What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-13 compared with 2022-02-17 · 227 added, 204 removed, 197 unchanged (69% 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 consolidated financial statements and accompanying notes included elsewhere in this Annual Report on Form 10-K (dollars in thousands, except per share data) .

On January 5, 2021, the SEC issued the Deregistration 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 REIT 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 December 31, 2021.

The results of operations from January 1, 2021 through January 4, 2021 were not material to our consolidated financial statements and have not been presented or discussed separately, but they are included in our results of operations for the year ended December 31, 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 consolidated balance sheet.

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.

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.

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

OVERVIEW (dollars in thousands, except per share data)

We are a Maryland REIT.

Our business strategy is focused on originating and investing in floating rate first mortgage loans in the $15,000 to $75,000 range, secured by middle market and transitional CRE properties that have values up to $100,000.

We define 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 consolidated balance sheets.

Loans held for investment are reported at cost, net of any unamortized loan fees, origination costs, premiums, discounts or reserves for loan losses, as applicable.

Tremont is registered with the 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 that is consistent with our qualification for taxation as a REIT under the IRC.

As such, we generally are not subject to U.S.

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

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

Merger with Tremont Mortgage Trust

On April 26, 2021, we and TRMT entered into the Merger Agreement, pursuant to which TRMT merged with and into us, with us continuing as the surviving entity.

The purchase price, based on the per share closing price of our common shares on September 30, 2021 of $10.31 per share, was $169,150, including the assumption of $128,962 outstanding under the Citibank Master Repurchase Facility and closing costs of $6,160 and assumed working capital of $10,146.

Pursuant to the terms of the Merger Agreement and the Letter Agreement, TRMT shareholders received 0.516 of our newly issued common shares, with cash paid in lieu of fractional shares.

For further information regarding the Merger, see Part I, Item 1, "Business" and the Notes 1, 5, 6, 7, 10 and 11 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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.

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 or otherwise render the virus reasonably manageable, 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, see elsewhere in this Annual Report on Form 10-K, including "Warning Concerning Forward-Looking Statements" and Part I, Item 1A, “Risk Factors”.

On September 30, 2021, we completed the Merger with TRMT, at which time TRMT merged with and into us, with us continuing as the surviving entity.

The purchase price was $169,150, including the assumption of $128,962 of outstanding debt, closing costs of $6,160 and assumed working capital of $10,146.

For further information regarding the Merger, see Part I, Item 1, "Business" in our Annual Report on Form 10-K for the year ended December 31, 2021 and Note 4 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Non-GAAP Financial Measures

We present Distributable Earnings, Adjusted 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 and Adjusted Distributable Earnings do not represent net income or cash generated from operating activities and should not be considered as alternatives to net income determined in accordance with U.S.

generally accepted accounting principles, or GAAP, or indications of our cash flows from operations determined in accordance with GAAP, measures of our liquidity or operating performance or indications of funds available for our cash needs.

In addition, our methodologies for calculating Distributable Earnings and Adjusted 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 and Adjusted Distributable Earnings may not be comparable to the distributable earnings and adjusted distributable earnings 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 which we acquired as a result of the Merger over the consideration we paid in the Merger.

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 alternatives to net income or net income per common share determined in accordance with U.S.

generally accepted accounting principles, or 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;

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 distributable earnings, distributable earnings per common share, adjusted distributable earnings and adjusted distributable earnings per common share 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.

1 unchanged sentence

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 and Adjusted Distributable Earnings 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 and Adjusted Distributable Earnings provide meaningful information to consider in addition to net income and cash flows from operating activities determined in accordance

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 our Manager under our management agreement.

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 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;

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;

3 unchanged sentences

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

We define Adjusted Distributable Earnings as Distributable Earnings, excluding the effects of certain non-recurring transactions.

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:

December 31, 2021

As of December 31,

Shareholders' equity $ 271,579 $ 257,694

3 unchanged sentences

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 of the fair value of the loans TRMT then held for investment and which we acquired as a result of the Merger over the consideration we paid in the Merger.

$ 18.92 $ 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 December 31, 2021, the unaccreted purchase discount was $17,391.

As of December 31, 2022 and 2021, the unaccreted purchase discount was $6,703 and $17,391, respectively.

Our Loan Portfolio

6 unchanged sentences

Principal balance $ 678,555 $ 590,590

$ 590,590 $ 92,863

Carrying value $ 669,929 $ 570,780

2 unchanged sentences

8.57 % 5.08 %

Weighted average LIBOR floor 0.68 % 0.78 %

Weighted average floor 0.62 % 0.68 %

Weighted average maximum maturity (years) (3)

2 unchanged sentences

(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 December 31, 2021 includes $96 of capitalized interest that does not reduce the amount of unfunded loan commitments.

(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.

4 unchanged sentences

# Location Property Type Origination Date Committed Principal Amount Principal

Balance Coupon Rate All in

Coupon Rate All in

Maximum Maturity (2)

Louis, MO (4)

Office 12/19/2018 $ 29,500 $ 28,421 L + 3.25% L + 3.74% 12/19/2023 72 % 2

Coppell, TX (4)

Retail 02/05/2019 19,615 19,615 L + 3.50% L + 4.24% 02/12/2022 73 % 3

Yardley, PA (4)

Office 12/19/2019 14,900 14,265 L + 3.75% L + 4.47% 01/24/2025 75 % 4

Allentown, PA (4)

Industrial 01/24/2020 10,350 10,350 L + 3.50% L + 3.89% 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

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

2 Dallas, TX Office 08/25/2021 50,000 43,450 L + 3.25% L + 3.61% 08/25/2026 72 % 4

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

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

5 West Bloomfield, MI Retail 12/16/2021 42,500 37,453 L + 3.85% L + 4.66% 12/16/2024 59 % 3

6 Starkville, MS Multifamily 03/22/2022 37,250 36,787 S + 4.00% S + 4.32% 03/22/2027 70 % 4

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

8 Farmington Hills, MI Multifamily 05/24/2022 31,520 28,691 S + 3.15% S + 3.50% 05/24/2027 75 % 3

9 Downers Grove, IL Office 09/25/2020 30,000 29,500 L + 4.25% L + 4.69% 11/25/2024 67 % 2

Durham, NC Lab 12/17/2020 21,500 13,500 L + 4.35% L + 5.06% 12/17/2025 57 % 3

Los Angeles, CA Retail 12/17/2020 24,600 18,374 L + 4.25% L + 5.06% 12/17/2024 67 % 3

Aurora, IL Office / Industrial 12/18/2020 16,500 14,710 L + 4.35% L + 5.04% 12/18/2024 73 % 3

Miami, FL Office 01/19/2021 10,900 10,900 L + 4.50% L + 5.47% 01/19/2025 68 % 2

Olmstead Falls, OH Multifamily 01/28/2021 54,575 45,820 L + 4.00% L + 4.64% 01/28/2026 63 % 3

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 34,391 L + 4.00% L + 4.62% 04/06/2026 73 % 3

Westminster, CO (4)

Office 05/25/2021 15,250 13,506 L + 3.75% L + 4.25% 05/25/2026 66 % 3

10 Las Vegas, NV Multifamily 06/10/2022 28,950 24,223 S + 3.30% S + 4.05% 06/10/2027 60 % 3

Louis, MO Office 12/19/2018 28,866 28,866 L + 3.25% L + 3.74% 06/20/2023 72 % 3

12 Plano, TX Office 07/01/2021 27,385 26,152 L + 4.75% L + 5.16% 07/01/2026 78 % 3

Portland, OR Multifamily 07/09/2021 19,688 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

Seattle, WA Multifamily 08/16/2021 12,500 12,229 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

Sandy Springs, GA Retail 09/23/2021 16,488 14,821 L + 3.75% L + 4.11% 09/23/2026 72 % 3

13 Carlsbad, CA Office 10/27/2021 24,750 23,825 L + 3.25% L + 3.58% 10/27/2026 78 % 3

14 Fontana, CA Industrial 11/18/2022 24,355 22,000 S + 3.75% S + 4.28% 11/18/2026 72 % 3

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

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

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

18 Portland, OR Multifamily 07/09/2021 19,687 19,687 L + 3.57% L + 3.97% 07/09/2026 75 % 3

19 Ames, IA Multifamily 11/15/2021 18,000 17,820 L + 3.80% L + 4.13% 11/15/2026 71 % 2

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

Total/weighted average $ 648,266 $ 590,590 L + 3.86% L + 4.39% 68 % 2.9

20 Aurora, IL Office / Industrial 12/18/2020 17,460 16,429 L + 4.35% L + 5.01% 12/18/2024 73 % 2

21 Yardley, PA Office 12/19/2019 16,500 15,583 L + 4.58% L + 5.97% 12/19/2024 75 % 4

22 Sandy Springs, GA Retail 09/23/2021 16,489 15,017 L + 3.75% L + 4.11% 09/23/2026 72 % 3

23 Delray Beach, FL Retail 03/18/2022 16,000 15,149 S + 4.25% S + 4.91% 03/18/2026 56 % 3

24 Westminster, CO Office 05/25/2021 15,750 14,634 L + 3.75% L + 4.25% 05/25/2026 66 % 2

25 Portland, OR Multifamily 07/30/2021 13,400 13,400 L + 3.57% L + 3.98% 07/30/2026 71 % 3

26 Seattle, WA Multifamily 08/16/2021 12,500 12,354 L + 3.55% L + 3.89% 08/16/2026 70 % 3

27 Allentown, PA Industrial 01/24/2020 9,775 9,775 S + 3.50% S + 4.03% 01/24/2025 67 % 1

Total/weighted average $ 727,562 $ 678,555 + 3.78% + 4.28% 68 % 2.9

(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.

1 unchanged sentence

(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 December 31, 2022, we had $727,562 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.

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 December 31, 2021, we had one loan representing approximately 2% of the carrying value of our loan portfolio with a loan risk rating of “4” or “higher risk”.

As of December 31, 2022, 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”.

In January 2023, we received $16,429 of early repayment proceeds on a loan secured by an office/industrial property in Aurora, IL.

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 February 14, 2022, all of our borrowers had paid all of their debt service obligations owed and due to us and none of the loans included in our investment portfolio were in default.

We did not have any impaired loans, non-accrual loans or loans in default as of December 31, 2021;

We may enter into loan modifications that include among other changes, extensions of maturity dates, repurposing or required replenishment of reserves, increases or decreases in loan commitments and required pay downs of principal amounts outstanding.

Modifications that represent concessions to a borrower that is experiencing financial difficulties are classified as troubled debt restructurings and considered impaired.

In February 2022, we amended the agreement governing our loan secured by an office property located in Yardley, PA.

As part of this amendment, the loan commitment was increased by $1,600, or the Additional Advance, and is available to be used to finance debt service costs and operating costs of the borrower.

Additionally, the initial maturity date was extended by one year to December 19, 2023.

For purposes of calculating interest due to us for this loan, the Additional Advance is deemed to be outstanding as of the date of the amendment, regardless of whether such amounts have been advanced, at LIBOR, or a replacement base rate determined by us if LIBOR is no longer available, plus 12.0%.

As of December 31, 2022, this loan had a risk rating of “4” and an outstanding principal balance of $15,583.

The borrower’s interest rate cap on the loan expired in December 2022.

We have agreed to forbear enforcement of the event of default per the terms of the loan agreement related to the termination of an interest rate cap without replacement, subject to certain terms and conditions.

As of February 9, 2023, we believe the borrower was in compliance with the other terms of the loan agreement.

There were no other material modifications to our loan portfolio during the year ended December 31, 2022.

As of December 31, 2022 and February 9, 2023, our borrowers had paid their debt service obligations owed and due to us and none of the loans included in our investment portfolio were in default, except for the interest rate cap forbearance described above.

We did not have any impaired loans or non-accrual loans as of December 31, 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.

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 risk rating policy, see Notes 3 and 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

For further information regarding the risks associated with our loan portfolio, see Part I, Item 1A, “Risk Factors” of this Annual Report on Form 10-K.

However, our borrowers' businesses, operations and liquidity may be materially adversely impacted by 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 impairment, increased loan loss reserves and/or recognition of income on a nonaccrual basis with respect to those loans.

For further information regarding our loan portfolio and risk rating policy, see Notes 2 and 5 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Financing Activities

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

On November 9, 2021, one of our wholly owned subsidiaries entered into the BMO Loan Program Agreement with BMO as administrative agent for the lenders for the BMO Facility, an uncommitted credit facility in the maximum principal amount of $100 million.

Loans issued under the BMO Facility may be used to fund new mortgage loan originations and/or fund future funding obligations under existing and new mortgage loans pursuant to separate facility loan agreements, or the BMO Facility Loan Agreements.

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

Interest on advancements under the BMO Facility will be 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.

Pursuant to the BMO Loan Program Agreement, one of our wholly owned subsidiaries will 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 lenders’ approval of the BMO Facility Loan Agreement.

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

Our secured financing agreements at December 31, 2022 consisted of agreements that govern our Wells Fargo Master Repurchase Facility, our Citibank Master Repurchase Facility, our BMO Facility and our UBS Master Repurchase Facility.

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.

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 increased the maximum amount of available advancements under our Citibank Master Repurchase Facility to $215,000, 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 facility loan program agreement and the security agreement with BMO Harris Bank N.A, or the BMO Loan Program Agreement, which increased the maximum facility amount from $100,000 to $150,000.

On May 4, 2022, we amended and restated our UBS Master Repurchase Agreement.

The amended and restated UBS Master Repurchase Agreement, which was effective March 9, 2022, made certain changes to the agreement and related fee letter, including replacing LIBOR with SOFR for interest rate calculations on advancements under the UBS Master Repurchase Facility and modifying certain pricing terms.

For further information regarding our Secured Financing Facilities, see Note 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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

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

Master Repurchase Facilities

UBS Master Repurchase Facility 02/18/2024 $ 167,928 $ 24,072 $ 192,000 $ 225,868

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

Citibank Master Repurchase Facility 03/15/2025 $ 150,647 $ 64,353 $ 215,000 $ 205,234

Asset Specific Financing

UBS Master Repurchase Facility 02/18/2024 144,437 47,563 192,000 198,254

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 89,008

Total $ 473,615 $ 208,385 $ 682,000 $ 640,972

1 unchanged sentence

Carrying Value

Balance as of December 31, 2020 $ —

Balance at December 31, 2021

Borrowings 284,867

2 unchanged sentences

Amortization of deferred fees 1,033

Assumed in Merger 128,962

Balance as of December 31, 2021 $ 339,627

Balance at December 31, 2022

As of December 31, 2022, outstanding advancements under our Secured Financing Facilities had a weighted average interest rate of 6.34% per annum, excluding associated fees and expenses.

As of December 31, 2021 and February 14, 2022, we had a $340,869 and a $278,782, respectively, aggregate outstanding principal balance under our Secured Financing Facilities.

As of December 31, 2022 and February 9, 2023, we had a $473,615 and $462,286, respectively, aggregate outstanding principal balance under our Secured Financing Facilities.

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

RESULTS OF OPERATIONS

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

For the year ended December 31, 2021, our net income was $24,650, or $2.18 per common share.

Reconciliation of Net Income to Distributable Earnings and Adjusted Distributable Earnings

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

December 31, 2021

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

Year ended December 31, 2022 Compared to Year Ended December 31, 2021:

Year Ended December 31,

2022 2021 Change % Change

INCOME FROM INVESTMENTS:

Interest income from investments $ 45,303 $ 16,775 $ 28,528 170.1 %

Purchase discount accretion 10,689 18,932 (8,243) (43.5 %)

interest and related expenses (17,630) (2,253) (15,377) n/m

Income from investments, net 38,362 33,454 4,908 14.7 %

OTHER EXPENSES:

Base management fees 4,260 3,221 1,039 32.3 %

General and administrative expenses 4,080 3,091 989 32.0 %

Reimbursement of shared services expenses 2,232 1,565 667 42.6 %

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

Total other expenses 10,609 8,466 2,143 25.3 %

Income before income taxes 27,753 24,988 2,765 11.1 %

Income tax expense (113) (338) 225 (66.6 %)

Net income $ 27,640 $ 24,650 $ 2,990 12.1 %

Weighted average common shares outstanding - basic and diluted 14,540 11,304 3,236 28.6 %

Net income per common share - basic and diluted $ 1.89 $ 2.18 $ (0.29) (13.3 %)

n/m - not meaningful

Interest income from investments .

The increase in interest income from investments was primarily the result of interest income generated from our origination activities, including 17 loans originated since January 1, 2021, interest income from loans acquired in the Merger and higher benchmark interest rates, partially offset by nine loans repaid since January 1, 2021.

The weighted average benchmark rate was 4.29% as of December 31, 2022 as compared to 0.68% as of December 31, 2021.

Purchase discount accretion.

The fair value of the loans acquired in the Merger on September 30, 2021 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 on a relative fair value basis and is being accreted into income over the remaining term of the respective loan as of the effective date of the Merger.

The decrease in purchase discount accretion was primarily the result of less amounts outstanding on the acquired TRMT loans during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

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 since January 1, 2021 and higher benchmark interest rates in 2022.

The weighted average benchmark rate was 4.33% as of December 31, 2022 as compared to 0.10% as of December 31, 2021.

Base management fees.

The increase in base management fees was primarily due to the Merger.

As a result of the Merger, the net book value of TRMT, as of September 30, 2021, was included as "Equity" for purposes of determining the base management fee and incentive fee, if any, under the management agreement.

General and administrative expenses .

The increase in general and administrative expenses was primarily due to increases in share based compensation, professional fees, internal audit services, fees paid to our Trustees for their services and insurance expense for the year ended December 31, 2022 as compared to the year ended December 31, 2021.

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 increase in reimbursement of shared services expenses was primarily the result of increased usage of shared services after the Merger on September 30, 2021.

Other transaction related costs.

Other transaction related costs incurred during the year ended December 31, 2022 primarily consisted of audit fees related to the Merger.

Other transaction costs incurred during the year ended December 31, 2021 consisted of expenses related to our conversion from a Maryland statutory trust to a Maryland REIT and legal costs in connection with the Merger.

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 income tax expense is due to income tax expense incurred during the year ended December 31, 2021 on realized gains on the disposition of our securities portfolio in connection with our conversion from a registered investment company under the 1940 Act to a mortgage REIT in January 2021.

The increase 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:

Year Ended December 31,

Net income $ 27,640 $ 24,650

1 unchanged sentence

Non-cash accretion of purchase discount (10,689) (18,932)

Exit fees collected on loans acquired in Merger (1)

Distributable Earnings 18,073 6,345

3 unchanged sentences

Weighted average common shares outstanding - basic and diluted 14,540 11,304

Net income per common share - basic and diluted $ 1.89 $ 2.18

Distributable Earnings per common share - basic and diluted $ 1.24 $ 0.56

Adjusted Distributable Earnings per common share - basic and diluted $ 1.25 $ 0.64

(1) Other transaction related costs primarily 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.

For further information regarding such legal complaints, see Note 15 to the Notes to the Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

(2) Income tax expense represents the portion of our income tax expense incurred on realized gains on the disposition of our securities portfolio as a result of the Business Change.

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

In accordance with GAAP, exit fees payable with respect to 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 include expenses related to the Merger.

(3) Income tax expense for the year ended December 31, 2021 represents the portion of our income tax expense incurred on realized gains on the disposition of our securities portfolio in connection with our conversion from a registered investment company to a mortgage REIT in January 2021.

Factors Affecting Operating Results

4 unchanged sentences

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.

2 unchanged sentences

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 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 consolidated balance sheet, 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.

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.

Availability of Leverage and Equity.

5 unchanged sentences

Market Conditions.

After the initial market disruption resulting from the COVID-19 pandemic, the CRE debt markets have since stabilized.

Increased vaccination rates, strong consumer demand, along with accommodating fiscal and monetary policies, resulted in strong economic growth through much of 2021.

This strong economic growth coupled with pent up demand leftover from 2020 resulted in record overall CRE transaction volume.

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

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

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

CRE mortgage borrowings in 2021 reached an all-time annual high, fueled by increased investor demand for the relative risk adjusted returns offered by CRE debt investments.

In particular, issuance of CRE debt securities for floating rate CLOs during 2021 exceeded record volume set in 2019 by approximately double and we expect strong investor demand to continue into 2022.

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

Multifamily is expected to continue to be a preferred asset class due to the stability of cash flows, strong performance throughout the pandemic and the abundance of liquidity offered by debt capital available from government sponsored enterprises, such as Fannie Mae and Freddie Mac as well as alternative lenders, like debt funds and mortgage REITs who finance debt investments by issuing CRE CLO bonds.

Today, multifamily properties comprise the majority of collateral for these floating rate CRE CLO bond offerings and, as a result, the competition among alternative lenders, like us, for loans secured by multifamily properties with transitional or value add business plans has resulted in low borrowing costs for owners of these properties.

Industrial properties continue to benefit from shifts in consumer behavior to increased e-commerce and supply chain issues hastened by the COVID-19 pandemic.

The increased demand for industrial real estate, and particularly warehouse, distribution and “last-mile” properties has made this property type the fastest growing in terms of valuation among all major property types.

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

However, with the easing of government mandated restrictions, increased vaccination rates in the U.S., and strong household balance sheets, retail sales and leisure travel have experienced overall improvement throughout 2021, although business travel remains muted and the long term impacts to certain sub-sectors of the hotel industry remain.

Lenders have been more willing to lend against certain types of retail, like grocery anchored and service-oriented neighborhood shopping centers, which has helped to support value increases throughout 2021, but continue to be cautious when evaluating loans secured by big box retailers, regional malls or lifestyle centers.

As it relates to the office sector, capital remains readily available to lend for those buildings that are well leased and fully amenitized and, in particular, for properties with higher credit quality tenants and longer term leases.

However, lenders will continue to face underwriting challenges, in part due to the shift to flexible work-from-home schedules, with respect to assumptions related to new leasing, tenant renewal probabilities and office occupancy rates, especially for older assets or those with significant near-term lease roll over and in particular those located in urban core or central business district markets.

Despite the strong performance of the debt capital markets in 2021, 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 in 2022.

Federal Reserve recently indicated that, in light of the economic recovery and higher than anticipated inflation, it expects to raise interest rates as early as March 2022, which will impact short term index rates such as LIBOR and SOFR.

Any increases in interest rates may have an impact on debt coverage ratios for certain property types, particularly those with long term leases, such as office and industrial, or in multifamily where capitalization rates are at record lows and financed with short term, floating rate debt.

Lastly, 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.

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.

Changes in Market Interest Rates.

Inflationary pressures and geopolitical concerns have caused widespread macroeconomic uncertainty and volatility.

In response to inflationary pressures, the FOMC increased the federal funds rate by 425 basis points during 2022 and has signaled that further increases are likely to occur throughout 2023.

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

Combined, these factors have resulted in tighter underwriting standards and negatively impacted overall CRE transaction volume for 2022, particularly in the second half of the year.

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, we believe that CRE investors continue to see strength in the fundamentals of the U.S.

however, transaction activity is expected to remain curtailed until there is further clarity on when, and at what level, the FOMC will stop increasing the federal funds rate.

Once interest rate volatility subsides, we believe CRE investors will be able to recalibrate their expectations related to asset values, lenders will be able to price and structure risk accordingly in a higher, but more stable, interest rate environment and CRE transaction activity will improve.

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 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.

As a result, some lenders who originate and sell loans into the CRE CLO market as a means of financing have chosen to wait to issue bonds until market volatility subsides and credit spreads stabilize, causing a slowdown in loan originations.

In addition to increased overall borrowing costs, lenders may experience certain challenges from increasing interest rates on floating rate loan portfolios.

While increasing interest rates generally cause interest income on floating rate portfolios to increase, floating rate loans are often used to finance transitional properties with a business plan to increase cash flows, allowing for increasing debt costs to be serviced.

Lenders are impacted by the ability of their borrowers to service their debt while implementing their business plans and, as a result, lenders' underwriting criteria may become more conservative.

Additionally, floating rate lenders typically limit interest rate risk by requiring borrowers to obtain interest rate caps or swaps to limit the impact of rising rates on a borrower’s ability to service its debt.

While interest rate caps and swaps on existing loans protect lenders in periods of rising interest rates, the cost to the borrower to obtain interest rate caps or swaps on new loans may result in decreased loan amounts.

These challenges could result in reduced floating rate portfolio amounts overall and, as a result, could offset the increase in interest income generated from higher benchmark rates.

We believe the CRE lending industry is well positioned to face these challenges.

Unlike in the years leading up to the financial crisis of 2008, underwriting standards have not eased and liquidity, both in the form of debt and equity capital, continues to exist for the CRE sector.

We believe 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.

Changes in Interest Rates.

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

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

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

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

(a) the coupon rates on our variable rate investments to reset, perhaps on a delayed basis, to higher rates;

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

and (c) the interest expense associated with our variable rate borrowings to increase.

See "—Market Conditions" above for a discussion of the current market including interest rates.

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

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

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

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.

(a) the coupon rates on our variable rate investments to reset, perhaps on a delayed basis, to lower rates;

(b) 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;

and (c) the interest expense associated with our variable rate borrowings to decrease.

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, 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.

Based on our loan portfolio as of December 31, 2021, LIBOR was 0.10% and would have to exceed the floor established by any of our loans, which currently range from 0.00% to2.32%, for us to realize an increase in interest income.

As of December 31, 2021, LIBOR is phased out for new contracts and is expected to be phased out 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 advances under our Master Repurchase Facilities, 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.

As of January 1, 2022, interest rates on new advances under our Master Repurchase Facilities are based on SOFR.

We expect that, as a result of the phase out of LIBOR, the interest rates under our loan agreements with borrowers entered into prior to January 1, 2022 would be amended to replace LIBOR with an alternative benchmark rate (which may include SOFR) that will approximate the existing interest rate as calculated in accordance with LIBOR.

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

As of December 31, 2022, LIBOR and SOFR were 4.39% and 4.36%, respectively, both of which exceed the floors established by all of our loans, and as a result none of our loan investments currently have active interest rate floors.

Certain of our loan agreements entered into prior to January 1, 2022 require the borrowers to pay us interest at floating rates based upon LIBOR.

LIBOR was phased out for new contracts as of December 31, 2021.

Our pre-existing contracts 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 new loan agreements with our 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 new 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 .

4 unchanged sentences

Also, if the aggregate principal balance of our loan portfolio grows but the number of our loans or the number of our borrowers does not grow, we could face increased risk by reason of the concentration of our investments.

LIQUIDITY AND CAPITAL RESOURCES

Prepayment Risk.

We are subject to risk that our loan investments will be repaid at an earlier date than anticipated, which may reduce the returns realized on those loans as less interest income may be received over time.

Additionally, we may not be able to reinvest the principal repaid at a similar or higher yield of the original loan investment.

We seek to limit this risk by structuring our loan agreements with fees required to be paid to us upon prepayment of a loan within a specified period of time before the loan’s maturity;

however, unanticipated prepayments could negatively impact our operating results.

LIQUIDITY AND CAPITAL RESOURCES (dollars in thousands, except per share data)

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.

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, 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, 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.

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.

For further information regarding the risks associated with our loan portfolio, see Part I, Item 1A, "Risk Factors" of this Annual Report on Form 10-K.

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 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 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 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 Agreements to make advancements at margins higher than 75%.

On November 9, 2021, one of our wholly owned subsidiaries entered into the BMO Loan Program Agreement for the BMO Facility.

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

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 rates related to our Citibank and UBS purchased assets were amended during 2022 as part of the amendments to the Citibank Master Repurchase Agreement and UBS Master Repurchase Agreement to replace LIBOR with 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.

For further information regarding our Secured Financing Facilities, see Note 7 to the Notes to the Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K and "—Overview-Financing Activities" above.

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.

At the facility loan maturity date applicable to each facility loan, we are required to pay BMO the outstanding principal balance of the applicable facility loan and all accrued and unpaid interest and all other amounts due under the BMO Facility Loan Agreements with respect to such facility loan.

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 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K and "—Overview-Financing Activities" above.

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

6 unchanged sentences

Cash, cash equivalents and restricted cash at end of period $ 71,067 $ 26,295

During the year ended December 31, 2021, our cash provided by operating activities consisted of our net income, excluding the impact of accretion of the purchase discount as a result of the Merger, and unfavorable changes in working capital.

During the year ended December 31, 2021, our cash used in investing activities consisted of loan originations, additional fundings on our loans held for investment and payment of transaction costs related to the Merger, partially offset by loan repayments and cash assumed in the Merger.

During the year ended December 31, 2021, our cash provided by financing activities consisted of proceeds from our Secured Financing Facilities, partially offset by deferred financing cost payments related to our Secured Financing Facilities and distributions to our common shareholders.

The increase in cash provided by operating activities for 2022 compared to 2021 was primarily the result of interest income generated from our origination activities in 2021 and 2022 and loans acquired in the Merger.

The decrease in cash used in investing activities is primarily due to lower loan originations and higher loan repayments in 2022, as well as payment of transaction costs related to the Merger in 2021, partially offset by cash assumed in the Merger.

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

Distributions

2 unchanged sentences

We expect to pay this distribution to our common shareholders on February 16, 2023 using cash on hand.

For further information regarding distributions, see Note 9 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

For further information regarding distributions, see Note 8 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Contractual Obligations and Commitments

6 unchanged sentences

473,615 99,112 374,503 — —

Interest payments (3)

Interest payments on Secured Financing Facilities (3)

46,590 28,448 18,142 — —

1 unchanged sentence

(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 Master Repurchase Facilities.

(3) Projected interest payments are attributable only to our debt service obligations at existing rates as of December 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.

1 unchanged sentence

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

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 or Citibank 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, 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 and Citibank related to our Master Repurchase Agreements.

The Master Repurchase 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.

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 customary financial covenants that require us to maintain a minimum tangible net worth and a minimum cash liquidity and satisfy a total indebtedness to stockholders’ equity ratio.

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.

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.

As of December 31, 2022, we had a $362,510 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.

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 December 31, 2022, we had a $111,105 aggregate outstanding principal balance under the BMO Facility.

1 unchanged sentence

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 further information about these and other such relationships and related person transactions, see Notes 10

and 11 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K and our other filings with the SEC, which are incorporated herein by reference, including our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders, or our 2022 Proxy Statement, to be filed with the SEC within 120 days after the fiscal year ended December 31, 2021.

For further information about the risks that may arise as a result of these and other related person transactions and relationships, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements,” Part I, Item 1, “Business” and Part I, Item 1A, “Risk Factors.” 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 9 and 10 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K and our other filings with the SEC, which are incorporated herein by reference, including our definitive Proxy Statement for our 2023 Annual Meeting of Shareholders, or our 2023 Proxy Statement, to be filed with the SEC within 120 days after the fiscal year ended December 31, 2022.

Critical Accounting Policies

8 unchanged sentences

Fees, premiums and discounts, if any, are amortized or accreted into interest income over the remaining lives of the loans using the effective interest method, as adjusted for any prepayments.

If a loan’s interest or principal payments are not paid when due and there is uncertainty that such payments will be collected, the loan may be categorized as non-accrual and no interest will be recorded unless it is collected.

When all overdue payments are collected and, in our judgment, a loan is likely to remain current, it may be re-categorized as accrual.

23 unchanged sentences

the existence of a risk of default possibly leading to a loss and/or potential weaknesses that deserve management’s attention;

and the property having a high LTV.

and/or the property having a high LTV.

“5” impaired/loss likely—Criteria reflects a very high risk of realizing a principal loss or having incurred a principal loss;

3 unchanged sentences

timely exit via sale or refinancing being uncertain;

and the property having a very high LTV.

and/or the property having a very high LTV.

Impairment occurs when it is deemed probable that we will not be able to collect all amounts due under a loan according to its contractual terms.

2 unchanged sentences

Consideration will be given to various factors, such as business plans, property occupancies, tenant profiles, rental rates, operating expenses and borrowers’ repayment plans, among others, and will require significant judgments, including assumptions regarding the values of loans, the values of underlying collateral and other circumstances, such as guarantees, if any.

Upon measurement of an impairment, we will record an allowance to reduce the carrying value of the loan accordingly and record a corresponding charge to net income in our consolidated statement of operations.

Impact of Inflation

During the past several years there has been low inflation in the U.S.

As inflation increases, we believe it may have both positive and negative impacts upon our business.

A positive impact of inflation on our business may be to increase the value of collateral for any existing loans, making the refinancing and repayment of principal easier for borrowers and reducing our risk of borrower defaults.

A negative impact of inflation on our business may be to cause interest rates to rise, reducing the market value of any fixed rate loans we hold.

A rise in interest rates may also make it more difficult for our borrowers to refinance loans in order to pay their obligations to us.

Because all of our investments require interest at floating rates, we do not expect inflation to have a material impact upon our business for the reasonably foreseeable future.

Upon measurement of an impairment, we will record a reserve to reduce the carrying value of the loan accordingly and record a corresponding charge to net income in our consolidated statements of operations.

Quantitative and Qualitative Disclosures About Market Risk

4 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis