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Item 2. Management’s Discussion and Analysis

2022-04-27 compared with 2021-11-02 · 219 added, 222 removed, 148 unchanged (75% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

The following discussion should be read in conjunction with our condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q and in our 2021 Annual Report.

OVERVIEW (dollars in thousands, except share data)

We are a Maryland statutory trust.

We were previously registered under the 1940 Act as a closed-end management investment company.

Our investment objective while we operated as a registered investment company was investing in equity securities of real estate companies.

On January 5, 2021, the SEC issued an order granting our request to deregister as an investment company under the 1940 Act.

As a result, we changed our SEC registration to a reporting company under the Exchange Act.

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

As a result of these changes to our business, we have not provided a comparison of our financial condition, any changes to financial conditions and results of operations to prior periods in which we were operating as a registered investment company because it would not be useful to our shareholders.

The discussion herein is principally limited to our operations during the period following the SEC’s issuance of the deregistration order on January 5, 2021 to September 30, 2021.

The results of operations from January 1, 2021 through January 4, 2021 were not material to our condensed consolidated financial statements and have not been presented or discussed separately, but they are included in our results of operations for the nine months ended September 30, 2021.

Under our new business mandate of originating and investing in first mortgage loans secured by middle market and transitional CRE, we define middle market CRE as commercial properties that have values up to $100,000 and transitional CRE as commercial properties subject to redevelopment or repositioning activities that are expected to increase the value of the properties.

These assets are classified as loans held for investment in our condensed consolidated balance sheet.

Loans held for investment are reported at cost, net of any unamortized loan fees and origination costs as applicable, unless the assets are deemed impaired.

Our Manager is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended.

We believe that our Manager provides us with significant experience and expertise in investing in middle market and transitional CRE.

We are a Maryland REIT.

Our business strategy is focused on originating and investing in floating rate first mortgage loans secured by middle market and transitional commercial real estate, or CRE.

We define middle market CRE as commercial properties that have values up to $100,000 and transitional CRE as commercial properties subject to redevelopment or repositioning activities that are expected to increase the value of the properties.

These mortgage loans are classified as loans held for investment in our condensed consolidated balance sheets.

Loans held for investment are reported at cost, net of any unamortized loan fees, origination costs, premiums or discounts, as applicable, unless the assets are deemed impaired.

Tremont is registered with the Securities and Exchange Commission, or SEC, as an investment adviser under the Investment Advisers Act of 1940, as amended.

We believe that Tremont provides us with significant experience and expertise in investing in middle market and transitional CRE.

We operate our business in a manner consistent with our qualification for taxation as a REIT under the IRC.

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federal income tax, provided that we meet certain distribution and other requirements.

We also operate our business in a manner that permits us to maintain our exemption from registration under the 1940 Act.

Merger with Tremont Mortgage Trust

As noted earlier in this Quarterly Report on Form 10-Q, on April 26, 2021, we and TRMT entered into the Merger Agreement, pursuant to which, on the terms and subject to the satisfaction or waiver of the conditions thereof, TRMT agreed to merge with and into us, with us continuing as the surviving entity in the merger.

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

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

Pursuant to the terms set forth in the Merger Agreement and the Letter Agreement, at the Effective Time, each one (1) issued and outstanding TRMT Common Shares was automatically converted into the right to receive 0.516 of one (1) of the SEVN Common Shares.

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

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

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

At the Effective Time, we changed our name to "Seven Hills Realty Trust”.

The combined company continues to be managed by TRC, our Manager and TRMT’s manager (until TRMT ceased to exist), and our common shares continue to trade on Nasdaq under the new ticker symbol “SEVN.”

Since the Merger was effective after the close of trading on September 30, 2021, assets acquired and liabilities assumed from TRMT in the Merger are included in our condensed consolidated balance sheet as of September 30, 2021;

however, TRMT's results of operations are excluded from our condensed consolidated statement of operations for all periods presented.

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

We also operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act of 1940, as amended, or the 1940 Act.

COVID-19 Pandemic

The COVID-19 pandemic and the various governmental and market responses intended to contain and mitigate the spread of the virus and its detrimental public health impact have had a significant impact on the global economy, including the U.S.

Many of the restrictions that had been imposed in the United States during the pandemic have been lifted and commercial activity in the United States has increasingly returned to pre-pandemic practices and operations.

Many of the restrictions that had been imposed in the U.S.

during the pandemic have been lifted and commercial activity in the U.S.

has increasingly returned to pre-pandemic practices and operations.

To date, the COVID-19 pandemic has not had a significant impact on our business.

There remains uncertainty as to the ultimate duration and severity of the COVID-19 pandemic, including risks that may arise from mutations or related strains of the virus, the ability to successfully administer vaccinations to a sufficient number of persons or attain immunity to the virus by natural or other means to achieve herd immunity, and the impact on the U.S.

economy that may result from the inability of other countries to administer vaccinations to their citizens or their citizens’ ability to otherwise achieve immunity to the virus.

As a result, we are unable to determine what the ultimate impact will be on our borrowers’ and other stakeholders’ businesses, operations, financial results and financial position.

For further information and risks relating to the COVID-19 pandemic on us and our business, and the various actions our Manager has taken in response to the COVID-19 pandemic, see "Risk Factors" in the joint proxy statement/prospectus that is included in the registration statement on Form S-4, as subsequently amended and declared effective on July 26, 2021, and "Summary of Principal Risk Factors" included in our Current Report on Form 8-K filed on March 24, 2021.

For further information and risks relating to the COVID-19 pandemic on us and our business, see "Warning Concerning Forward-Looking Statements" elsewhere in this Quarterly Report on Form 10-Q and Part 1, Item 1A, "Risk Factors", of our 2021 Annual Report.

Non-GAAP Financial Measures

We present Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings, Adjusted Distributable Earnings per common share and Adjusted Book Value per common share, which are considered “non-GAAP financial measures” within the meaning of the applicable SEC rules.

These non-GAAP financial measures do not represent net income, net income per common share or cash generated from operating activities and should not be considered as an alternative to net income or net income per common share determined in accordance with GAAP or as an indication of our cash flows from operations determined in accordance with GAAP, measures of our liquidity or operating performance or an indication of funds available for our cash needs.

In addition, our methodologies for calculating these non-GAAP financial measures may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures;

therefore, our reported Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share may not be comparable to non-GAAP financial measures as reported by other companies.

We believe that Adjusted Book Value per common share is a meaningful measure of our capital adequacy because it excludes the unaccreted purchase discount resulting from the excess of the fair value of the loans TRMT then held for investment and that we acquired as a result of the Merger over the consideration we paid in the Merger.

Adjusted Book Value per common share does not represent book value per common share or alternative measures determined in accordance with GAAP.

Our methodology for calculating Adjusted Book Value per common share may differ from the methodologies employed by other companies to calculate the same or similar supplemental capital adequacy measures;

therefore, our Adjusted Book Value per common share may not be comparable to the adjusted book value per common share reported by other companies.

In order to maintain our qualification for taxation as a REIT, we are generally required to distribute substantially all of our taxable income, subject to certain adjustments, to our shareholders.

We believe that one of the factors that investors consider important in deciding whether to buy or sell securities of a REIT is its distribution rate.

Over time, Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share may be useful indicators of distributions to our shareholders and are measures that are considered by our Board of Trustees when determining the amount of distributions.

We believe that Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share provide meaningful information to consider in addition to net income, net income per common share and cash flows from operating activities determined in accordance with GAAP.

These measures help us to evaluate our performance excluding the effects of certain transactions, the variability of any management incentive fees that may be paid or payable and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations.

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

Distributable Earnings and Adjusted Distributable Earnings

We calculate Distributable Earnings and Distributable Earnings per common share as net income and net income per common share, respectively, computed in accordance with GAAP, including realized losses not otherwise included in net income determined in accordance with GAAP, and excluding:

(a) the management incentive fees earned by Tremont, if any;

(b) depreciation and amortization, 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 under GAAP), if any;

and (e) one-time events pursuant to changes in GAAP and certain non-cash items, if any.

Distributable Earnings are reduced for realized losses on loan investments when amounts are deemed uncollectable.

We define Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share as Distributable Earnings and Distributable Earnings per common share, respectively, excluding the effects of certain non-recurring transactions.

Reconciliation of Book Value per Common Share to Adjusted Book Value per Common Share

The table below calculates our book value per common share and demonstrates how we calculate Adjusted Book Value per common share:

September 30, 2021

March 31, 2022 December 31, 2021

Shareholders' equity $ 265,253 $ 257,694

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Adjusted Book Value per common share (1)

(1) Adjusted Book Value per Common Share is a non-GAAP financial measure that excludes the impact of the unaccreted purchase discount resulting from the excess fair value over the purchase price of the loans held for investment acquired in the Merger.

The purchase discount of $36,443 was allocated to each acquired loan held for investment and will be accreted into income over the remaining term of the respective loan held for investment.

See "Non-GAAP Financial Measures" included in the section captioned "Results of Operations" of this Quarterly Report on Form 10-Q for more information about Adjusted Book Value per Common Share.

$ 18.95 $ 18.85

(1) Adjusted Book Value per common share is a non-GAAP financial measure that excludes the impact of the unaccreted purchase discount resulting from the excess of the fair value of the loans TRMT then held for investment and that we acquired as a result of the Merger over the consideration we paid in the Merger.

The purchase discount of $36,443 was allocated to each acquired loan and is being accreted into income over the remaining term of the respective loan.

As of March 31, 2022 and December 31, 2021, the unaccreted purchase discount was $11,458 and $17,391.

Our Loan Portfolio

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

As of September 30, 2021

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

The table below details overall statistics for our loan portfolio as of March 31, 2022 and December 31, 2021:

As of March 31, 2022 As of December 31, 2021

Number of loans 27 26

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Principal balance $ 636,831 $ 590,590

$ 472,018 $ 92,863

Carrying value $ 622,710 $ 570,780

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5.10 % 5.08 %

Weighted average LIBOR floor 1.01 % 0.78 %

Weighted average floor 0.61 % 0.68 %

Weighted average maximum maturity (years) (3)

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

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

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

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Loan Portfolio Details

The table below details our loan portfolio as of September 30, 2021:

The table below details our loan portfolio as of March 31, 2022:

Location Property Type Origination Date Committed Principal Amount Principal

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First mortgage loans

Louis, MO (4)

Office 12/19/2018 $ 29,500 $ 27,763 L + 3.25% L + 3.74% 12/19/2023 72 % 2

Atlanta, GA (4)

Hotel 12/21/2018 24,000 23,904 L + 3.25% L + 3.72% 12/21/2023 62 % 4

Coppell, TX (4)

Retail 02/05/2019 19,865 19,615 L + 3.50% L + 3.72% 02/12/2022 73 % 4

Omaha, NE (4)

Retail 06/14/2019 14,500 13,053 L + 3.65% L + 4.05% 06/14/2024 77 % 3

Yardley, PA (4)

Office 12/19/2019 14,900 14,265 L + 3.75% L + 4.47% 12/19/2024 75 % 4

Allentown, PA (4)

Industrial 01/24/2020 14,000 14,000 L + 3.50% L + 4.02% 01/24/2025 67 % 3

Dublin, OH (4)

Office 02/18/2020 22,820 21,735 L + 3.75% L + 4.82% 02/18/2023 33 % 2

Louis, MO Office 12/19/2018 $ 29,500 $ 28,917 L + 3.25% L + 3.74% 12/19/2023 72 % 2

Coppell, TX Retail 02/05/2019 19,365 19,365 L + 3.50% L + 4.24% 08/12/2022 73 % 3

Yardley, PA Office 12/19/2019 16,500 14,687 L + 4.58% L + 5.80% 12/19/2024 75 % 4

Allentown, PA Industrial 01/24/2020 10,270 10,270 L + 3.50% L + 4.03% 01/24/2025 67 % 2

Dublin, OH Office 02/18/2020 22,820 22,507 S + 3.75% S + 4.95% 02/18/2023 33 % 2

Downers Grove, IL Office 09/25/2020 30,000 29,499 L + 4.25% L + 4.69% 11/25/2024 67 % 3

Durham, NC Lab 12/17/2020 21,500 13,500 L + 4.35% L + 5.20% 12/17/2025 57 % 3

Los Angeles, CA Retail 12/17/2020 24,600 19,142 L + 4.25% L + 5.05% 12/17/2024 67 % 3

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Colorado Springs, CO Office / Industrial 04/06/2021 34,275 29,642 L + 4.50% L + 5.03% 04/06/2025 73 % 3

Londonderry, NH Industrial 04/06/2021 39,240 34,323 L + 4.00% L + 4.62% 04/06/2026 73 % 3

Westminster, CO (4)

Office 05/24/2021 15,250 13,506 L + 3.75% L + 4.25% 05/24/2026 66 % 3

Westminster, CO Office 05/25/2021 15,250 13,759 L + 3.75% L + 4.20% 05/25/2026 66 % 2

Plano, TX Office 07/01/2021 27,385 25,209 L + 4.75% L + 5.17% 07/01/2026 78 % 3

Portland, OR Multifamily 07/09/2021 19,689 19,688 L + 3.57% L + 3.97% 07/09/2026 75 % 3

Portland, OR (4)

Multifamily 07/30/2021 13,400 13,400 L + 3.57% L + 4.01% 07/30/2026 71 % 3

Portland, OR Multifamily 07/30/2021 13,400 13,400 L + 3.57% L + 3.98% 07/30/2026 71 % 4

Seattle, WA Multifamily 08/16/2021 12,500 12,259 L + 3.55% L + 3.89% 08/16/2026 70 % 3

Dallas, TX (4)

Office 08/25/2021 50,000 43,450 L + 3.25% L + 3.64% 08/25/2026 72 % 3

Dallas, TX Office 08/25/2021 50,000 43,450 L + 3.25% L + 3.61% 08/25/2026 72 % 3

Sandy Springs, GA Retail 09/23/2021 16,488 14,821 L + 3.75% L + 4.11% 09/23/2026 72 % 2

Total/weighted average $ 525,885 $ 472,018 L + 3.86% L + 4.41% 68 % 3.0

Carlsbad, CA Office 10/27/2021 24,750 23,740 L + 3.25% L + 3.59% 10/27/2026 78 % 3

Bellevue, WA Office 11/05/2021 21,000 20,000 L + 3.85% L + 4.19% 11/05/2026 68 % 3

Ames, IA Multifamily 11/15/2021 18,000 17,680 L + 3.80% L + 4.13% 11/15/2026 71 % 3

Downers Grove, IL Office 12/09/2021 23,530 23,530 L + 4.25% L + 4.57% 12/09/2026 72 % 3

West Bloomfield, MI Retail 12/16/2021 42,500 37,388 L + 3.85% L + 4.66% 12/16/2024 59 % 3

Summerville, SC Industrial 12/20/2021 35,000 35,000 L + 3.50% L + 3.82% 12/20/2026 70 % 2

Delray Beach, FL Retail 03/18/2022 16,000 13,034 S + 4.25% S + 5.00% 03/18/2026 56 % 3

Starkville, MS Multifamily 03/22/2022 37,250 35,950 S + 4.00% S + 4.33% 03/22/2027 70 % 3

Brandywine, MD Retail 03/29/2022 42,500 42,200 S + 3.85% S + 4.25% 03/29/2027 62 % 3

Total/weighted average $ 684,547 $ 636,831 + 3.87% + 4.40% 68 % 2.8

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

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

(4) These first mortgage loans were acquired in the Merger.

As of September 30, 2021, we had $525,885 in aggregate loan commitments, consisting of a diverse portfolio, geographically and by property type, of 22 first mortgage loans.

As of March 31, 2022, we had $684,547 in aggregate loan commitments, consisting of a diverse portfolio, geographically and by property type, of 27 first mortgage loans.

The impact from the COVID-19 pandemic has negatively impacted some of our borrowers’ business operations or tenants, particularly in the cases of our retail and hospitality collateral, which are some of 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.

Further, although economic activity in the U.S.

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 obligation owed and due to us as currently scheduled.

As of September 30, 2021, we had three loans representing approximately 14% of the carrying value of our loan portfolio with a loan risk rating of “4” or “higher risk”.

As of March 31, 2022, we had two loan representing approximately 4% of the carrying value of our loan portfolio with a loan risk rating of “4” or “higher risk”.

All of the loans in our portfolio are structured with risk mitigation mechanisms, such as cash flow sweeps or interest reserves, to help protect us against investment losses.

In addition, we continue to actively engage with our borrowers regarding their execution of the business plans for the underlying collateral, among other things.

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

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

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

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

We did not have any impaired loans, non-accrual loans or loans in default as of September 30, 2021;

As of March 31, 2022 and April 25, 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.

We did not have any impaired loans, non-accrual loans or loans in default as of March 31, 2022;

thus, we did not record a reserve for loan loss as of that date.

For further information regarding our risk rating policy, see Notes 3 and 6 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

However, depending on the duration and severity of the COVID-19 pandemic and any resulting economic downturn, our borrowers' businesses, operations and liquidity may be materially adversely impacted.

As a result, they may become unable to pay their debt service obligations owed and due to us, which may result in the impairment of those loans, and our recording loan loss reserves with respect to those loans and recording of any income with respect to those loans on a nonaccrual basis.

For further information regarding the risks associated with our loan portfolio, see the risk factors identified in "Risk Factors" in the joint proxy statement/prospectus that is included in the registration statement on Form S-4, as subsequently amended and declared effective on July 26, 2021, and "Summary of Principal Risk Factors" included in our Current Report on Form 8-K filed on March 24, 2021.

For further information regarding our loan portfolio and the risks associated with it, see Note 3 to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the risk factors identified in Part I, Item 1A, “Risk Factors”, of our 2021 Annual Report.

Financing Activities

On February 18, 2021, one of our wholly owned subsidiaries entered into our UBS Master Repurchase Agreement with UBS, and on September 30, 2021, in conjunction with the Merger, we assumed the Citibank Master Repurchase Facility, and the Citibank Master Repurchase Agreement was amended to, among other things, change the guarantor under the Citibank Master Repurchase Facility from TRMT to SEVN.

For further information regarding our Master Repurchase Facilities, see Note 7 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The table below is an overview of our Master Repurchase Facilities as of September 30, 2021:

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

Citibank Master Repurchase Facility 11/06/2022 $ 128,962 $ 84,520 $ 213,482 $ 182,957

On March 11, 2022, one of our wholly owned subsidiaries entered into our Wells Fargo Master Repurchase Agreement for the Wells Fargo Master Repurchase Facility.

The Wells Fargo Master Repurchase Facility provides up to $125,000 in advances, with an option to increase the maximum facility to $250,000, subject to certain terms and conditions.

We expect to use the Wells Fargo Master Repurchase Facility to finance the acquisition or origination of floating rate commercial mortgage loans.

The expiration date of the Wells Fargo Master Repurchase Agreement is March 11, 2025, unless extended or earlier terminated in accordance with the terms of the Wells Fargo Master Repurchase Agreement.

The Wells Fargo Master Repurchase Facility acts in the manner of a revolving credit facility that can be repaid as our loan investments are repaid and re-drawn as we fund new or additional loan investments.

On March 15, 2022, we amended and restated our Citibank Master Repurchase Agreement, which governs the Citibank Master Repurchase Facility.

The amended and restated Citibank Master Repurchase Agreement extended the stated maturity date of the Citibank Master Repurchase Facility to March 15, 2025, and made certain other changes to the agreement and related fee letter, including replacing LIBOR with SOFR for interest rate calculations on advancements under the Citibank Master Repurchase Facility and modifying certain pricing terms.

On April 25, 2022, we amended and restated our BMO Loan Program Agreement, which increased the maximum facility amount from $100,000 to $150,000.

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

The table below is an overview of our Secured Financing Facilities as of March 31, 2022:

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

UBS Master Repurchase Facility 02/18/2024 $ 127,278 $ 64,722 $ 192,000 $ 192,044

$ 216,345 $ 189,137 $ 405,482 $ 317,706

The table below details our Master Repurchase Facilities activities during the three months ended September 30, 2021:

Balance at June 30, 2021 $ 48,775

Borrowings 48,543

Repayments (10,332)

Deferred fees (268)

Amortization of deferred fees 55

Assumed in Merger 128,962

Balance at September 30, 2021 $ 215,735

The table below details our Master Repurchase Facilities activities during the nine months ended September 30, 2021:

Balance at December 31, 2020 $ —

Citibank Master Repurchase Facility 03/15/2025 159,878 55,122 215,000 223,744

Wells Fargo Master Repurchase Facility 03/11/2025 — 125,000 125,000 —

BMO Facility Various 82,276 17,724 100,000 109,701

Total $ 369,432 $ 262,568 $ 632,000 $ 525,489

The table below details our Secured Financing Facilities activities during the three months ended March 31, 2022:

Carrying Value

Balance as of December 31, 2021 $ 339,627

Borrowings 130,160

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Amortization of deferred fees 209

Assumed in Merger 128,962

Balance at September 30, 2021 $ 215,735

As of September 30, 2021, outstanding advancements under our Master Repurchase Facilities had a weighted average interest rate of LIBOR plus 198 basis points per annum, excluding associated fees and expenses.

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

As of September 30, 2021, we were in compliance with all covenants and other terms under our Master Repurchase Agreements and our Guarantees.

Balance as of March 31, 2022 $ 367,679

As of March 31, 2022, outstanding advancements under our Secured Financing Facilities had a weighted average interest rate of 2.32% per annum, excluding associated fees and expenses.

As of March 31, 2022 and April 25, 2022, we had a $369,432 and a $378,905, respectively, aggregate outstanding principal balance under our Secured Financing Facilities.

As of March 31, 2022, we were in compliance with all covenants and other terms under our Secured Financing Facilities.

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

As a result of the changes to our business, we have not provided a comparison of our financial statements to prior year periods in which we were operating as a registered investment company because it would not be useful to our shareholders.

We have provided a 2021 third and second sequential quarter comparison which we believe may be useful to investors because we have operated as a mortgage REIT since January 5, 2021.

The discussion herein is principally limited to our operations during the period following the SEC's issuance of the deregistration order on January 5, 2021 to September 30, 2021.

Three Months Ended September 30, 2021 Compared to Three Months Ended June 30, 2021

Three Months Ended March 31, 2022 Compared to Three Months Ended December 31, 2021:

Three Months Ended

September 30, 2021 June 30, 2021 Change % Change

March 31, 2022 December 31, 2021 Change % Change

INCOME FROM INVESTMENTS:

Interest income from investments $ 9,579 $ 7,209 $ 2,370 32.9 %

Purchase discount accretion 5,935 18,932 (12,997) (68.7 %)

interest and related expenses (1,737) (1,573) (164) 10.4 %

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Reimbursement of shared services expenses 560 615 (55) (8.9 %)

Other transaction related costs 37 589 (552) (93.7 %)

Total expenses 2,606 3,610 (1,004) (27.8 %)

Income before income tax benefit (expense) 2,509 1,153 1,356 117.6 %

Income tax benefit (expense) (25) 7 (32) n/m

Income before income tax expense 11,171 20,958 (9,787) (46.7 %)

Income tax expense (45) (302) 257 (85.1 %)

Net income $ 11,126 $ 20,656 $ (9,530) (46.1 %)

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Net income per common share - basic and diluted $ 0.76 $ 1.42 $ (0.66) (46.5 %)

n/m - not meaningful

Interest income from investments .

The increase in interest income from investments was primarily the result of a full quarter of interest income from investments on two loan investments that were originated during the three months ended June 30, 2021 and the interest income from the origination of four loan investments during the three months ended September 30, 2021.

The increase in interest income from investments was primarily the result of prepayment premiums and accelerated amortization of the deferred fees of $2,402 on two loans repaid during the three months ended March 31, 2022, as well as a full quarter of interest income from investments on six loan investments that were originated during the three months ended December 31, 2021 and the interest income from the origination of three loan investments during the three months ended March 31, 2022.

Purchase discount accretion.

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

In accordance with GAAP, a purchase discount 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 and is being accreted into income over the remaining term of the respective loan.

During the three months ended December 31, 2021, three loans acquired in the Merger were repaid, resulting in the respective allocated purchase discount being fully accreted.

No loans acquired in the Merger were repaid during the three months ended March 31, 2022;

therefore, purchase discount accretion decreased.

Interest and related expenses.

The increase in interest and related expenses was primarily the result of advances made to us under our UBS Master Repurchase Facility during the three months ended September 30, 2021.

The increase in interest and related expenses was primarily the result of an increase in advances made to us under our Secured Financing Facilities and an increase in interest rates on those advances during the three months ended March 31, 2022 as compared to the three months ended December 31, 2021.

General and administrative expenses .

The decrease in general and administrative expenses was primarily due to share-based compensation recognized in the three months ended June 30, 2021 as a result of trustee share grants awarded in May and a decrease in professional services.

The decrease in general and administrative expenses was primarily due to a decrease in share-based compensation and professional fees during the three months ended March 31, 2022 as compared to the three months ended December 31, 2021.

Reimbursement of shared services expenses.

Reimbursement of shared services expenses represents reimbursement of the costs for the services that our Manager arranges on our behalf from RMR LLC.

The increase in reimbursement of shared services expenses was primarily the result of an increased usage of shared services from RMR LLC during the three months ended September 30, 2021.

Income tax benefit (expense).

Reimbursement of shared services expenses represents reimbursement of the costs for the services that Tremont arranges on our behalf from RMR.

The decrease in reimbursement of shared services expenses was primarily the result of an adjustment recognized during the three months ended December 31, 2021 to increase our estimate of costs for the usage of shared services from RMR for the year ended December 31, 2021 to reflect actual costs incurred.

Other transaction related costs.

The decrease in other transaction related costs was primarily the result of a decrease in the costs associated with the final settlement of legal complaints filed in connection with the Merger and our conversion from a Maryland statutory trust to a Maryland REIT during the three months ended December 31, 2021.

Income tax expense.

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

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

Non-GAAP Financial Measures

We present Distributable Earnings and Adjusted Book Value per Common Share, which are considered “non-GAAP financial measures” within the meaning of the applicable SEC rules.

Distributable Earnings does not represent net income or cash generated from operating activities and should not be considered as an alternative to net income determined in accordance with GAAP or an indication of our cash flows from operations determined in accordance with GAAP, a measure of our liquidity or operating performance or an indication of funds available for our cash needs.

In addition, our methodology for calculating Distributable Earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures;

therefore, our reported Distributable Earnings may not be comparable to the distributable earnings as reported by other companies.

We believe that Adjusted Book Value per Common Share is a more meaningful measure of our capital adequacy than book value per common share because it excludes the unaccreted purchase discount resulting from the Merger that will be accreted into income over the remaining term of the respective loans acquired in the Merger.

Our methodology for calculating Adjusted Book Value per Common Share may differ from the methodologies employed by other companies to calculate the same or similar supplemental capital adequacy measures;

therefore, our Adjusted Book Value per Common Share may not be comparable to the adjusted book value per common share reported by other companies.

We elected to be taxed as a REIT under the IRC, effective for our 2020 taxable year.

In order to maintain our qualification for taxation as a REIT, we are generally required to distribute substantially all of our taxable income, subject to certain adjustments, to our shareholders.

We believe that one of the factors that investors consider important in deciding whether to buy or sell securities of a REIT is its distribution rate.

Over time, Distributable Earnings may be a useful indicator of distributions to our shareholders and is a measure that is considered by our Board of Trustees when determining the amount of such distributions.

We believe that Distributable Earnings provides meaningful information to consider in addition to net income and cash flows from operating activities determined in accordance with GAAP.

This measure helps us to evaluate our performance excluding the effects of certain transactions, the variability of any management incentive fees that may be paid or payable and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations.

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

Distributable Earnings

We calculate Distributable Earnings as net income, computed in accordance with GAAP, including realized losses not otherwise included in net income determined in accordance with GAAP, and excluding:

(a) the management incentive fees earned by our Manager, if any;

(b) depreciation and amortization, if any;

and (e) one-time events pursuant to changes in GAAP and certain non-cash items, if any.

Distributable Earnings are reduced for realized losses on loan investments when amounts are deemed uncollectable.

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

Reconciliation of net income to Distributable Earnings:

The decrease in income tax expense was primarily the result of income tax expense incurred during the three months ended December 31, 2021 on realized gains on the disposition of our securities portfolio upon our conversion from an investment company under the 1940 Act to a mortgage REIT.

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

Reconciliation of Net Income to Distributable Earnings and Adjusted Distributable Earnings

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

Three Months Ended March 31, 2022 Three Months Ended December 31, 2021

Reconciliation of net income to Distributable Earnings and Adjusted Distributable Earnings:

Net income $ 11,126 $ 20,656

Non-cash equity compensation expense 82 446

Non-cash accretion of purchase discount (5,935) (18,932)

Distributable Earnings 5,273 2,170

Other transaction related costs (1)

Income tax expense (2)

Adjusted Distributable Earnings $ 5,310 $ 3,041

Weighted average common shares outstanding - basic 14,505 14,506

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Distributable Earnings per common share - basic and diluted $ 0.36 $ 0.15

Adjusted Distributable Earnings per common share - basic and diluted $ 0.37 $ 0.21

(1) Other transaction related costs for the three months ended March 31, 2022 include expenses related to the Merger and to our conversion from a Maryland statutory trust to a Maryland REIT.

For the three months ended December 31, 2021, other transaction related costs include expenses related to our conversion from a Maryland statutory trust to a Maryland REIT and the final settlement of legal complaints filed in connection with the Merger.

(2) Income tax expense represents the portion of our income tax expense incurred on realized gains on the disposition of our securities portfolio upon our conversion from an investment company under the 1940 Act to a mortgage REIT.

Factors Affecting Operating Results

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Our operating results are also impacted by general CRE market conditions and unanticipated defaults by our borrowers.

For further information regarding the risks associated with our loan portfolio, see the risk factors identified in Part I, Item 1A, “Risk Factors”, of our 2021 Annual Report.

Credit Risk .

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Changes in Fair Value of our Assets .

We generally intend to hold our investments for their contractual terms, unless repaid earlier by the borrower.

We evaluate our investments for impairment quarterly.

We generally intend to hold our investments for their contractual terms, unless repaid earlier by the borrowers.

We evaluate our investments for impairment at least quarterly.

Impairments occur when it is probable that we will not be able to collect all amounts due according to the applicable contractual terms.

If we determine that a loan is impaired, we will record an allowance to reduce the carrying value of the loan to an amount that takes into account both the present value of expected future cash flows discounted at the loan's contractual effective interest rate and the fair value of any available collateral, net of any costs we expect to incur to realize that value.

Although we intend to generally hold our investments for their contractual terms or until repaid earlier by the borrower, we may occasionally classify some of our investments as held for sale.

Investments held for sale will be carried at the lower of their amortized cost or fair value within loans held for sale on our condensed consolidated balance sheet, with changes in fair value recorded through earnings.

Although we intend to generally hold our investments for their contractual terms or until repaid earlier by the borrowers, we may occasionally classify some of our investments as held for sale.

Investments held for sale will be carried at the lower of their amortized cost or fair value less costs to sell within loans held for sale on our condensed consolidated balance sheets, with changes in fair value recorded through earnings.

Fees received from our borrowers on any loans held for sale will be recognized as part of the gain or loss on sale.

We do not currently expect to hold any of our investments for trading purposes.

Currently, we do not expect to hold any of our investments for trading purposes.

Availability of Leverage and Equity .

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Market Conditions.

After the initial market disruption resulting from the COVID-19 pandemic, the CRE debt markets began to rebound in the third quarter of 2020 and have since stabilized.

Increased vaccination rates, strong consumer demand, significant increases in dedicated capital to alternative lenders, along with accommodating fiscal and monetary policies, have resulted in strong economic growth through the first half of 2021, supporting the growth in overall CRE transaction volume.

Through the third quarter of 2021,CRE transaction volume is up over 50% compared to the same period in 2020 and is already on pace to exceed total 2019 volume.

CRE values have also risen considerably, not only compared to 2020, but also in relation to values from the third quarter of 2019.

This increase in CRE transaction activity and property values, combined with historically low interest rates have resulted in significant demand for CRE debt.

CRE debt securities issuance of both fixed rate

commercial mortgage backed securities, or CMBS, and floating rate CRE collateralized loan obligations, or CLOs, is on pace to exceed the record 2019 volumes.

Although debt and equity transaction volume has increased across all property types, the multifamily and industrial sectors remain the most coveted asset types amongst both lenders and investors.

Multifamily is expected to continue to be a preferred asset class due to the stability of cash flows and the abundance of debt capital available from government sponsored enterprises, such as Fannie Mae and Freddie Mac.

Multifamily properties comprise the majority of collateral for floating rate CRE CLO bond offerings and as a result, the competition among alternative lenders, like us, for loans secured by multifamily properties remains strong.

Furthermore, this competition translates into low borrowing costs for buyers and owners of multifamily properties seeking to acquire or implement value added business plans.

Investors’ interest in industrial properties, and in particular warehouse and distribution centers, continues to be strong as a result of the shift in consumers’ behavior to using increased levels of e-commerce, which has accelerated during the COVID-19 pandemic.

The hospitality, office and retail sectors are among those that have been most negatively impacted by the economic downturn related to the COVID-19 pandemic.

However, with the easing of government mandated restrictions and increased vaccination rates in the U.S., retail sales and leisure travel have experienced continued improvement during the third quarter of 2021, while business travel remains at levels significantly lower than prior to the onset of the pandemic.

It is unclear how consumer and travel habits will be impacted over the long term due to the pandemic.

These uncertainties may continue to burden these sectors, which would likely result in lenders with significant exposure to these property types continuing to face challenges.

As it relates to the office sector, it is not yet known how the shift to flexible work-from-home schedules will impact the demand for office space going forward.

As such, lenders will continue to face underwriting challenges with respect to assumptions related to new leasing, tenant renewal probabilities and occupancy rates for office properties, especially those assets located in urban core or central business district markets.

Increased competition among lenders for multifamily and industrial properties has caused alternative lenders, like us, to expand their loan portfolios to include real estate sectors, such as data centers, manufactured housing communities, cold storage and self storage, in order to achieve favorable yields on high quality properties that have been less susceptible to the impact of the COVID-19 pandemic.

Despite the strong performance of the debt capital markets in 2021, we believe challenges remain heading into 2022.

The longer-term impact of the COVID-19 pandemic and potential for future variants of the virus is still uncertain.

It is also unclear if recent signs of inflationary pressure are transitory in nature or not.

Furthermore, it is unclear how the transition away from LIBOR as the preferred index for pricing floating rate debt will affect liquidity and performance of the floating rate debt markets.

Despite these challenges, we believe that as the U.S.

CRE transaction total volume for 2021 exceeded the previous annual high watermark of 2019.

Investor demand for CRE assets, historically low interest rates and strong property fundamentals, particularly for multifamily and industrial assets, have caused CRE valuations to continue to grow.

These conditions continue to drive significant demand for CRE debt.

CRE loan originations, driven by property acquisitions and refinancing activities of borrowers capitalizing on increasing property values, reached a record high in 2021.

Investor demand for the relative risk adjusted returns offered by CRE debt investments has also contributed to the growth of the CRE mortgage loan market.

This increased demand has allowed alternative lenders, like us, to continue to gain market share, as borrowers seek flexible capital to complete value add business plans to optimize property values or to have the option to sell or refinance in short to medium term time frames.

However, significant inflation experienced in 2022 and Russia's invasion of Ukraine, along with the additional supply chain issues and overall geopolitical risks have caused recent increased uncertainty in the CRE debt markets.

Federal Reserve's reaction to inflationary pressures has resulted in increased borrowing and transaction costs for both borrowers and lenders alike.

Despite the recent increase in borrowing costs, nominal interest rates remain low, and CRE investors continue to see strength in the fundamentals of the U.S.

CRE markets, especially in the multifamily and industrial sectors.

Transaction activity and loan origination opportunities continue to be strong, as CRE investors are seemingly willing to accept higher borrowing costs in the short term as they perceive longer term upside to rent growth resulting from continued demand for affordable rental housing and industrial space.

Recovery from the impact of the COVID-19 pandemic on the hospitality and retail sectors continues to improve.

Hotels located in destinations that can be driven to, select service hotels that offer services and amenities in moderation and extended stay hotels continue to see improvements in performance, along with increased investor and lender demand.

Retail has performed better than many expected and investors continue to favor grocery anchored, service oriented and neighborhood shopping centers over larger shopping centers anchored by big box retailers, regional malls or lifestyle centers.

However, the office sector continues to pose underwriting challenges, especially for older suburban assets, and there continues to be uncertainty surrounding the long term impacts of work-from-home and flexible work schedules on demand for office space.

While the debt capital markets experienced strong performance in 2021 and into the first quarter of 2022, we believe challenges remain.

The longer term impact of the COVID-19 pandemic and the risk of future variants of the virus is still uncertain.

Supply chain issues remain and inflation has started to impact the broader markets.

Federal Reserve raised interest rates in March 2022 and has indicated that it expects to raise interest rates several more times during 2022, which will continue to increase borrowing costs for property owners.

Despite these challenges, we believe that if and as the U.S.

economy continues to grow, there will continue to be significant opportunities for alternative lenders like us to provide creative, flexible debt capital for a wide array of circumstances and business plans.

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With respect to our business operations, increases in interest rates, in general, may cause:

(a) the interest expense associated with our variable rate borrowings, if any, to increase;

(a) the interest expense associated with our variable rate borrowings, to increase;

(b) the value of our fixed rate investments, if any, to decline;

and (d) it to become more difficult and costly for our borrowers, which may negatively impact their ability to repay our investments.

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Conversely, decreases in interest rates, in general, may cause:

(a) the interest expense associated with our variable rate borrowings, if any, to decrease;

(a) the interest expense associated with our variable rate borrowings, to decrease;

(b) the value of our fixed rate investments, if any, to increase;

and (d) it to become easier and more affordable for our borrowers to refinance, and as a result, repay our loans, but may negatively impact our future returns if any such repayment proceeds were to be reinvested in lower yielding investments.

The interest income on our loans and interest expense on our borrowings float with one month LIBOR.

Because we generally intend to leverage approximately 75% of our investments, as LIBOR increases, our income from investments, net of interest and related expenses, will increase.

LIBOR decreases are mitigated by interest rate floor provisions in our loan agreements with borrowers;

therefore, changes to income from investments, net, may not move proportionately with the increase or decrease in LIBOR.

Based on our loan portfolio at September 30, 2021, LIBOR was 0.08% and would have to exceed the floor established by any of our loans, which currently range from 0.25% to 2.50%, for us to realize an increase in interest income.

LIBOR is currently expected to be phased out for new contracts by December 31, 2021 and for pre-existing contracts by June 30, 2023.

Our Master Repurchase Facilities provide that at such time as LIBOR shall no longer be made available or used for determining the interest rate of loans, the replacement base rate shall be an alternative benchmark rate (including any mathematical or other adjustments to the benchmark rate (if any) incorporated therein so that the resulting rate approximates LIBOR as close as reasonably possible) as determined by UBS and Citibank under similar facilities for the financing of similar assets and is consistent with the pricing index of similarly situated counterparties.

We also currently expect that, as a result of any phase out of LIBOR, the interest rates under our loan agreements with borrowers would be amended to replace LIBOR for an alternative benchmark rate (which may include the secured overnight financing rate, or SOFR or another rate based on SOFR) that will approximate the existing interest rate as calculated in accordance with LIBOR.

The interest income on our loans and interest expense on our borrowings float with benchmark rates, such as LIBOR and SOFR.

Because we generally intend to leverage approximately 75% of our investments, as benchmark rates increase above the floors of our loans, our income from investments, net of interest and related expenses, will increase.

Decreases in benchmark rates are mitigated by interest rate floor provisions in all but one of our loan agreements with borrowers;

therefore, changes to income from investments, net, may not move proportionately with the increase or decrease in benchmark rates.

As of March 31, 2022, LIBOR and SOFR were 0.45% and 0.30%, respectively, and would have to exceed the floor established by any of our loans, which currently range from 0.10% to 2.32%, for us to realize an increase in interest income.

Interest rates under our loan agreements with borrowers entered into prior to January 1, 2022 have been or are expected to be amended to replace LIBOR with SOFR prior to June 30, 2023, the date LIBOR is expected to no longer be available.

Since January 1, 2022, interest rates under our new loan agreements with borrowers are based on SOFR.

Our Citibank Master Repurchase Agreement was amended and restated in March 2022 to, among other things, replace LIBOR with SOFR for interest rate calculations on advances.

Interest rates on advances under our BMO Facility and Wells Fargo Master Repurchase Facility have been based on SOFR since we entered into the agreements governing these facilities.

Size of Portfolio .

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Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to fund our lending commitments, repay or meet margin calls resulting from our borrowings, if any, fund and maintain our assets and operations, make distributions to our shareholders and fund other business operating requirements.

We require a significant amount of cash to originate, purchase and invest in our target investments, make additional unfunded loan commitment payments, repay principal and interest on our borrowings, make distributions to our shareholders and fund other business operating requirements.

The long-term impact of the COVID-19 pandemic and its aftermath on financial markets is uncertain.

To the extent that impact is significant, negative and sustained for an extended period, we expect that we may be challenged in accessing capital.

Our sources of cash flows include cash on hand, payments of principal, interest and fees we receive on our investments, other cash we may generate from our business and operations and any unused borrowing capacity, including under our Master Repurchase Facilities or other repurchase agreements or financing arrangements, and may also include bank loans or public or private issuances of debt or equity securities.

We believe that these sources of funds will be sufficient to meet our operating and capital expenses and pay our debt service obligations owed and make any distributions to our shareholders for the next 12 months and for the foreseeable future, subject to the duration and severity of the COVID-19 pandemic and economic impact on our borrowers and their ability to fund their debt service obligations owed to us.

Pursuant to our Master Repurchase Facilities, we may sell to, and later repurchase from, UBS and Citibank the purchased assets.

The initial purchase price paid by UBS or 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 UBS’s and Citibank's approval.

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

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 and Citibank each has the discretion under our respective Master Repurchase Agreement to make advancements at margins higher than 75%.

For further information regarding our Master Repurchase Facilities, see Note 7 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I Item 1 of this Quarterly Report on Form 10-Q and "—Overview-Financing Activities" above.

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

Nine Months Ended September 30, 2021

Our sources of cash flows include cash on hand, payments of principal, interest and fees we receive on our investments, other cash we may generate from our business and operations and any unused borrowing capacity, including under our Secured Financing Facilities or other repurchase agreements or financing arrangements we may obtain, which may also include bank loans or public or private issuances of debt or equity securities.

We believe that these sources of funds will be sufficient to meet our operating and capital expenses, pay our debt service obligations owed and make any distributions to our shareholders for the next 12 months and for the foreseeable future, subject to the duration and severity of the COVID-19 pandemic and its economic impact on our borrowers and their ability to fund their debt service obligations owed to us.

For further information regarding the risks associated with our loan portfolio, see Part I, Item 1A, "Risk Factors" of our 2021 Annual Report.

Pursuant to the terms of our UBS Master Repurchase Facility and our Citibank Master Repurchase Facility, we may sell to, and later repurchase from, UBS and Citibank, the purchased assets related to the applicable facility.

The initial purchase price paid by UBS or Citibank of 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 UBS’s or Citibank's approval.

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

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

The interest rate related to our Citibank purchased assets was amended March 15, 2022 as part of the amendment to the Citibank Master Repurchase Agreement to replace one month LIBOR with one month SOFR plus a premium within a fixed range, determined by the debt yield and property type of the purchased asset’s real estate collateral.

UBS and Citibank each has the discretion to make advancements at margins higher than 75%.

Loans issued under the BMO Facility are coterminous with the corresponding pledged mortgage loan investments, are not subject to margin calls and allow for up to an 80% advance rate, subject to certain loan to cost and LTV limits.

Interest on advancements under the BMO Facility are calculated at SOFR plus a premium.

Loans issued under the BMO Facility are secured by a security interest and collateral assignment of the underlying loans to our borrowers which are secured by real property underlying such loans.

We are required to pay an upfront fee equal to a percentage of the aggregate amount of the facility loan, such percentage to be determined at the time of approval of the separate facility loan agreements with BMO, or the BMO Facility Loan Agreements.

On March 11, 2022, one of our wholly owned subsidiaries entered into the Wells Fargo Master Repurchase Agreement for the Wells Fargo Master Repurchase Facility, pursuant to which we may sell to, and later repurchase from Wells Fargo, the purchased assets related to the facility.

The initial purchase price paid by Wells Fargo for each purchased asset is up to 75% or 80%, depending on the property type of the purchased asset’s real estate collateral, of the lesser of the market value of the purchased asset or the unpaid principal balance of such purchased asset, and subject to Wells Fargo’s approval.

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

Interest on advancements under the Wells Fargo Master Repurchase Facility is calculated at SOFR plus a premium.

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

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

Three Months Ended March 31,

Cash, cash equivalents and restricted cash at beginning of period $ 26,295 $ 103,564

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Cash, cash equivalents and restricted cash at end of period $ 8,962 $ 47,059

During the nine months ended September 30, 2021, our cash provided by operating activities consisted of our net income, partially offset by unfavorable changes in working capital.

During the nine months ended September 30, 2021, our cash used in investing activities consisted of loan originations and additional fundings on our loans held for investment and payment of transaction costs related to the Merger, partially offset a loan repayment and cash assumed in the Merger during the third quarter of 2021.

During the nine months ended September 30, 2021, our cash provided by financing activities consisted of proceeds from our UBS Master Repurchase Facility, partially offset by deferred financing cost payments related to our Master Repurchase Facility and distributions to our common shareholders.

The increase in cash provided by operating activities for the 2022 period compared to the 2021 period was primarily the result of our origination activities since April 1, 2021.

Since April 1, 2021, we have increased the size of our loan portfolio from 7 loans to 27 loans as of March 31, 2022.

The decrease in cash used in investing activities in the 2022 period compared to the 2021 period is primarily due to the repayment of loans in the 2022 period, partially offset by an increase in origination activity in the 2022 period.

The increase in cash used in financing activities in the 2022 period compared to the 2021 period is primarily due to proceeds received from our Secured Financing Facilities, partially offset by repayments on our Secured Financing Facilities for the 2022 period.

As of March 31, 2021, we had not yet borrowed any funds under our Secured Financing Facilities.

Distributions

During the nine months ended September 30, 2021, we paid distributions to our common shareholders totaling $4,595 using cash on hand.

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

No further dividends are expected to be declared in 2021 unless pursuant to applicable tax requirements.

For further information regarding distributions we paid during the nine months ended September 30, 2021, see Note 8 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

During the three months ended March 31, 2022, we paid distributions to our common shareholders totaling $3,649, or $0.25 per common share, using cash on hand.

On April 14, 2022, we declared a quarterly distribution of $0.25 per common share, or $3,649, to shareholders of record on April 25, 2022.

We expect to pay this distribution to our common shareholders on May 19, 2022 using cash on hand.

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

Contractual Obligations and Commitments

Our contractual obligations and commitments as of September 30, 2021 were as follows:

Our contractual obligations and commitments as of March 31, 2022 were as follows:

Payment Due by Period

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$ 47,812 $ 6,450 $ 41,362 $ — $ —

Principal payments on Master Repurchase Facilities (2)

Principal payments on Secured Financing Facilities (2)

369,432 63,687 305,745 — —

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$ 434,739 $ 78,649 $ 356,090 $ — $ —

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

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

(3) Projected interest payments are attributable only to our debt service obligations at existing rates as of September 30, 2021 and are not intended to estimate future interest costs which may result from debt prepayments, additional borrowings, new debt issuances or changes in interest rates.

Off-Balance Sheet Arrangements

As of September 30, 2021, we had no off-balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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

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

(3) Projected interest payments are attributable only to our debt service obligations at existing rates as of March 31, 2022 and are not intended to estimate future interest costs which may result from debt prepayments, additional borrowings, new debt issuances or changes in interest rates.

Debt Covenants

Our principal debt obligations at September 30, 2021 were the outstanding balances under our Master Repurchase Facilities.

Our Master Repurchase Agreements provide for acceleration of the date of repurchase of any then purchased assets

and UBS’s or Citibank's liquidation of the purchased assets upon the occurrence and continuation of certain events of default, including a change of control of us, which includes our Manager ceasing to act as our sole manager or to be a wholly owned subsidiary of RMR LLC.

Our Master Repurchase Agreements also provide that upon the repurchase of any then purchased asset, we are required to pay UBS or Citibank the outstanding purchase price of such purchased asset and accrued interest and any and all accrued and unpaid expenses of UBS or Citibank relating to such purchased asset.

In connection with our Master Repurchase Agreements, we entered into our Guarantees, which require us to guarantee 25% of the aggregate repurchase price, and 100% of losses in the event of certain bad acts as well as any costs and expenses of UBS and Citibank related to our Master Repurchase Agreements.

The Guarantees also require 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 and a minimum interest coverage ratio.

As of September 30, 2021, we had a $216,345 aggregate outstanding principal balance under our Master Repurchase Facilities.

Our Master Repurchase Agreements are structured with risk mitigation mechanisms, including a cash flow sweep, which would allow UBS or Citibank, as applicable, to control interest payments from our borrowers under our loans that are financed under our respective Master Repurchase Facilities, and the ability to accelerate dates of repurchase and institute margin calls, which may require us to pay down balances associated with one or more of our loans that are financed under our Master Repurchase Facilities.

As of September 30, 2021, we were in compliance with all covenants and other terms under our Master Repurchase Agreements and, to date, UBS or Citibank has not utilized any such risk mitigation mechanisms under our Master Repurchase Agreements.

Our principal debt obligations as of March 31, 2022 were the outstanding balances under our Secured Financing Facilities.

The agreements governing our Master Repurchase Facilities, or our Master Repurchase Agreements, provide for acceleration of the date of repurchase of any then purchased assets and the liquidation of the purchased assets by UBS, Citibank or Wells Fargo, as applicable, upon the occurrence and continuation of certain events of default, including a change of control of us, which includes Tremont ceasing to act as our sole manager or to be a wholly owned subsidiary of RMR.

Our Master Repurchase Agreements also provide that upon the repurchase of any then purchased asset, we are required to pay UBS, Citibank or Wells Fargo the outstanding purchase price of such purchased asset and accrued interest and any and all accrued and unpaid expenses of UBS, Citibank or Wells Fargo, as applicable, relating to such purchased asset.

In connection with our Master Repurchase Agreements, we entered into our guarantees, or the Master Repurchase Guarantees, which require us to guarantee 25% of the aggregate repurchase price, and 100% of losses in the event of certain bad acts as well as any costs and expenses of UBS, Citibank and Wells Fargo, as applicable, related to our Master Repurchase Agreements.

The Master Repurchase Guarantees contain financial covenants, which require us to maintain a minimum tangible net worth, a minimum liquidity and a minimum interest coverage ratio and to satisfy a total indebtedness to stockholders' equity ratio.

In connection with the BMO Loan Program Agreement, we have agreed to guarantee certain of the obligations under the BMO Loan Program Agreement and the BMO Facility Loan Agreements pursuant to a limited guaranty from us to and for the benefit of the administrative agent for itself and such other lenders, or the BMO Guaranty.

Specifically, the BMO Guaranty requires us to guarantee 25% of the then current outstanding principal balance of the facility loans and 100% of losses or the entire indebtedness in the event of certain bad acts as well as any costs and expenses of the administrative agent or lenders related to the BMO Loan Program Agreement.

In addition, the BMO Guaranty contains financial covenants that require us to maintain a minimum tangible net worth and a minimum liquidity and to satisfy a total indebtedness to stockholders’ equity ratio.

The BMO Loan Program Agreement and the BMO Guaranty contain representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types.

As of March 31, 2022, we had a $287,156 aggregate outstanding principal balance under our Master Repurchase Facilities.

Our Master Repurchase Agreements are structured with risk mitigation mechanisms, including a cash flow sweep, which would allow UBS, Citibank and Wells Fargo, as applicable, to control interest payments from our borrowers under our loans that are financed under our respective Master Repurchase Facilities, and the ability to accelerate dates of repurchase and institute margin calls, which may require us to pay down balances associated with one or more of our loans that are financed under our Master Repurchase Facilities.

As of March 31, 2022, we had a $82,276 aggregate outstanding principal balance under the BMO Facility.

As of March 31, 2022, we were in compliance with all covenants and other terms under our Secured Financing Facilities.

Related Person Transactions

We have relationships and historical and continuing transactions with our Manager, RMR LLC, RMR Inc.

We have relationships and historical and continuing transactions with Tremont, RMR, RMR Inc.

and others related to them.

For example, as noted earlier in this Quarterly Report on Form 10-Q, TRMT merged with and into us effective September 30, 2021.

For further information about these and other such relationships and related person transactions, see Notes 1, 10 and 11 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our Current Report on Form 8-K dated April 26, 2021, Proxy Statement for our 2021 Annual Meeting of Shareholders, Form S-4 and our other filings with the SEC.

In addition, see the section captioned “Risk Factors” of this Quarterly Report on Form 10-Q and “Summary of Principal Risk Factors” included in our Current Report on Form 8-K filed on March 24, 2021 for a description of risks that may arise as a result of these and other related person transactions and relationships.

We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.

For further information about these and other such relationships and related person transactions, see Notes 7 and 8 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our 2021 Annual Report, our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders and our other filings with the SEC.

In addition, see the section captioned “Risk Factors” of our 2021 Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships.

We may engage in additional transactions with related persons, including businesses to which RMR, Tremont or their respective subsidiaries provide management services.

Quantitative and Qualitative Disclosures About Market Risk

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Item 2. Management’s Discussion and Analysis