectively, as our Master Repurchase Agreements, and to our Master Repurchase Agreements, the BMO Loan Program Agreement and the BMO Facility Loan Agreements, collectively, as our Secured Financing Agreements. We refer to the UBS Guaranty, Citibank Guaranty and BMO Guaranty, collectively, as our Guarantees.
The weighted average interest rate for advancements under the UBS Master Repurchase Facility, the Citibank Master Repurchase Facility and the BMO Facility were 2.1 %, 1.9 % and 2.0 %, respectively, for the year ended December 31, 2021.
As of December 31, 2021, we have not received a margin call under any of our Master Repurchase Agreements and we were in compliance with all of the covenants and ot her terms under our Secured Financing Agreements and Guarantees.
As of December 31, 2021 and February 14, 2022, we had aggregate outstanding principal balances under our Secured Financing Facilities of $ 340,869 and $ 278,782 , respectively.
The table below summarizes our Secured Financing Agreements as of December 31, 2021:
Debt Obligation
Weighted Average Collateral
Maximum Facility Size Principal Balance Carrying Value Coupon Rate Remaining Maturity (1) (years)
Principal Balance
Master Repurchase Agreements
UBS Master Repurchase Facility $ 192,000 $ 167,928 $ 167,024 L + 1.99 %
2.0 $ 225,868
Citibank Master Repurchase Facility 213,482 161,825 161,724 L + 1.92 %
0.7 222,129
Asset Specific Financing
BMO Facility 100,000 11,116 10,879 S + 1.96 %
2.7 14,821
Total/Weighted Average $ 505,482 $ 340,869 $ 339,627 1.4 $ 462,818
(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 UBS Master Repurchase Facility and Citibank Master Repurchase Facility mature on February 18, 2024 and November 6, 2022, respectively. Our BMO Facility matures at various dates based on the respective underlying loans held for investment.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
As of December 31, 2021, our outstanding borrowings had the following remaining maturities:
Principal Payments on
Secured Financing Facilities
2022 $ 161,825
2023 50,483
2024 128,561
2025 —
2026 —
$ 340,869
For the year ended December 31, 2021, we recorded interest expense of $ 1,514 , $ 724 and $ 15 related to our UBS Master Repurchase Facility, Citibank Master Repurchase Facility and BMO Facility, respectively. For the year ended December 31, 2020, we recorded interest expense of $ 1,208 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.
Note 8. Fair Value of Financial Instruments
ASC Topic 820 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 December 31, 2021 and 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.
We estimate the fair values of our loans held for investment and outstanding principal balances under our Secured Financing 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 current base interest.
The table below provides information regarding financial assets and liabilities not carried at fair value on a recurring basis in our consolidated balance sheets:
As of December 31,
2021 (Successor Basis) 2020 (Predecessor Basis)
Carrying Value Fair Value Carrying Value Fair Value
Financial assets
Loans held for investment $ 570,780 $ 597,669 $ 91,879 $ 91,879
Financial liabilities
Secured Financing Facilities $ 339,627 $ 341,679 — —
There were no transfers of financial assets or liabilities within the fair value hierarchy during the year ended December 31, 2021.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Note 9. Shareholders' Equity
Common Share Awards
We have common shares available for issuance under the terms of our Amended and Restated 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 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, 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 on 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 on that day.
On October 1, 2021, we awarded an aggregate of 83,000 of our common shares, valued at $ 10.41 per share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other employees of our Manager and of RMR LLC.
A summary of shares granted, forfeited, vested and unvested under the terms of the 2021 Plan for the year ended December 31, 2021 is as follows:
2021
Number of
Shares Weighted Average Grant
Date Fair Value
Unvested shares, beginning of year — $ —
Shares granted 116,000 $ 10.63
Shares vested ( 50,786 ) $ 10.89
Shares granted at the Effective Time of the Merger 26,370 $ 10.31
Unvested shares, end of year 91,584 $ 10.39
The 91,584 unvested shares as of December 31, 2021 are scheduled to vest as follows: 28,415 shares in 2022, 25,306 shares in 2023, 21,263 shares in 2024 and 16,600 shares in 2025.
As of December 31, 2021, the estimated future compensation expense for the unvested shares was $ 903 . The weighted average period over which the compensation expense will be recorded is approximately 24 months. During the year ended December 31, 2021, we recorded $ 627 of compensation expense related to the 2021 Plan. At December 31, 2021, 363,160 of our common shares remained available for issuance under the 2021 Plan.
Common Share Purchases
During the year ended December 31, 2021, we purchased 5,530 of our common shares from certain former and current officers and employees of our Manager and RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares, valued at the closing price of our common shares on Nasdaq on the applicable purchase date. The aggregate value of common shares purchased during the year ended December 31, 2021 was $ 57 .
Distributions
For the year ended December 31, 2021, we declared and paid distributions to common shareholders as follows:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Record Date Payment Date Distribution per Share Total Distribution
April 26, 2021 May 20, 2021 $ 0.15 $ 1,530
July 26, 2021 August 19, 2021 0.15 1,532
September 7, 2021 September 29, 2021 0.15 1,533
$ 0.45 $ 4,595
On January 13, 2022, we declared a quarterly distribution of $ 0.25 per common share, or $ 3,649 , to shareholders of record on January 24, 2022. We expect to pay this distribution to our shareholders on or about February 17, 2022 using cash on hand.
Distributions per share paid by us to our common shareholders for the year ended December 31, 2021 were $ 0.45 . The characterization of our distributions for 2021 was 79 % ordinary income and 21 % return of capital.
Note 10. Management Agreement with our Manager
We have no employees. The personnel and various services we require to operate our business are provided to us by our Manager, 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.
Prior Agreements with RMR Advisors
Administration Agreement. Prior to its merger with our Manager on January 6, 2021, RMR Advisors LLC, or RMR Advisors, performed administrative functions for us pursuant to an administration agreement with us. RMR Advisors was also a party to a subadministration agreement with State Street Bank and Trust Company, or State Street, to perform substantially all fund accounting and other administrative services for us. Under the administration agreement, RMR Advisors was entitled to reimbursement of the cost of providing administrative services. On January 6, 2021, RMR Advisors merged with and into our Manager, with our Manager being the surviving entity, and our Manager assumed the administration agreement with us and the subadministration agreement with State Street. Each of those agreements was terminated, effective March 16, 2021. We incurred administration service fees of $ 15 for the period from January 1, 2021 to March 16, 2021 and $ 77 for the year ended December 31, 2020, 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.
Investment Advisory Agreement. Prior to January 5, 2021, RMR Advisors provided us with a continuous investment program, made day to day investment decisions and generally managed our business affairs in accordance with our investment objectives and policies as a registered investment company pursuant to an investment advisory agreement. The investment advisory agreement was terminated on January 5, 2021 with our deregistration as an investment company. 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 $ 22 for the period from January 1, 2021 to January 5, 2021 and $ 2,364 for the year ended December 31, 2020 which is included in advisory fees in our consolidated statement of operations. We incurred internal audit and compliance costs reimbursable to RMR Advisors of $ 145 for the year ended December 31, 2020.
Current Management Agreement with our Manager
Effective January 5, 2021, we entered into a new management agreement with our Manager. Prior to the Merger, our Manager also provided management services to TRMT.
In connection with the Merger, TRMT terminated its management agreement with our Manager , and our Manager 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 our Manager , certain of the expenses our Manager had paid pursuant to TRMT’s management agreement will be included in the “Termination Fee” under and as defined in our existing management agreement with our Manager. See Note 1 for further information regarding this waiver and change to the "Termination Fee" and the Merger.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Our management agreement with our Manager provides for an annual base management fee and an incentive fee, payable in cash, among other terms:
• Base Management Fee . We are required to pay our Manager the annual base management fee equal to 1.5 % of our “Equity”, payable in cash quarterly ( 0.375 % per quarter) in arrears. Under our management agreement, “Equity” means (a) the sum of (i) our net asset value as of January 5, 2021, plus (ii) the net proceeds received by us from any future sale or issuance of shares of beneficial interest, plus (iii) our cumulative “Distributable Earnings,” as defined below, for the period commencing on January 5, 2021 to the end of the applicable most recent completed calendar quarter, less (b) (i) any distributions previously paid to holders of our common shares, (ii) any incentive fee previously paid to our Manager and (iii) any amount that we may have paid to repurchase our common shares. All items in the foregoing sentence (other than clause (a)(iii)) are calculated on a daily weighted average basis. As a result of the Merger, as of September 30, 2021, the net book value of TRMT was included as "Equity" under the management agreement.
• Incentive Fee. We are required to pay our Manager quarterly an incentive fee in arrears in cash equal to the difference between:
▪ The product of (i) 20 % and (ii) the difference between (A) our Distributable Earnings for the most recent 12 month period (or such lesser number of completed calendar quarters, if applicable), including the calendar quarter (or part thereof) for which the calculation of the incentive fee is being made, and (B) the product of (1) our Equity in the most recent 12 month period (or such lesser number of completed calendar quarters, if applicable), including the calendar quarter (or part thereof) for which the calculation of the incentive fee is being made, and (2) 7 % per year, and
▪ The sum of any incentive fees paid to our Manager with respect to the first three calendar quarters of the most recent 12 month period (or such lesser number of completed calendar quarters, if applicable).
No incentive fee shall be payable with respect to any calendar quarter unless Distributable Earnings for the 12 most recently completed calendar quarters (or such lesser number of completed calendar quarters, if applicable) in the aggregate is greater than zero . Pursuant to the terms of our management agreement, no management incentive fees were payable until after the quarter ended March 31, 2021 and, thereafter, any management incentive fees are subject to our Manager earning those fees in accordance with the management agreement.
For purposes of the calculation of base management fees and incentive fees payable to our Manager under our management agreement, “Distributable Earnings” is defined as net income (or loss) attributable to our common shareholders, computed in accordance with GAAP, including realized losses not otherwise included in GAAP net income (loss), and excluding: (a) the incentive fees earned by our Manager; (b) depreciation and amortization (if any); (c) non-cash equity compensation expense (if any); (d) unrealized gains, losses and other similar non-cash items that are included in net income for the period of the calculation (regardless of whether such items are included in or deducted from net income or in other comprehensive income or loss under GAAP); and (e) one-time events pursuant to changes in GAAP and certain material non-cash income or expense items, in each case after discussion between our Manager and our Independent Trustees and approved by a majority of our Independent Trustees. Distributable Earnings are reduced for realized losses on loan investments when amounts are deemed uncollectable. Pursuant to the terms of our management agreement, the exclusion of depreciation and amortization from the calculation of Distributable Earnings shall only apply with respect to real property we own.
Our shares of beneficial interest that are entitled to a specific periodic distribution or have other debt characteristics will not be included in “Equity” for the purpose of calculating incentive fees payable to our Manager. Instead, the aggregate distribution amount that accrues to such shares during the calendar quarter of such calculation will be subtracted from Distributable Earnings for purposes of calculating incentive fees, unless such distribution is otherwise already excluded from Distributable Earnings. Equity and Distributable Earnings as defined in our management agreement are non-GAAP financial measures and may be different from our shareholders’ equity and our net income calculated according to GAAP.
We recognized base management fees of $ 3,221 for the year ended December 31, 2021. No incentive fee was earned for the year ended December 31, 2021.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Term. The initial term of our management agreement ends on December 31, 2023, and the agreement will automatically renew for successive one year terms beginning January 1, 2024, and each January 1 thereafter, unless it is sooner terminated as detailed below.
Termination Rights. We have the right to terminate our management agreement with our Manager upon written notice delivered no later than 180 days prior to a renewal date by the affirmative vote of at least two-thirds (2/3) of our Independent Trustees based upon a determination that: (a) our Manager’s performance is unsatisfactory and materially detrimental to us or (b) the base management fee and incentive fee, taken as a whole, payable to our Manager under our management agreement are not fair to us (provided that, in the instance of (b), our Manager will be afforded the opportunity to renegotiate the base management fee and incentive fee prior to termination). Our management agreement may be terminated by our Manager before each annual renewal upon written notice delivered to our Board of Trustees no later than 180 days prior to an annual renewal date. We may also terminate our management agreement at any time without the payment of any termination fee, with at least 30 days’ prior written notice from us upon the occurrence of a “cause event,” as defined in the management agreement. Our Manager may terminate our management agreement in certain other circumstances, including if we become required to register as an investment company under the 1940 Act, as amended, for our uncured “material breach,” as defined in our management agreement, we materially reduce our Manager’s duties and responsibilities or scope of its authority under our management agreement or we cease or take steps to cease to conduct the business of originating or investing in CRE loans.
Termination Fee. In the event our management agreement is terminated by us without a cause event or by our Manager for a material breach, we will be required to pay our Manager a termination fee equal to: (a) three times the sum of (i) the average annual base management fee and (ii) the average annual incentive fee, in each case paid or payable to our Manager during the 24 month period immediately preceding the most recently completed calendar quarter prior to the date of termination or, if such termination occurs within 24 months of its initial commencement, the base management fee and the incentive fee will be annualized for such two year period based on such fees earned by our Manager during the period from the effective date of the agreement through the most recently completed calendar quarter prior to the termination date, plus (b) $ 1,600 . No termination fee will be payable if our management agreement is terminated by us for a cause event or by our Manager without our material breach. In addition, as described above, in connection with the Merger and the termination of TRMT’s management agreement with our Manager, the initial organizational costs related to TRMT’s formation and the costs of its initial public offering and the concurrent private placement that our Manager had paid pursuant to that management agreement of $ 6,680 will be included in the “Termination Fee” under and as defined in our management agreement with our Manager.
Expense Reimbursement. 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. Generally, it is the practice of our Manager and RMR LLC to treat individuals who spend 50 % or more of their business time providing services to our Manager as employees of our Manager. We are required to pay or to reimburse our Manager and its affiliates for all other costs and expenses of our operations, including but not limited to, the cost of rent, utilities, office furniture, equipment, machinery and other overhead type expenses, the costs of legal, accounting, auditing, tax planning and tax return preparation, consulting services, diligence costs related to our investments, investor relations expenses and other professional services, and other costs and expenses not specifically required under our management agreement to be borne by our Manager. 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 reimbursements include an allocation of the cost of applicable personnel employed by RMR LLC and our share of RMR LLC’s costs of providing our internal audit function, with such shared services costs being subject to approval by a majority of our Independent Trustees at least annually. Our Audit Committee appoints our Director of Internal Audit and our Compensation Committee approves the costs of our internal audit function. We incurred shared services costs of $ 1,565 for the year ended December 31, 2021, payable to our Manager as reimbursement for shared services costs it paid to RMR LLC. We include these amounts in reimbursement of shared services expenses in our consolidated statement of operations.
Business Opportunities. Under our management agreement, we and our Manager have agreed that for so long as our Manager is managing us, neither our Manager nor any of its affiliates, including RMR LLC, will sponsor or manage any other publicly traded REIT that invests primarily in first mortgage loans secured by middle market and transitional CRE located in the United States, unless such activity is approved by our Independent Trustees. However, our management agreement does not prohibit our Manager or its affiliates (including RMR LLC) or their respective directors, trustees, officers, employees or agents from competing or providing services to other persons, funds and investment vehicles, including Centre Street Finance LLC, a
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
private fund focused on originating and investing in mortgage loans, private REITs or other entities that may compete with us, including, among other things, with respect to the origination, acquisition, making, arranging or managing of first mortgage loans secured by middle market or transitional CRE or other investments like those we intend to make.
Because our Manager and RMR LLC will not be prohibited from competing with us in all circumstances, and RMR LLC provides management services to other companies, conflicts of interest exist with regard to the allocation of investment opportunities and for the time and attention of our Manager, RMR LLC and their personnel. Our management agreement acknowledges these conflicts of interest and, in that agreement, we agree that our Manager, RMR LLC and their subsidiaries may resolve such conflicts in good faith in their fair and reasonable discretion. In the case of such a conflict, our Manager, RMR LLC and their subsidiaries will endeavor to allocate such investment opportunities in a fair and reasonable manner, taking into account such factors as they deem appropriate.
Our management agreement also provides that if our Manager, its affiliates (including RMR LLC) or any of their respective directors, trustees, officers, employees or agents acquires knowledge of a potential business opportunity, we renounce any potential interest or expectation in, or right to be offered or to participate in, such business opportunity to the maximum extent permitted by Maryland law.
Liability and Indemnification . Our Manager maintains a contractual as opposed to a fiduciary relationship with us. Pursuant to our management agreement, our Manager does not assume any responsibility other than to render the services called for thereunder in good faith and is not responsible for any action of our Board of Trustees in following or declining to follow its advice or recommendations. Under the terms of our management agreement, our Manager and its affiliates, including RMR LLC, and their respective directors, trustees, officers, shareholders, owners, members, managers, employees and personnel will not be liable to us or any of our Trustees, shareholders or subsidiaries, or any of the trustees, directors or shareholders of any of our subsidiaries, for any acts or omissions related to the provision of services to us under our management agreement, except by reason of acts or omissions that have been determined in a final, non-appealable adjudication to have constituted bad faith, fraud, intentional misconduct, gross negligence or reckless disregard of the duties of our Manager under our management agreement. In addition, under the terms of our management agreement, we agree to indemnify, hold harmless and advance expenses to our Manager and its affiliates, including RMR LLC, and their respective directors, trustees, officers, shareholders, owners, members, managers, employees and personnel from and against any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever, including all reasonable attorneys’, accountants’ and experts’ fees and expenses, arising from any acts or omissions related to the provision of services to us or the performance of any matters pursuant to an instruction by our Board of Trustees, except to the extent there is a final, non-appealable adjudication that such acts or omissions constituted bad faith, fraud, intentional misconduct, gross negligence or reckless disregard of the duties of our Manager under our management agreement. Such persons will also not be liable for trade errors that may result from ordinary negligence, including errors in the investment decision making or trade process.
Other. In addition to the fees and expense reimbursements payable to our Manager under our management agreement, our Manager and its affiliates may benefit from other fees paid to them in respect of our investments. For example, if we seek to securitize some of our CRE loans, our Manager or its affiliates may act as collateral manager. In any of these or other capacities, our Manager and its affiliates may receive fees for their services if approved by a majority of our Independent Trustees.
Note 11. 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 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 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 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. Lorenzini as our President and G. Douglas Lanois as our Chief Financial Officer and Treasurer. Messrs. Lorenzini and Lanois succeeded Fernando Diaz and Brian E. Donley, respectively, who each resigned from our Company, effective January 5, 2021. In addition, on January 5, 2021, Jennifer B. Clark resigned as our Managing Trustee,
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
and our Board of Trustees elected Matthew P. Jordan as successor Managing Trustee to fill the vacancy created by Ms. Clark’s resignation. Also effective January 1, 2021, Mr. Jordan was appointed as a director and the president and chief executive officer of our Manager. Mr. Jordan is an officer of RMR Inc. and an officer and employee of RMR LLC, and Messrs. Lorenzini and Lanois are officers and employees of our Manager and/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 board and as a managing director or managing trustee of those companies and 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 Capital LLC. Our Manager provides management services to us pursuant to our management agreement. See Note 10 for further information regarding our management agreement. Our Manager also provided management services to TRMT until the Merger.
As of December 31, 2021, our Manager owned 825,651 of our common shares, or approximately 5.7 % of our outstanding common shares.
RMR Advisors . Under our previous investment advisory agreement with RMR Advisors, RMR Advisors provided us with a continuous investment program, made day to day investment decisions and generally managed our business affairs in accordance with our investment objectives and policies. This agreement was terminated on January 5, 2021 in connection with the Business Change. Pursuant to this agreement, RMR Advisors was compensated at an annual rate of 0.85 % of our average daily managed assets. See Note 10 for further information regarding our investment advisory agreement. RMR Advisors was a wholly owned subsidiary of RMR LLC until it merged out of existence pursuant to its merger with our Manager.
RMR Inc. and RMR LLC . RMR LLC provides certain shared services to our Manager which 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. See Note 10 for further information regarding this shared services arrangement.
TRMT . 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, were also TRMT’s managing trustees, Thomas J. 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. Joseph L. 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; he had served as one of our Independent Trustees and as an independent trustee of TRMT.
Share Awards to our Officers and Employees of our Manager and RMR LLC. During the year ended December 31, 2021, we awarded to our officers and employees of our Manager and/or RMR LLC awards of 83,000 of our common shares, which were valued at $ 10.41 per share, based upon the per share closing price of our common shares on Nasdaq on the day those shares were issued. One fifth of these awards vested on the award date and one fifth vests on each of the next four anniversaries of the award date. These awards to employees of our Manager and RMR LLC are in addition to the share awards to our Managing Trustees, as Trustee compensation, and the fees we paid to our Manager. We purchased common shares awarded to certain of our officers and employees of our Manager and/or RMR LLC in satisfaction of tax withholding obligations in connection with the vesting of awards of our common shares. See Note 9 for further information regarding these purchases.
Note 12. Income Taxes
We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, or the IRC, effective for our 2020 taxable year. 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 also subject to certain state and local taxes, certain of which amounts are or will be reported as income taxes in our consolidated statement of operations. For the year ended December 31, 2021, we incurred income tax expense of $ 282 on realized gains on the disposition of our securities portfolio as a result of the Business Change.
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SEVEN HILLS REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Note 13. Weighted Average Common Shares
We calculate net income per common share - basic by dividing net income by the weighted average number of common shares outstanding during the period. We calculate net income per common share - diluted using the more dilutive of the two class or treasury stock method. Unvested share awards and other potentially dilutive common share issuances, and the related impact on earnings, are considered when calculating net income per common share - diluted.
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 Year Ended December 31, 2021
Weighted average common shares for basic net income per share 11,304
Effect of dilutive securities: unvested share awards —
Weighted average common shares for diluted net income per share 11,304
Note 14. Commitments and Contingencies
Unfunded Loan Commitments
As of December 31, 2021, we had unfunded loan commitments of $ 57,772 related to our loans held for investment that are not reflected in our consolidated balance sheet. These unfunded loan commitments had a weighted average initial maturity of 2.1 years as of December 31, 2021. See Note 6 for further information related to our loans held for investment.
Secured Borrowings
As of December 31, 2021, we had an aggregate of $ 340,869 in principal amount outstanding under our Secured Financing Facilities with a weighted average life to maturity of 1.4 years. See Note 7 for further information regarding our secured debt agreements.
Note 15. Legal Proceedings
During the year ended December 31, 2021, eight lawsuits had been filed by purported shareholders of ours (then known as 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. Tremont Mortgage Trust, et al. , Case No. 1:21-cv-05435 (S.D.N.Y., filed June 21, 2021), Lee v. Tremont Mortgage Trust, et al ., Case No. 1:21-cv-05618 (S.D.N.Y., filed June 29, 2021), Merewether v. Tremont Mortgage Trust, et al ., Case No. 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); Carlisle v. 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. , Case No. 1:21-cv-07421 (S.D.N.Y., filed September 3, 2021); Whitfield v. Tremont Mortgage Trust, et al. , Case No. 2:21-cv-03970 (S.D.N.Y., filed September 3, 2021); and Wilson v. Tremont Mortgage Trust, et al. , Case No. 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
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SEVEN HILLS REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
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 , Whitfield and Wilson actions each filed a notice of voluntary dismissal. On October 14, 2021, 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. We incurred $ 240 in connection with the final settlement of the complaints, which is included in other transaction related costs in our consolidated statement of operations.
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SEVEN HILLS REALTY TRUST
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2021
(dollars in thousands)
Property Type/Location Interest Rate Maturity Date Maximum Maturity Date (1)
Payment Terms (2)
Prior Liens (3)
Principal Carrying Value
First Mortgage Loans (4)
Office, Downers Grove, IL L + 4.25 %
11/25/2023 11/25/2024 I/O — $ 29,500 $ 29,384
Lab, Durham, NC L + 4.35 %
12/17/2023 12/17/2025 I/O — 13,500 13,398
Retail, Los Angeles, CA L + 4.25 %
12/17/2022 12/17/2024 I/O — 18,374 18,409
Office / Industrial, Aurora, IL L + 4.35 %
12/18/2023 12/18/2024 I/O — 14,710 14,660
Office, Miami, FL L + 4.50 %
01/19/2023 01/19/2025 I/O — 10,900 10,893
Multifamily, Olmstead Falls, OH L + 4.00 %
01/28/2024 01/28/2026 I/O — 45,820 45,576
Office / Industrial, Colorado Springs, CO L + 4.50 %
04/06/2024 04/06/2025 I/O — 29,642 29,426
Industrial, Londonderry, NH L + 4.00 %
04/06/2024 04/06/2026 I/O — 34,391 34,170
Office, Plano, TX L + 4.75 %
07/01/2024 07/01/2026 I/O — 24,935 24,714
Multifamily, Portland, OR L + 3.57 %
07/09/2024 07/09/2026 I/O — 19,688 19,524
Multifamily, Seattle, WA L + 3.55 %
08/16/2024 08/16/2026 I/O — 12,229 12,112
Retail, Sandy Springs, GA L + 3.75 %
09/23/2024 09/23/2026 I/O — 14,821 14,663
Office, St. Louis, MO L + 3.25 %
12/19/2022 12/19/2023 I/O — 28,421 28,498
Retail, Coppell, TX L + 3.50 %
02/12/2022 02/12/2022 I/O — 19,615 18,685
Office, Yardley, PA L + 3.75 %
12/19/2022 01/24/2025 I/O — 14,265 12,437
Industrial, Allentown, PA L + 3.50 %
01/24/2023 01/24/2025 I/O — 10,350 8,525
Office, Dublin, OH L + 3.75 %
02/18/2022 02/18/2023 I/O — 21,735 20,708
Office, Westminster, CO L + 3.75 %
05/25/2024 05/25/2026 I/O — 13,506 11,400
Multifamily, Portland, OR L + 3.57 %
07/30/2024 07/30/2026 I/O — 13,400 11,291
Office, Dallas, TX L + 3.25 %
08/25/2024 08/25/2026 I/O — 43,450 36,498
Office, Carlsbad, CA L + 3.25 %
10/27/2024 10/27/2026 I/O — 23,740 23,499
Multifamily, Bellevue, WA L + 3.85 %
11/05/2024 11/05/2026 I/O — 20,000 19,792
Multifamily, Ames, IA L + 3.80 %
11/15/2024 11/15/2026 I/O — 17,680 17,499
Office, Downers Grove, IL L + 4.25 %
12/09/2024 12/09/2026 I/O — 23,530 23,407
Retail, West Bloomfield, MI L + 3.85 %
12/16/2023 12/16/2024 I/O — 37,388 36,968
Industrial, Summerville, SC L + 3.50 %
12/20/2024 12/20/2026 I/O — 35,000 34,644
$ 590,590 $ 570,780
(1) Maximum maturity assumes all extension option have been exercised, which options are subject to the borrower meeting certain conditions.
(2) I/O = interest only until final maturity.
(3) Represents only third party prior liens.
(4) As of December 31, 2021, none of our borrowers was delinquent in payment.
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Reconciliation of Mortgage Loans on Real Estate:
Balance as of January 1, 2021 $ 91,879
Additions during the year:
Originations 347,366
Loans acquired in the Merger 205,593
Additional funding 4,710
Purchase discount accretion 18,932
Net amortization of deferred fees 1,835
Deductions during the year:
Repayment of mortgage loans ( 59,197 )
Deferred fees ( 3,895 )
Purchase discount on loans acquired in the Merger ( 36,443 )
Balance as of December 31, 2021 $ 570,780
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SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) 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.
SEVEN HILLS REALTY TRUST
By: /s/ Thomas J. Lorenzini
Thomas J. Lorenzini
President
Dated: February 17, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Thomas J. Lorenzini President February 17, 2022
Thomas J. Lorenzini
/s/ G. Douglas Lanois Chief Financial Officer and Treasurer February 17, 2022
G. Douglas Lanois (principal financial and accounting officer)
/s/ Barbara D. Gilmore Independent Trustee February 17, 2022
Barbara D. Gilmore
/s/ Matthew P. Jordan Managing Trustee February 17, 2022
Matthew P. Jordan
/s/ William A. Lamkin Independent Trustee February 17, 2022
William A. Lamkin
/s/ Joseph L. Morea Independent Trustee February 17, 2022
Joseph L. Morea
/s/ Adam D. Portnoy Managing Trustee February 17, 2022
Adam D. Portnoy
/s/ Jeffrey P. Somers Independent Trustee February 17, 2022
Jeffrey P. Somers