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Item 2. Management’s Discussion and Analysis

2022-10-26 compared with 2022-07-27 · 85 added, 106 removed, 315 unchanged (38% of the section changed)

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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.

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, a measure 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;

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Shareholders' equity $ 268,409 $ 257,694

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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 June 30, 2022 and December 31, 2021, the unaccreted purchase discount was $9,820 and $17,391, respectively.

As of September 30, 2022 and December 31, 2021, the unaccreted purchase discount was $8,224 and $17,391, respectively.

Our Loan Portfolio

The table below details overall statistics for our loan portfolio as of June 30, 2022 and December 31, 2021:

As of June 30, 2022 As of December 31, 2021

The table below details overall statistics for our loan portfolio as of September 30, 2022 and December 31, 2021:

As of September 30, 2022 As of December 31, 2021

Number of loans 28 26

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Loan Portfolio Details

The table below details our loan portfolio as of June 30, 2022:

The table below details our loan portfolio as of September 30, 2022:

Location Property Type Origination Date Committed Principal Amount Principal

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Louis, MO Office 12/19/2018 $ 29,500 $ 29,367 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 15,251 L + 4.58% L + 6.15% 12/19/2024 75 % 4

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Downers Grove, IL Office 09/25/2020 30,000 29,500 L + 4.25% L + 4.69% 11/25/2024 67 % 3

Los Angeles, CA Retail 12/17/2020 24,600 21,040 L + 4.25% L + 5.03% 12/17/2024 67 % 2

Los Angeles, CA (4)

Retail 12/17/2020 24,600 22,061 L + 4.25% L + 5.02% 12/17/2024 67 % 2

Aurora, IL Office / Industrial 12/18/2020 17,460 15,299 L + 4.35% L + 5.03% 12/18/2024 73 % 2

Olmstead Falls, OH Multifamily 01/28/2021 54,575 46,083 L + 4.00% L + 4.64% 01/28/2026 63 % 3

Olmsted Falls, OH Multifamily 01/28/2021 54,575 46,084 L + 4.00% L + 4.64% 01/28/2026 63 % 3

Colorado Springs, CO Office / Industrial 04/06/2021 35,000 30,210 L + 4.50% L + 5.05% 04/06/2025 73 % 2

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Las Vegas, NV Multifamily 06/10/2022 28,950 23,378 S + 3.30% S + 4.07% 06/10/2027 60 % 3

Passaic, NJ Industrial 09/08/2022 47,000 38,440 S + 3.85% S + 4.22% 09/08/2027 69 % 3

Total/weighted average $ 763,076 $ 705,460 + 3.83% + 4.34% 68 % 2.9

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

As of June 30, 2022, we had $734,883 in aggregate loan commitments, consisting of a diverse portfolio, geographically and by property type, of 28 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 certain of our office and retail 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 U.S.

has improved significantly from the low points during the pandemic to date, certain industries have not recovered to their pre-pandemic positions, certain industries have not recovered to their pre-pandemic positions, and current inflationary pressures and the possibility that the U.S.

economy may now be in, or will soon enter into, a recession or downturn may amplify those, or introduce additional, negative impacts.

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 June 30, 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”.

For further information and risks relating to the COVID-19 pandemic and current economic conditions on us and our business, see "—Factors Affecting our Operating Results" below and "Warning

Concerning Forward-Looking Statements" elsewhere in this Quarterly Report on Form 10-Q and Part I, Item 1A, "Risk Factors", of our 2021 Annual Report.

(4) This loan was repaid in October 2022.

As of September 30, 2022, we had $763,076 in aggregate loan commitments, consisting of a diverse portfolio, geographically and by property type, of 28 first mortgage loans.

As of September 30, 2022, we had four loans representing approximately 15% 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 June 30, 2022 and July 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 June 30, 2022;

As of September 30, 2022 and October 24, 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 September 30, 2022;

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

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.

However, our borrowers' businesses, operations and liquidity may be materially adversely impacted by the ongoing impact of the COVID-19 pandemic, inflationary pressures, rising interest rates, supply chain issues and any recession or economic downturn.

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 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.

For further information regarding our loan portfolio, risks relating to the COVID-19 pandemic and current economic conditions on us and our business, see Note 3 to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1, "—Factors Affecting our Operating Results" and "Warning Concerning Forward-Looking Statements" elsewhere in 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

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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 June 30, 2022:

The table below is an overview of our Secured Financing Facilities as of September 30, 2022:

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

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UBS Master Repurchase Facility 02/18/2024 167,094 24,906 192,000 226,082

Wells Fargo Master Repurchase Facility 03/11/2025 67,427 57,573 125,000 88,446

BMO Facility Various 111,105 38,895 150,000 148,476

Wells Fargo Master Repurchase Facility 03/11/2025 67,426 57,574 125,000 88,649

Total $ 505,831 $ 176,169 $ 682,000 $ 683,399

The table below details our Secured Financing Facilities activities during the three months ended June 30, 2022:

The table below details our Secured Financing Facilities activities during the three months ended September 30, 2022:

Carrying Value

Balance at March 31, 2022 $ 367,679

Balance at June 30, 2022 $ 452,705

Borrowings 60,919

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Amortization of deferred fees 310

Balance at June 30, 2022 $ 452,705

The table below details our Secured Financing Facilities activities during the six months ended June 30, 2022:

Balance at September 30, 2022 $ 503,514

The table below details our Secured Financing Facilities activities during the nine months ended September 30, 2022:

Carrying Value

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Amortization of deferred fees 784

Balance at June 30, 2022 $ 452,705

As of June 30, 2022, outstanding advancements under our Secured Financing Facilities had a weighted average interest rate of 3.36% per annum, excluding associated fees and expenses.

As of June 30, 2022 and July 25, 2022, we had a $455,044 and a $469,810, respectively, aggregate outstanding principal balance under our Secured Financing Facilities.

As of June 30, 2022, we were in compliance with all covenants and other terms under our Secured Financing Facilities.

Balance at September 30, 2022 $ 503,514

As of September 30, 2022, outstanding advancements under our Secured Financing Facilities had a weighted average interest rate of 4.89% per annum, excluding associated fees and expenses.

As of September 30, 2022 and October 24, 2022, we had a $505,831 aggregate outstanding principal balance under our Secured Financing Facilities.

As of September 30, 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)

Three Months Ended June 30, 2022 Compared to Three Months Ended March 31, 2022:

Three Months Ended September 30, 2022 Compared to Three Months Ended June 30, 2022:

Three Months Ended

June 30, 2022 March 31, 2022 Change % Change

September 30, 2022 June 30, 2022 Change % Change

INCOME FROM INVESTMENTS:

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Reimbursement of shared services expenses 520 440 80 18.2 %

Other transaction related costs — 37 (37) (100.0 %)

Total expenses 2,600 2,881 (281) (9.8 %)

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Net income $ 5,176 $ 4,578 $ 598 13.1 %

Weighted average common shares outstanding - basic 14,521 14,505 16 0.1 %

Weighted average common shares outstanding - diluted 14,521 14,519 2 — %

Weighted average common shares outstanding - basic and diluted 14,551 14,521 30 0.2 %

Net income per common share - basic and diluted $ 0.35 $ 0.31 $ 0.04 12.9 %

Interest income from investments .

The decrease in interest income from investments was primarily the result of prepayment premiums and accelerated amortization of deferred fees on two loans repaid during the three months ended March 31, 2022 of $2,402, partially offset by the impact of three loan investments originated during the first quarter of 2022, two loan investments originated during the second quarter of 2022 and higher interest rates since April 1, 2022.

The increase in interest income from investments was primarily the result of higher benchmark interest rates.

The weighted average benchmark interest rate was 2.76% as of September 30, 2022 as compared to 1.32% as of June 30, 2022.

Purchase discount accretion.

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

Two loans were fully amortized during the three months ended March 31, 2022 as a result of their repayment;

therefore, purchase discount accretion decreased quarter over quarter.

Interest and related expenses.

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 higher interest rates during the three months ended June 30, 2022 as compared to the three months ended March 31, 2022.

The increase in interest and related expenses was primarily the result of higher benchmark interest rates.

The weighted average benchmark interest rate was 2.96% as of September 30, 2022 as compared 1.47% as of June 30, 2022.

General and administrative expenses .

The increase in general and administrative expenses was primarily due to an increase in share based compensation of $448 resulting from common shares awarded to our Trustees during the second quarter of 2022, partially offset by a reduction in professional fees during the three months ended June 30, 2022 as compared to the three months ended March 31, 2022.

The decrease in general and administrative expenses was primarily due to decreases in share based compensation and professional fees during the three months ended September 30, 2022 as compared to the three months ended June 30, 2022.

Reimbursement of shared services expenses.

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 to our estimate of costs for the usage of shared services from RMR.

Other transaction related costs.

Other transaction related costs incurred during the three months ended March 31, 2022 primarily consisted of audit fees relate to the Merger.

The increase in reimbursement of shared services expenses was primarily the result of an adjustment to our estimate of costs for the usage of shared services from RMR.

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

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021:

Six Months Ended June 30,

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

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021:

Nine Months Ended September 30,

2022 2021 Change % Change

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Interest income from investments .

The increase in interest income from investments was primarily the result of interest income generated from the 17 loans originated or acquired since July 1, 2021 and prepayment premiums and accelerated amortization of deferred fees on two loans repaid during the six months ended June 30, 2022 of $2,402.

The increase in interest income from investments was primarily the result of interest income generated from the 12 loans originated since October 1, 2021, higher benchmark interest rates since October 1, 2021 and prepayment premiums and accelerated amortization of deferred fees on two loans repaid during the nine months ended September 30, 2022 of $2,402.

Purchase discount accretion.

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Interest and related expenses.

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 higher interest rates during the six months ended June 30, 2022 as compared to the six months ended June 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 higher weighted average interest rates of 2.91% for the nine months ended September 30, 2022 as compared to 0.62% for the nine months ended September 30, 2021.

Base management fees.

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General and administrative expenses .

The increase in general and administrative expenses was primarily due to increases in share based compensation, insurance, professional fees and fees paid to our Trustees for their services during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

The increase in general and administrative expenses was primarily due to increases in share based compensation, fees paid to our Trustees for their services, professional fees and insurance costs during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

Reimbursement of shared services expenses.

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Other transaction related costs.

Other transaction related costs primarily consisted of audit fees related to the Merger during the six months ended June 30, 2022.

Other transaction related costs primarily consisted of audit fees related to the Merger during the nine months ended September 30, 2022.

Income tax expense.

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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 Six Months Ended

June 30, 2022 March 31, 2022 June 30, 2022 June 30, 2021

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

Three Months Ended Nine Months Ended

September 30, 2022 June 30,

2022 September 30, 2022 September 30, 2021

Net income $ 5,176 $ 4,578 $ 20,880 $ 3,994

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Non-cash accretion of purchase discount (1,596) (1,636) (9,167) —

Exit fees collected on loans acquired in Merger (1)

Distributable Earnings 3,943 3,490 12,706 4,175

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Adjusted Distributable Earnings $ 3,943 $ 3,490 $ 12,743 $ 4,175

Weighted average common shares outstanding - basic 14,521 14,505 14,514 10,205

Weighted average common shares outstanding - diluted 14,521 14,519 14,514 10,205

Weighted average common shares outstanding - basic and diluted 14,551 14,521 14,526 10,225

Net income per common share - basic and diluted $ 0.35 $ 0.31 $ 1.43 $ 0.39

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Adjusted Distributable Earnings per common share - basic and diluted $ 0.27 $ 0.24 $ 0.88 $ 0.41

(1) Other transaction related costs for the three months ended March 31, 2022 and six months ended June 30, 2022 include expenses related to the Merger.

(1) Exit fees collected on loans acquired in the Merger represent fees collected upon repayment of loans for which no income has previously been recognized in Distributable Earnings.

In accordance with GAAP, exit fees on loans acquired in the Merger were accreted as a component of the purchase discount and were excluded from Distributable Earnings as a non-cash item.

Accordingly, these exit fees have been recognized in Distributable Earnings upon collection.

(2) Other transaction related costs for the nine months ended September 30, 2022 include expenses related to the Merger.

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.

For further information regarding the risks associated with our loan portfolio, see Note 3 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 and elsewhere in this Management Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q and Part I, Item 1A, "Risk Factors" of our 2021 Annual Report.

Credit Risk .

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We seek to mitigate this risk by utilizing a comprehensive underwriting, diligence and investment selection process and by ongoing monitoring of our investments.

Nevertheless, unanticipated credit losses could occur that could adversely impact our operating results.

Nevertheless, unanticipated credit losses could occur that may adversely impact our operating results.

Changes in Fair Value of our Assets .

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If we determine that a loan is impaired, we will record a reserve 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 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.

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.

CRE transactions for 2021 exceeded the previous annual high watermark of 2019.

Investor demand for CRE assets, historically low interest rates and strong property fundamentals resulted in increased CRE valuations.

Record transaction volumes and increasing CRE valuations continued into 2022;

however, inflationary pressures and geopolitical concerns caused widespread macroeconomic uncertainty and volatility.

In response to inflationary pressures, the U.S.

Federal Reserve increased the federal funds rate by 25 basis points in March 2022, 50 basis points in May 2022 and 75 basis points in June 2022, the largest single increase in nearly 30 years, and has signaled that further large increases are likely to occur.

Federal Reserve's actions have caused increased borrowing costs and volatility in the CRE debt markets, while concerns of a possible recession have caused increased credit spreads.

Combined, these factors are resulting in increased conservatism in underwriting standards in the CRE debt markets.

Tighter underwriting standards, which are resulting in lower leveraged loans, have caused some buyers to seek to reprice, or in some circumstances, cancel pending transactions entirely.

As a result, CRE transaction total volume for the second quarter of 2022 has slowed but is still expected to meet or exceed transaction volumes for the same period of each of the five years prior to the COVID-19 pandemic.

Investor demand for CRE assets, historically low interest rates and strong property fundamentals resulted in both increased CRE valuations and transaction volumes.

These trends continued into 2022;

however, inflationary pressures and geopolitical concerns have caused widespread macroeconomic uncertainty and volatility.

In response to inflationary pressures, the Federal Open Market Committee of the U.S.

Federal Reserve (the "FOMC") increased the federal funds rate by 300 basis points over five consecutive meetings from March 2022 to September 2022, a pace not seen since the FOMC began setting target federal funds rates as a means of implementing monetary policy in 1990, and has signaled that further increases are likely to occur.

The FOMC's actions have caused increased borrowing costs and volatility in the CRE debt markets, while concerns of an existing or possible recession have caused increased credit spreads.

Combined, these factors are resulting in tighter underwriting standards and have caused some buyers to seek to reprice, or in some circumstances, cancel pending transactions entirely.

As a result, CRE transaction total volume for the third quarter of 2022 has slowed considerably.

The CRE industry is traditionally a lagging indicator of economic conditions and CRE assets have historically tended to perform well in periods of inflation.

Despite the recent increase in borrowing costs and macroeconomic and geopolitical uncertainties, CRE investors continue to see strength in the fundamentals of the U.S.

We believe that we are in a period of price resetting, as buyers and sellers of CRE assets recalibrate their expectations and CRE investors and lenders reprice and reconsider risk in the current higher interest rate environment.

Some investors have in the past viewed CRE as a hedge against inflation, with long term earnings potential from rent growth resulting from continued demand for certain CRE asset classes, such as affordable rental housing and industrial space, and acquisition and financing opportunities may continue to exist for borrowers able to accept higher borrowing costs in the short term.

Recovery from the impact of the COVID-19 pandemic continues to vary among different market sectors.

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.

Additionally, hotel assets are uniquely positioned to reprice daily and take advantage of inflationary pressures, provided demand remains strong and challenges related to increased labor costs can be managed effectively.

Retail has performed better than many expected thus far, but recession concerns and reductions in discretionary spending in response to inflation may have a negative impact on certain retailers.

Investors have continued to favor grocery anchored, service oriented and neighborhood shopping centers over larger shopping centers anchored by big box retailers, regional malls or lifestyle centers.

The office sector continues to pose underwriting challenges, especially for older urban 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.

The debt capital markets experienced strong performance in 2021 and into the first quarter of 2022.

CRE debt providers continue to be willing and able to extend credit to borrowers, albeit at lower leverage levels and with higher credit spreads.

Despite the recent increase in borrowing costs and macroeconomic and geopolitical uncertainties, we believe that CRE investors continue to see strength in the fundamentals of the U.S.

Some investors have in the past viewed CRE as a hedge against inflation, with long term earnings potential from rent growth resulting from continued demand for certain CRE asset classes, such as rental housing and industrial space, and acquisition and financing opportunities may continue to exist for borrowers able to accept higher borrowing costs.

As it relates to the CRE debt markets, many CRE debt providers have become less willing, or able, to extend credit to borrowers, and those that are extending credit are doing so at lower leverage levels and with higher credit spreads.

Market volatility and the increase in interest rates has not affected all lenders equally.

Banks and life insurance companies have reduced their leverage ratios and increased credit spreads, but continue to originate new loans, while lenders that rely on secondary markets to finance their lending activities have experienced other challenges.

Credit spreads in the secondary market for commercial mortgage-backed securities, or CMBS, and CRE collateralized loan obligations, or CLO, bonds have widened substantially due to competing demand for alternative fixed income investments.

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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.

Because we generally intend to leverage approximately 75% of the amount 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 June 30, 2022, LIBOR and SOFR were 1.79% and 1.69%, 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.

As of September 30, 2022, LIBOR and SOFR were 3.14% and 3.04%, respectively, which exceeds the floors established by all of our loans, and as a result none of our loan investments currently have active interest rate floors.

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 and UBS Master Repurchase Agreement were amended and restated effective 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.

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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.

For further information regarding the risks associated with our loan portfolio, see Part I, Item 1A, "Risk Factors" of our 2021 Annual Report and elsewhere in this Management Discussion and Analysis of Financial Condition and Operating Results.

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.

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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:

Six Months Ended June 30,

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

Nine Months Ended September 30,

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

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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.

As of June 30, 2022, we have increased the size of our loan portfolio from 9 loans to 28 loans since July 1, 2021.

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

As of September 30, 2022, we have increased the size of our loan portfolio from 22 to 28 loans since October 1, 2021.

The decrease in cash used in investing activities is primarily due to higher repayment of loans in the 2022 period and payment of transaction costs related to the Merger in the 2021 period, partially offset by cash assumed in the Merger.

The increase in cash used in financing activities is primarily due to increased proceeds received from our Secured Financing Facilities during the 2022 period, partially offset by repayments on our Secured Financing Facilities and an increase in distributions to our common shareholders for the 2022 period.

Distributions

During the six months ended June 30, 2022, we paid distributions to our common shareholders totaling $7,298, or $0.50 per common share, using cash on hand.

On July 14, 2022, we declared a quarterly distribution of $0.25 per common share, or $3,660, to shareholders of record on July 25, 2022.

We expect to pay this distribution to our common shareholders on August 18, 2022 using cash on hand.

During the nine months ended September 30, 2022, we paid distributions to our common shareholders totaling $10,958, or $0.75 per common share, using cash on hand.

On October 13, 2022, we declared a quarterly distribution of $0.25 per common share, or $3,677, to shareholders of record on October 24, 2022.

We expect to pay this distribution to our common shareholders on or about November 17, 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 June 30, 2022 were as follows:

Our contractual obligations and commitments as of September 30, 2022 were as follows:

Payment Due by Period

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(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 June 30, 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.

(3) Projected interest payments are attributable only to our debt service obligations at existing rates as of September 30, 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 as of June 30, 2022 were the outstanding balances under our Secured Financing Facilities.

Our principal debt obligations as of September 30, 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.

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.

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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 June 30, 2022, we had a $372,768 aggregate outstanding principal balance under our Master Repurchase Facilities.

As of September 30, 2022, we had a $394,726 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 June 30, 2022, we had a $82,276 aggregate outstanding principal balance under the BMO Facility.

As of June 30, 2022, we were in compliance with all covenants and other terms under our Secured Financing Facilities.

As of September 30, 2022, we had a $111,105 aggregate outstanding principal balance under the BMO Facility.

As of September 30, 2022, we were in compliance with all covenants and other terms under our Secured Financing Facilities.

Related Person Transactions

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What changed 10-Q

Item 2. Management’s Discussion and Analysis