What changed in this filing

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Item 9A. Controls and Procedures

2023-02-13 compared with 2022-02-17 · 405 added, 630 removed, 570 unchanged (64% of the section changed)

15 unchanged sentences

Directors, Executive Officers and Corporate Governance

We have a Code of Conduct that applies to our officers and Trustees, our Manager, RMR Inc.

and RMR LLC, senior level officers of RMR LLC, senior level officers and directors of RMR Inc.

and certain other officers and employees of our Manager or RMR LLC.

We have a Code of Conduct that applies to our officers and Trustees, Tremont, RMR, members of the board of directors of Tremont and RMR Inc., employees of Tremont and employees of RMR who provide significant services to us.

Our Code of Conduct is posted on our website, www.sevnreit.com.

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Equity Compensation Plan Information.

We may grant common shares to our officers and other employees of our Manager and of RMR LLC under our Amended and Restated 2021 Equity Compensation Plan, or the 2021 Plan.

We may grant common shares to our officers and other employees of Tremont and of RMR under our Amended and Restated 2021 Equity Compensation Plan, or the 2021 Plan.

In addition, each of our Trustees receives common shares as part of his or her annual compensation for serving as a Trustee and such shares are awarded under the 2021 Plan.

1 unchanged sentence

The table below is as of December 31, 2022:

Number of Number of securities

securities remaining available for

to be issued upon Weighted-average future issuance under equity

exercise of exercise price of compensation plans

outstanding options, outstanding options, (excluding securities

Plan category warrants and rights

warrants and rights reflected in column (a))

Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights

Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

Equity compensation plans approved by security holders - 2021 Plan None None 251,074 (1)

3 unchanged sentences

Share awards that are repurchased or forfeited will be added to the common shares available for issuance under the 2021 Plan.

Payments by us to RMR LLC and RMR LLC employees are described in Notes 9 and 11 to the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Payments by us to RMR and RMR employees are described in Notes 8 and 10 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

The remainder of the information required by Item 12 will be included in our 2023 Proxy Statement and is incorporated herein by reference.

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Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheet as of December 31, 2021

Consolidated Statement of Assets and Liabilities as of December 31, 2020

Consolidated Statement of Operations for the year ended December 31, 2021

Consolidated Statement of Operations for the year ended December 31, 2020

Consolidated Statement of Shareholders' Equity for the year ended December 31, 2021

Consolidated Statement of Changes in Net Assets for the year ended December 31, 2020

Consolidated Statement of Cash Flows for the year ended December 31, 2021

Consolidated Statement of Cash Flows for the year ended December 31, 2020

Consolidated Portfolio of Investments as of December 31, 2020

Consolidated Balance Sheets as of December 31, 2022 and 2021

Consolidated Statements of Operations for the years ended December 31, 2022 and 2021

Consolidated Statements of Shareholders' Equity for the years ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021

Notes to Consolidated Financial Statements

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Number Description

2.1 Agreement and Plan of Merger, dated as of April 26, 2021, between the Company and Tremont Mortgage Trust.

(Incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed by the Company on April 27, 2021.)

2.2 Plan of Conversion of Seven Hills Realty Trust, a Maryland statutory trust, into the Company, dated December 21, 2021.

(Incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed by the Company on December 22, 2021.)

2.3 Articles of Conversion of Seven Hills Realty Trust, a Maryland statutory trust, into the Company, dated December 21, 2021.

(Incorporated by reference to Exhibit 2.2 of the Current Report on Form 8-K filed by the Company on December 22, 2021.)

3.1 Declaration of Trust of the Company, dated December 21, 2021.

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4.1 Form of Common Share Certificate.

(Filed herewith.)

(Incorporated by reference to Exhibit 4.1 of the Company’s Annual Report for the year ended December 31, 2021.)

4.2 Description of Securities.

(Incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K filed by the Company on December 22, 2021.)

(Filed herewith.)

8.1 Opinion of Sullivan & Worcester LLP as to certain tax matters.

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10.3 Amended and Restated Seven Hills Realty Trust 2021 Equity Compensation Plan.(+) (Incorporated by reference to the Company's Registration Statement on Form S-8 filed by the Company on December 23, 2021.)

10.4 Form of Share Award Agreement.(+) (Filed herewith.)

10.5 Form of Indemnification Agreement.(+) (Filed herewith.)

10.6 Summary of Trustee Compensation.(+) (Incorporated by reference to Exhibit 10.7 of the Current Report on Form 8-K filed by the Company on October 4, 2021.)

10.4 Form of Share Award Agreement.(+) (Incorporated by reference to Exhibit 10.4 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.)

10.5 Form of Indemnification Agreement.(+) (Incorporated by reference to Exhibit 10.5 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.)

10.6 Summary of Trustee Compensation.(+) (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by the Company on May 27, 2022.)

10.7 Master Repurchase Agreement, dated February 18, 2021, by and between RMTG Lender LLC and UBS AG.

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(Incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed by the Company on February 22, 2021.)

10.9 Master Repurchase Agreement, dated as of February 9, 2018, between TRMT CB Lender LLC and Citibank N.A.

(Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by Tremont Mortgage Trust on February 12, 2018.)

10.10 First Amendment to Master Repurchase Agreement, dated as of November 6, 2018, among TRMT CB Lender LLC, Citibank, N.A.

and, for certain specified purposes, Tremont Mortgage Trust.

(Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by Tremont Mortgage Trust on November 7, 2018.)

10.11 Second Amendment to Master Repurchase Agreement, dated October 30, 2020, among Citibank, N.A., TRMT CB Lender LLC and, for certain specified purposes, Tremont Mortgage Trust.

(Incorporated by reference to Tremont Mortgage Trust's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.)

10.12 Third Amendment to Master Repurchase Agreement and Fifth Amendment to Fee Agreement, dated as of September 30, 2021, between TRMT CB Lender LLC and Citibank, N.A.

(Incorporated by reference to Exhibit 10.5 of the Current Report on Form 8-K filed by the Company on October 4, 2021.)

10.13 Amended and Restated Guaranty, dated as of September 30, 2021, by the Company in favor of Citibank, N.A.† (Filed herewith.)

10.9 Amendment No.

2 to Master Repurchase Agreement, dated March 9, 2022, by and between RMTG Lender LLC and UBS AG.

(Incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.)

10.10 Amended and Restated Master Repurchase Agreement, dated March 15, 2022, by and between TRMT CB Lender LLC and Citibank, N.A.

(Incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed by the Company on March 16, 2022.)

10.11 Amended and Restated Guaranty, dated as of September 30, 2021, by the Company in favor of Citibank, N.A.

(Incorporated by reference to Exhibit 10.13 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.)

10.12 Facility Loan Program Agreement and Security Agreement, dated November 9, 2021, by and between Seven Hills BH Lender LLC and BMO Harris Bank N.A.

(Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by the Company on November 12, 2021.)

10.13 First Amendment to Facility Loan Program Agreement and Security Agreement, dated April 25, 2022, by and between Seven Hills BH Lender, LLC and BMO Harris Bank N.A.

(Incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.)

10.14 Guaranty, dated November 9, 2021, by the Company, to and for the benefit of BMO Harris Bank N.A.

(Incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed by the Company on November 12, 2021.)

10.15 First Amendment to Guaranty, dated April 25, 2022, by the Company, to and for the benefit of BMO Harris Bank N.A.

(Incorporated by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.)

10.16 Master Repurchase and Securities Contract, dated March 11, 2022, by and between Seven Hills WF Lender LLC and Wells Fargo Bank, National Association.

(Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by the Company on March 16, 2022.)

10.17 Guarantee Agreement, dated March 11, 2022, by the Company, in favor of Wells Fargo Bank, National Association.

(Incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed by the Company on March 16, 2022.)

10.18 Amendment No.

2 to Master Repurchase Agreement, dated March 9, 2022, by and between RMTG Lender LLC and UBS AG.

(Incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.)

21.1 Subsidiaries of the Company.

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(Filed herewith.)

23.2 Consent of RSM LLP.

(Filed herewith.)

23.2 Consent of Sullivan & Worcester LLP.

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(+) Contract with management or compensatory plan or arrangement.

† This document was previously filed as Exhibit 10.6 to our Current Report on Form 8-K, filed with the SEC on October 4, 2021, and is being refiled to correct a scrivener’s error.

Form 10-K Summary

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Seven Hills Realty Trust and subsidiaries (the "Company") as of December 31, 2021, the related consolidated statements of operations, shareholders' equity, and cash flows, for the year ended December 31, 2021, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Seven Hills Realty Trust and subsidiaries (the "Company") as of December 3, 2022 and 2021, the related consolidated statements of operations, shareholders' equity, and cash flows, for each of the two years in the period ended December 31, 2022, and the related notes and the schedule listed in the Index at Item 15(a) (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Critical Audit Matter Description

The Company evaluates loans on a loan by loan basis for possible indicators of impairment on at least a quarterly basis in order to determine whether events or changes in circumstances exist that may indicate that the carrying amounts of loans held for investment, net are no longer recoverable.

The loans are typically collateralized by commercial real estate, and as a result, the Company regularly evaluates the extent and impact of any deterioration associated with the financial health and/or sale value of the underlying property, as well as the financial and operating capability of the borrower/sponsor for each individual loan investment.

Factors considered in the impairment evaluation include, but are not limited to, property type, geographic and local market dynamics, physical condition, leasing and tenant profile, projected cash flow, risk of loss, current loan to value ratio, or LTV,

debt yield, collateral performance, structure, exit plan and sponsorship.

The Company evaluates loans held for investments on a loan by loan basis for possible indicators of impairment at least quarterly basis in order to determine whether events or changes in circumstances exist that may indicate that the carrying amounts of loans held for investment, net are no longer recoverable.

The loans are typically collateralized by commercial real estate property, and as a result, the Company regularly evaluates the extent and impact of any deterioration associated with the financial health and/or sale value of the underlying property, as well as the financial and operating capability of the borrower/sponsor for each individual loan investment.

The Company’s evaluation involves a certain level of judgment and/or estimation related to whether the financial performance of the collateral or the existing market conditions results in an impairment indicator.

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Changes in these judgements and/or estimates could have a significant impact on the loans identified for further analysis.

For the year ended December 31, 2021, no impairment loss has been recognized on the Company’s loans held for investment, net balance.

We identified the determination of impairment indicators for loans held for investment, net as a critical audit matter because of the level of judgment and significant assumptions involved in management’s assessment of whether events or changes in circumstances have occurred indicating that the carrying amounts of mortgage loans held for investment may not be recoverable.

For each of the two years in the period ended December 31, 2022, no impairment loss has been recognized on the Company’s loans held for investment, net balance.

This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate whether management appropriately identified impairment indicators.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the determination of impairment indicators included the following, among others:

Our audit procedures related to the determination of impairment indicators for loans held for investment included the following, among others:

• We evaluated a sample of loans for potential impairment by:

◦ Evaluating the accuracy and determining the relevance of the factors utilized during the Company’s evaluation.

◦ Analyzing period over period changes on items such as physical conditions of the underlying property, net operating income, debt service coverage ratio, debt yield ratio, occupancy, loan structure and modifications, leasing and tenant profiles, remaining loan term and exit plan, progress of redevelopment plans, and risk ratings to determine impact on loan performance.

◦ Analyzing period over period changes on items such as net operating income, debt service coverage ratio, debt yield ratio, occupancy, loan structure and modifications, leasing and tenant profiles, remaining loan term and exit plan, progress of redevelopment plans, and risk ratings to determine impact on loan performance.

◦ Reviewing any updates (or lack thereof) to each loan’s risk rating period over period.

◦ Evaluating the financial performance of the collateral associated with each loan.

◦ Reviewing the changes in budgets/timelines and the summaries of third-party reports, where applicable, for loans on projects involving construction.

◦ Evaluating the impact of macroeconomic and microeconomic events on the borrower, sponsor, or asset type.

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We have served as the Company’s auditor since 2021.

Report of Independent Registered Public Accounting Firm

To the Trustees and Shareholders of RMR Mortgage Trust

Opinion on the Financial Statements

We have audited the accompanying consolidated statement of statement of assets and liabilities of RMR Mortgage Trust and its subsidiaries (the Trust), including the consolidated schedule of investments, as of December 31, 2020, the related consolidated statements of operations and cash flows for the year then ended, the consolidated statement of changes in net assets for each of the year in the period then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Trust as of December 31, 2020, the results of its operations and its cash flows for the year then ended and the changes in net assets for the year in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Trust’s management.

Our responsibility is to express an opinion on the Trust’s financial statements and financial highlights based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Trust in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting.

Accordingly, we express no such opinion.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our procedures included confirmation of securities and investments owned as of December 31, 2020, by correspondence with the custodian and borrowers.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ RSM US LLP

We served as the auditor of one or more RMR investment companies since 2018.

Boston, Massachusetts

February 24, 2021

SEVEN HILLS REALTY TRUST

CONSOLIDATED BALANCE SHEET

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

December 31, 2021

Cash and cash equivalents $ 71,057 $ 26,197

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Loans held for investment, net 669,929 570,780

Accrued interest receivable 1,433

Prepaid expenses and other assets 5,851 2,918

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25,000,000 shares authorized;

14,597,079 shares issued and outstanding

14,709,165 and 14,597,079 shares issued and outstanding, respectively

Additional paid in capital 238,505 237,624

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SEVEN HILLS REALTY TRUST

CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES (Predecessor Basis)

(amounts in thousands, except per share data)

December 31, 2020

Cash and cash equivalents $ 103,314

Loans held for investment (cost $ 91,879 )

Restricted cash 250

Dividends and interest receivable 139

Prepaid expenses 345

Other assets 128

Total assets 196,055

Accrued income taxes 2,386

Accrued expenses and other liabilities 491

Advisory fee payable 141

Deferred revenue 82

Compliance and internal audit costs payable 31

Administrative fee payable 30

Total liabilities 3,161

Net assets attributable to common shares $ 192,894

Composition of net assets attributable to common shares

Common shares, $ 0.001 par value per share;

unlimited number of shares authorized

Additional paid in capital 192,884

Net assets attributable to common shares $ 192,894

Common shares outstanding 10,202

Net asset value per share attributable to common shares $ 18.91

See accompanying notes.

SEVEN HILLS REALTY TRUST

CONSOLIDATED STATEMENT OF OPERATIONS

CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share data)

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Total other expenses 10,609 8,466

Income before income tax expense 24,988

Income before income taxes 27,753 24,988

Income tax expense ( 113 ) ( 338 )

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SEVEN HILLS REALTY TRUST

CONSOLIDATED STATEMENT OF OPERATIONS (Predecessor Basis)

(dollars in thousands)

Year Ended December 31, 2020

Investment Income

Dividend income $ 6,804

Interest income from mortgage loan investments 563

Other income 353

Total investment income 7,720

Advisory 2,364

Compliance and internal audit 145

Shareholder reporting 110

Administrative 77

Preferred share remarketing and auction fees 65

Trustees' fees and expenses 55

Total expenses before interest expense 3,737

Interest expense 1,208

Total expenses 4,945

Net investment income 2,775

Realized and change in unrealized gains (losses) on investments

Net realized gain on investments before taxes 13,208

Income tax expense ( 2,386 )

Net realized gains on investments after taxes 10,822

Net change in unrealized loss on investments ( 69,278 )

Net realized and change in unrealized loss on investments after taxes ( 58,456 )

Net decrease in net assets before preferred distributions resulting from operations ( 55,681 )

Distributions to preferred shareholders from net investment income ( 323 )

Net decrease in net assets attributable to common shares resulting from operations $ ( 56,004 )

See accompanying notes.

SEVEN HILLS REALTY TRUST

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(amounts in thousands)

Number of Additional

Common Common Paid In Cumulative Cumulative

Shares Shares Capital Net Income Distributions Total

Number of Common Shares Common Shares Additional Paid in Capital Cumulative Net Income Cumulative Distributions Total

Balance at December 31, 2020 10,202 $ 10 $ 192,884 $ — $ — $ 192,894

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Balance at December 31, 2021 14,597 15 237,624 24,650 ( 4,595 ) 257,694

See accompanying notes.

SEVEN HILLS REALTY TRUST

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS (Predecessor Basis)

(amounts in thousands)

Year Ended December 31, 2020

Decrease in net assets resulting from operations

Net investment income $ 2,775

Net realized gain on investments after taxes 10,822

Net change in unrealized loss on investments ( 69,278 )

Distributions to preferred shareholders from net investment income ( 323 )

Net decrease in net assets attributable to common shares resulting from operations ( 56,004 )

Distributions to common shareholders from:

Distributable earnings ( 6,427 )

Total distributions to common shareholders ( 6,427 )

Capital shares transactions

Redemption of auction rate preferred shares ( 16,675 )

Net decrease in capital share transactions ( 16,675 )

Liquidation preference of preferred shares repurchased 16,675

Total decrease in net assets attributable to common shares ( 62,431 )

Net assets attributable to common shares

Beginning of year 255,325

End of year $ 192,894

Common shares issued and repurchased

Shares outstanding, beginning of year 10,202

Shares outstanding, end of year 10,202

Share grants 127 — 1,019 — — 1,019

Share repurchases ( 14 ) — ( 137 ) — — ( 137 )

Share forfeitures ( 1 ) — ( 1 ) — — ( 1 )

Net income — — — 27,640 — 27,640

Distributions — — — — ( 14,636 ) ( 14,636 )

Balance at December 31, 2022 14,709 $ 15 $ 238,505 $ 52,290 $ ( 19,231 ) $ 271,579

See accompanying notes.

SEVEN HILLS REALTY TRUST

CONSOLIDATED STATEMENT OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

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Changes in operating assets and liabilities:

Accrued interest receivable and interest advances ( 1,107 )

Prepaid expenses and other assets ( 3,546 ) ( 2,039 )

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Net cash provided by financing activities 116,088 205,802

Decrease in cash, cash equivalents and restricted cash ( 77,269 )

Increase (decrease) in cash, cash equivalents and restricted cash 44,772 ( 77,269 )

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

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

SUPPLEMENTAL CASH FLOW INFORMATION:

Year Ended December 31,

SUPPLEMENTAL DISCLOSURES:

Interest paid $ 15,710 $ 1,718

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SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

The table below provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheet to the amounts shown in the consolidated statement of cash flows:

The table below provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets to the amounts shown in the consolidated statements of cash flows:

As of December 31,

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Restricted cash 10 98

Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows $ 26,295

See accompanying notes.

SEVEN HILLS REALTY TRUST

CONSOLIDATED STATEMENT OF CASH FLOWS (Predecessor Basis)

(dollars in thousands)

December 31, 2020

CASH FLOWS FROM OPERATING ACTIVITIES:

Net decrease in net assets before preferred distributions resulting from operations $ ( 55,681 )

Adjustments to reconcile net decrease in net assets before preferred distributions resulting from operations to cash provided by operating activities:

Origination of loans held for investment ( 91,879 )

Purchases of long term investments ( 10,078 )

Proceeds from sales of long term investments 302,797

Net sales of short term investments 4,477

Decrease in payable for securities purchased ( 10 )

Changes in assets and liabilities:

Decrease in dividends and interest receivable and other assets 2,436

Increase in accrued income taxes 2,386

Increase in accrued expenses and other liabilities 430

Increase in prepaid expenses ( 296 )

Decrease in advisory fee payable ( 118 )

Decrease in interest payable ( 212 )

Decrease in compliance and internal audit costs payable ( 6 )

Increase in administrative fee payable 3

Net change in unrealized loss on investments 69,278

Net realized gain on investments and foreign currency transactions ( 13,208 )

Cash provided by operating activities 210,319

CASH FLOWS FROM FINANCING ACTIVITIES:

Distributions paid to preferred shareholders ( 323 )

Distributions paid to common shareholders ( 6,427 )

Repayment of revolving credit facility ( 88,000 )

Redemption of auction preferred shares ( 16,675 )

Cash used in financing activities ( 111,425 )

Increase in cash and cash equivalents 98,894

Cash and cash equivalents at beginning of year 4,670

Cash and cash equivalents and restricted cash at end of year $ 103,564

Cash and cash equivalents and restricted cash at end of year

Cash and cash equivalents $ 103,314

Restricted cash 250

Cash and cash equivalents and restricted cash at end of year $ 103,564

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid for interest and fees on borrowings $ 1,420

See accompanying notes.

SEVEN HILLS REALTY TRUST

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

(dollars in thousands)

Location Property Type Committed Principal Amount Coupon Rate Origination Date Maturity Date Cost Value

MORTGAGE LOANS HELD FOR INVESTMENT 47.6 % (1)

Downers Grove, IL Office $ 30,000 L + 4.25 %

09/25/2020 11/25/2023 $ 29,232 $ 29,232

Durham, NC Lab $ 21,500 L + 4.35 %

12/17/2020 12/17/2023 13,281 13,281

Los Angeles, CA Retail $ 24,600 L + 4.25 %

12/17/2020 12/17/2022 17,029 17,029

Aurora, IL Office/Industrial $ 16,500 L + 4.35 %

12/18/2020 12/18/2023 14,540 14,540

Berkeley, CA Lab $ 19,120 L + 4.35 %

12/30/2020 12/30/2023 17,797 17,797

Total Mortgage Loans - 47.6 %

$ 91,879 91,879

Other assets less liabilities - 52.4 % (2)

Net assets attributable to common shareholders – 100.0 %

(1) The mortgage loans we invest in are not registered under the securities laws.

These mortgage loans are valued using Level III inputs as defined in the fair value hierarchy under GAAP.

(2) Please refer to our consolidated statement of assets and liabilities for further information on these amounts.

Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows $ 71,067 $ 26,295

See accompanying notes.

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(dollars in thousands, except per share data)

Seven Hills Realty Trust (formerly known as RMR Mortgage Trust) is a Maryland real estate investment trust, or REIT.

Seven Hills Realty Trust is a Maryland real estate investment trust, or REIT, that focuses primarily on originating and investing in first mortgage loans secured by middle market and transitional commercial real estate, or CRE.

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

1 unchanged sentence

On January 5, 2021, the Securities and Exchange Commission, or SEC, issued an order granting our request to deregister as an investment company under the 1940 Act, or the Deregistration Order.

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

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

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

On December 22, 2021, we converted from a Maryland statutory trust to a Maryland REIT.

Merger with Tremont Mortgage Trust

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

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

At the Effective Time, the separate existence of TRMT ceased and we changed our name to “Seven Hills Realty Trust”.

The combined company continues to be managed by Tremont Realty Capital LLC, or TRC, or our Manager, and our common shares continue to trade on The Nasdaq Stock Market LLC, or Nasdaq, under our current symbol “SEVN".

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

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

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

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

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

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

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

Following the Merger and the other transactions contemplated by the Merger Agreement, we assumed the Citibank Master Repurchase Facility and the portfolio of 10 loans with an aggregate principal balance of $ 204,692 .

SEVEN HILLS REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Summary of Significant Accounting Policies

Basis of Presentation.

Prior to the Business Change, the Trust was accounted for as an investment company in accordance with the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 946, Financial Services - Investment Companies , or the Predecessor Basis.

Upon the Business Change, we discontinued the application of guidance in ASC Topic 946 and prospectively applied the guidance required under U.S.

generally accepted accounting principles, or GAAP, applicable to companies that are not investment companies, or the Successor Basis.

As a result of these changes, our consolidated financial statements as of and for the year ended December 31, 2021 are presented separately from our financial statements on the Predecessor Basis, as of and for the year ended December 31, 2020.

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

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

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

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts.

These consolidated financial statements are prepared in accordance with U.S.

generally accepted accounting principles, or GAAP, which requires us to make estimates and assumptions that affect reported amounts.

Actual results could differ from those estimates.

Significant estimates in the accompanying consolidated financial statements include the fair value of financial instruments.

Summary of Significant Accounting Policies

Consolidation.

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

For each investment we make, we evaluate whether consolidation of the borrower's financial statements is required under GAAP.

GAAP addresses the application of consolidation principles to an investor with a controlling financial interest.

For each loan investment we make, we evaluate whether we have a controlling financial interest and consolidation of the borrower's financial statements is required under GAAP.

Cash, Cash Equivalents and Restricted Cash.

We consider highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.

Restricted cash primarily consists of deposit proceeds from potential borrowers when originating loans, which may be returned to the applicable borrower upon the closing of the loan, after deducting any transaction costs paid by us for the benefit of such borrower.

Restricted cash primarily consists of deposit proceeds received from potential borrowers when originating loans, which may be returned to the applicable borrower upon the closing of the loan, after deducting any transaction costs paid by us for the benefit of such borrower.

Secured Financing Agreements.

Loans financed through secured financing agreements are treated as collateralized financing transactions, unless they meet sales treatment under GAAP.

Pursuant to GAAP treatment of collateralized financing transactions, loans financed through secured financing agreements remain on our consolidated balance sheet as assets and cash received from the purchasers is recorded on our consolidated balance sheet as liabilities.

Interest paid in accordance with secured financing agreements is recorded as interest expense.

Loans financed through our Secured Financing Agreements (as defined in Note 6) are treated as collateralized financing transactions, unless they meet sales treatment under GAAP.

Pursuant to GAAP treatment of collateralized financing transactions, loans financed through our Secured Financing Agreements remain on our consolidated balance sheets as assets and cash received from the purchasers is recorded on our consolidated balance sheets as liabilities.

Interest paid in accordance with our Secured Financing Agreements is recorded as interest expense.

Loans Held for Investment.

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

Loans that are held for investment are carried at cost, net of unamortized loan origination fees, accreted fees, unamortized premiums and unaccreted discounts, as applicable, that are required to be recognized in the carrying value of the loans in accordance with GAAP, unless the loans are deemed to be impaired.

Loans that are held for investment are carried at cost, net of unamortized loan origination fees, accreted exit fees, unamortized premiums and unaccreted discounts, as applicable, that are required to be recognized in the carrying value of the loans in accordance with GAAP, unless the loans are deemed to be impaired.

Loans that we have a plan to sell or liquidate are held at the lower of cost or fair value less cost to sell.

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Factors considered in these evaluations include, but are not limited to, property type, geographic and local market dynamics, physical condition, leasing and tenant profile, projected cash flow, risk of loss, current loan to value ratio, or LTV, debt yield, collateral performance, structure, exit plan and sponsorship.

Loans are rated “1” (lower risk) through “5” (impaired/loss likely) as defined below:

Loans are rated “1” (less risk) through “5” (greater risk) as defined below:

“1” lower risk—Criteria reflects a sponsor having a strong financial condition and low credit risk and our evaluation of management's experience;

collateral performance exceeding performance metrics included in the business plan or credit

collateral performance exceeding performance metrics included in the business plan or credit underwriting;

and the property demonstrating stabilized occupancy and/or market rates, resulting in strong current cash flow and net operating income and/or having a very low LTV.

SEVEN HILLS REALTY TRUST

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(dollars in thousands, except per share data)

underwriting;

and the property demonstrating stabilized occupancy and/or market rates, resulting in strong current cash flow and net operating income and/or having a very low LTV.

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

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and/or the property having a very high LTV.

See Note 6 for further information regarding our current loan portfolio’s assessment under our internal risk rating policy.

See Note 5 for further information regarding our loan portfolio’s assessment under our internal risk rating policy.

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

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Consideration will be given to various factors, such as business plans, property occupancies, tenant profiles, rental rates, operating expenses and borrowers’ repayment plans, among others, and will require significant judgments regarding certain circumstances, such as guarantees, if any.

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

As of December 31, 2022, we have not recorded any allowance for losses as we believe it is probable that we will collect all amounts due pursuant to the contractual terms of our loan agreements with borrowers.

Fair Value of Financial Instruments.

FASB ASC Topic 820-10, Fair Value Measurements and Disclosures , defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands the required disclosure regarding fair value measurements.

ASC Topic 820-10 defines fair value as the price that would be received for a financial instrument in a current sale, which assumes an orderly transaction between market participants on the measurement date.

We determine the estimated fair value of financial assets and liabilities using the three-tier fair value hierarchy established by GAAP, which prioritizes the inputs used in measuring fair value.

GAAP establishes market based or observable inputs as the preferred source of values followed by valuation models using management assumptions in the absence of market inputs.

The three levels of inputs that may be used to measure fair value are as follows:

We determine the estimated fair value of financial assets and liabilities using the three-tier fair value hierarchy established by GAAP, which prioritizes observable inputs in active markets when measuring fair value.

The three levels of inputs that may be used to measure fair value in order of priority are as follows:

Level I—Inputs include quoted prices in active markets for identical assets or liabilities that we have the ability to access.

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

Loan Deferred Fees.

Loan origination and exit fees are fees charged to our borrowers and unamortized or unaccreted balances are reflected as a reduction in loans held for investment, net, in our consolidated balance sheets.

These fees are recognized in interest income over the life of the related loans held for investment.

Deferred Financing Costs.

Costs incurred in connection with financings are capitalized and recorded as a reduction to the related liability in our consolidated balance sheets.

Deferred financing costs are amortized over the term of the respective financing agreement and are recorded in our consolidated statements of operations as a component of interest and related expenses.

SEVEN HILLS REALTY TRUST

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(dollars in thousands, except per share data)

Loan Deferred Fees.

Loan origination and exit fees are reflected in loans held for investment, net, in our consolidated balance sheet and include fees charged to borrowers.

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

Deferred Financing Costs.

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

Net Income Per Common Share.

We calculate net income per common share - basic by dividing net income by the weighted average number of common shares outstanding during the period.

We calculate net income per common share - basic using the two class method.

We calculate net income per common share - diluted using the more dilutive of the two class or treasury stock method.

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

Revenue Recognition.

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

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

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

We did not have any non-accrual loans as of December 31, 2022.

For loans purchased at a discount, GAAP limits the yield that may be accreted (accretable yield) to the excess of the investor’s estimate of undiscounted expected principal, interest and other cash flows (cash flows expected at acquisition to be collected) over the investor’s initial investment in the loan.

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Decreases in cash flows expected to be collected will be recorded as an impairment.

Securities Transactions and Investment Income.

Under the Predecessor Basis, we recorded securities transactions on a trade date basis, dividend income on the ex-dividend date and any non-cash dividends at the fair market value of the securities received.

We used the accrual method for recording interest income, including accretion of original issue discount, where applicable, and accretion of discount on short term investments and identified cost basis for realized gains and losses from securities transactions.

The difference between cost and fair value for investments we continue to hold is reflected as unrealized gain (loss), and any change in that amount from a prior period is reflected in the accompanying consolidated statement of operations under the Predecessor Basis.

Recent Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update, or ASU, No.

In June 2016, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, No.

2016-13, Financial Instruments - Credit Losses (Topic 326) :

Measurement of Credit Losses on Financial Instruments , which requires that entities use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses.

The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

As a smaller reporting company, we expect to adopt ASU No.

2016-13 on January 1, 2023.

We are currently assessing the potential impact the adoption of ASU No.

2016-13 will have on our consolidated financial statements.

The effect of the adoption of ASU No.

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

In October 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires that an acquirer account for the related revenue contracts in accordance with FASB ASC Topic 606 as if it had originated the contracts.

The acquiring entity shall recognize and measure the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements, rather than at fair value at the acquisition date.

2021-08 is effective for fiscal years

Measurement of Credit Losses on Financial Instruments , which replaces the “incurred loss” model for recognizing credit losses with a forward-looking “expected loss” model that generally will result in the earlier recognition of credit losses.

The measurement of current expected credit losses, or CECL, is based upon historical experience, current conditions, and reasonable and supportable forecasts incorporating forward-looking information that affect the collectability of the reported amount.

CECL is applicable to financial assets measured at amortized cost and off-balance sheet credit exposures, such as unfunded loan commitments.

The reserve required under ASU No.

2016-13 is a valuation account that is deducted from the related loans’ amortized cost basis on our consolidated balance sheets and will reduce our total stockholders’ equity.

2016-13 requires a cumulative-effect adjustment to equity as of the beginning of the reporting period of adoption.

However, future changes to the reserve will be recognized in net income on our consolidated statements of operations.

As a smaller reporting company, ASU No.

2016-13 is effective on January 1, 2023.

The implementation process included selection of a credit loss model, changes to our internal reporting processes, changes to our internal controls and documentation of related policies and procedures.

Given the lack of historical loss data related to our loan portfolio, we elected to estimate our expected losses using an analytical model that considers the likelihood of default and loss given default for each individual loan.

This analytical model incorporates data from a third party database with historical loan loss information for commercial mortgage-backed securities and CRE loans since 1998.

Significant inputs to the model include certain loan specific data, such as LTV, property type, geographic location, occupancy, debt service coverage ratio and/or net operating income and a macroeconomic forecast.

We may use other acceptable alternative approaches in the future depending on, among other factors, the type of loan, underlying collateral and availability of relevant historical market loan loss data.

Based on our loan portfolio, including unfunded loan commitments, at December 31, 2022, the current economic environment and expectations for future conditions, upon adoption of ASU No.

2016-13, we expect to record a cumulative-effect adjustment to reduce our cumulative net income within a range of $ 6,000 to $ 8,000 , or $ 0.41 to $ 0.54 per common share.

SEVEN HILLS REALTY TRUST

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(dollars in thousands, except per share data)

beginning after December 15, 2022, with early adoption permitted.

On October 1, 2021, we early adopted ASU No.

In March 2022, the FASB issued ASU No.

2022-02, Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures , which eliminated the guidance for and recognitions of troubled debt restructurings for all entities that have adopted ASU No.

Instead, an entity must apply the loan refinancing and restructure guidance in Accounting Standards Codification, or ASC, Topic 310, Receivables (Topic 310), to determine whether a modification results in a new loan or continuation of an existing loan.

If a borrower is experiencing financial difficulty, enhanced disclosures are required.

2022-02 also amended the guidance on vintage disclosures to require disclosure of current period gross write-offs by year of origination.

The adoption of ASU No.

2021-08 did not have an impact on our consolidated financial statements.

2022-02 prospectively on January 1, 2023, concurrently with the adoption of ASU No.

2016-13 did not have a material impact on our condensed consolidated financial statements.

Merger with Tremont Mortgage Trust

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

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

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

On September 30, 2021, we completed our merger with Tremont Mortgage Trust, or TRMT, at which time TRMT merged with and into us, with us continuing as the surviving entity, or the Merger.

As a condition of the Merger, each one issued and outstanding common share of beneficial interest, $ 0.01 par value per share, of TRMT was automatically converted into the right to receive 0.516 of our common shares of beneficial interest, $ 0.001 par value per common share, or our common shares.

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

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

TRMT Common Shares outstanding 8,303,629

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The purchase discount was allocated to each acquired TRMT loan based on their relative fair value and has been and is being accreted into income over the remaining term of the respective loan.

For the year ended December 31, 2021, we recorded purchase discount accretion of $ 18,932 .

For the years ended December 31, 2022 and 2021, we recorded purchase discount accretion of $ 10,689 and $ 18,932 , respectively.

SEVEN HILLS REALTY TRUST

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(dollars in thousands, except per share data)

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

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

Cash and cash equivalents $ 11,070

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

We funded our loan portfolio using cash on hand and advancements under our debt facilities and we acquired TRMT's loan portfolio in the Merger with our common shares.

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

We funded our loan portfolio using cash on hand and advancements under our Secured Financing Facilities, as defined in Note 6, and we acquired TRMT's loan portfolio in the Merger with our common shares.

See Note 4 for further information regarding the Merger and Note 6 for further information regarding our Secured Financing Agreements.

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

As of December 31,

(Successor Basis) 2020 (Predecessor Basis)

Number of loans 27 26

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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)

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

(2) The principal balance as of 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.

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(dollars in thousands, except per share data)

The table below represents our loan activities during the year ended December 31, 2021:

The table below represents our loan activities during 2021 and 2022:

Principal Balance Deferred Fees and Other Items Carrying Value

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

Balance at December 31, 2020

$ 92,863 $ ( 984 ) $ 91,879

Additional funding 4,710 — 4,710

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— 18,932 18,932

Balance at December 31, 2021 (Successor Basis) $ 590,590 $ ( 19,810 ) $ 570,780

Balance at December 31, 2021

590,590 ( 19,810 ) 570,780

Additional funding 17,310 — 17,310

Originations 203,244 ( 2,306 ) 200,938

Repayments ( 132,589 ) ( 979 ) ( 133,568 )

Net amortization of deferred fees — 3,780 3,780

Purchase discount accretion — 10,689 10,689

Balance at December 31, 2022

$ 678,555 $ ( 8,626 ) $ 669,929

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

(2) Purchase discount accretion reflects the impact of a waived exit fee of $ 120 due from a borrower of a loan acquired in the Merger.

(2) Purchase discount accretion for the year ended December 31, 2021 reflects the impact of a waived exit fee of $ 120 due from a borrower of a loan acquired in the Merger.

SEVEN HILLS REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

The tables below detail the property type and geographic location of the properties securing the loans in our portfolio as of December 31, 2022 and 2021:

As of December 31,

(Successor Basis) 2020

(Predecessor Basis)

Property Type Number of Loans

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Multifamily 8 197,229 29 % 5 106,002 19 %

Lab 1 13,398 2 % 2 31,078 34 %

Retail 4 88,724 16 % 1 17,029 19 %

Industrial (1)

4 110,656 17 % 3 92,791 16 %

Retail 4 109,248 16 % 4 88,724 16 %

Lab — — — % 1 13,398 2 %

27 $ 669,929 100 % 26 $ 570,780 100 %

(1) Two loan investments secured by mixed use properties consisting of office space and an industrial warehouse in Aurora, IL and Colorado Springs, CO are classified as office for the purpose of counting the number of loans in our portfolio because the majority of the square footage of the properties consists of office space.

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

(1) As of December 31, 2021, two loan investments secured by mixed use properties consisting of office space and an industrial warehouse in Aurora, IL and Colorado Springs, CO were classified as office for the purpose of counting the number of loans in our portfolio because the majority of the square footage of the properties consisted of office space.

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

During the year ended December 31, 2022, our loan investment in Colorado Springs, CO was repaid.

As of December 31,

(Successor Basis) 2020

(Predecessor Basis)

Geographic Location Number of Loans

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Percentage of Value Number of Loans Carrying Value Percentage of Value

East 3 $ 55,132 10 % — $ — — %

Midwest 9 $ 251,208 37 % 8 $ 216,700 38 %

South 6 166,616 25 % 7 153,495 27 %

West 8 146,837 22 % 8 145,453 25 %

Midwest 8 216,700 38 % 2 43,772 48 %

East 4 105,268 16 % 3 55,132 10 %

27 $ 669,929 100 % 26 $ 570,780 100 %

Loan Risk Ratings

Loan Credit Quality

We evaluate each of our loans for impairment at least quarterly by assessing a variety of risk factors in relation to each loan and assigning a risk rating to each loan based on those factors.

The higher the number, the greater the risk level.

SEVEN HILLS REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

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

The table below allocates the carrying value of our loan portfolio as of December 31, 2022 and 2021 based on our internal risk rating policy:

As of December 31,

2021 (Successor Basis) 2020 (Predecessor Basis)

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

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27 $ 669,929 26 $ 570,780

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

The COVID-19 pandemic has negatively impacted some of our borrowers’ business operations or tenants, particularly in the cases of our retail and hospitality collateral, some of which are the types of properties that have been most negatively impacted by the pandemic.

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

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

Therefore, certain of our borrowers’ business plans will likely take longer to execute than initially expected and certain of our borrowers may be unable to pay their debt service obligations owed and due to us as currently scheduled or at all.

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

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

SEVEN HILLS REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

The weighted average risk rating of our loans by carrying value was 2.9 as of December 31, 2022 and 2021.

Certain of our borrowers’ business operations or tenants, particularly at certain office and retail properties, were negatively impacted by the COVID-19 pandemic and continue to be impacted by market conditions that arose or intensified during or in response to the pandemic.

Current inflationary pressures, rising or sustained high interest rates, supply chain issues or a prolonged economic slowdown or recession could amplify those negative impacts.

Therefore, certain of our borrowers’ business plans will likely take longer to execute than initially expected, and as a result, certain of our borrowers may be unable to pay their debt service obligations owed and due to us as currently scheduled or at all.

As of December 31, 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".

See Note 2 for further information regarding our loan risk ratings.

As of December 31, 2021 and February 14, 2022, all of our borrowers had paid all of their debt service obligations owed and due to us and none of the loans included in our investment portfolio were in default.

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 the London Interbank Offered Rate, or 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 modification of this loan resulting from the amendment was determined not to be a troubled debt restructuring.

However, we accounted for this modification as an extinguishment in accordance with ASC Topic 310, Receivables , because the changes to the terms were determined to be more than minor.

As such, we recognized the related unaccreted purchase discount of $ 1,748 as interest income from investments in our condensed consolidated statements of income at the time of the modification.

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 other terms of the loan agreement.

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

We did not have any impaired loans or nonaccrual loans as of December 31, 2022 or 2021.

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.

Secured Financing Agreements

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

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 the Secured Overnight Financing Rate, or SOFR, for interest rate calculations on advancements under the UBS Master Repurchase Facility and modifying certain pricing terms.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

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

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

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

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

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

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

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

The UBS Guaranty also contains financial covenants, which require us to maintain a minimum tangible net worth, a minimum liquidity and to satisfy a total indebtedness to stockholders' equity ratio.

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

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

In addition, our UBS Master Repurchase Agreement provides for acceleration of the date of repurchase of the purchased assets by us and UBS’s liquidation of the purchased assets upon the occurrence and continuation of certain events of default, including a change of control of us, which includes our Manager ceasing to act as our sole manager or to be a wholly owned subsidiary of The RMR Group LLC, or RMR LLC.

In addition, our UBS Master Repurchase Agreement provides for acceleration of the date of repurchase of the purchased assets by us and UBS’s liquidation of the purchased assets upon the occurrence and continuation of certain events of default, including a change of control of us, which includes Tremont Realty Capital LLC, or Tremont, ceasing to act as our sole manager or to be a wholly owned subsidiary of The RMR Group LLC, or RMR.

Citibank Master Repurchase Facility

As previously mentioned in Notes 1 and 5, as a result of the Merger, we assumed the Citibank Master Repurchase Facility.

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

In connection with the closing of the Merger, TRMT's wholly owned subsidiary also entered into a Third Amendment to the Citibank Master Repurchase Agreement and Fifth Amendment to Fee Agreement with Citibank.

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

The maximum amount of available advancements under the Citibank Master Repurchase Agreement is $ 213,482 , and the expiration date thereof is November 6, 2022, subject to earlier termination as provided for in the Citibank Master Repurchase Agreement.

As discussed in Note 4, as a result of the Merger, we assumed the Citibank Master Repurchase Facility.

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

On March 15, 2022, we amended and restated our Citibank Master Repurchase Agreement to make certain changes to the agreement and related fee letter, including increasing the maximum amount of available advancements under our Citibank Master Repurchase Facility to $ 215,000 , replacing LIBOR with SOFR for interest rate calculations on advancements under the Citibank Master Repurchase Facility, modifying certain pricing terms and extending the stated maturity date to March 15, 2025, subject to earlier termination as provided for in the Citibank Master Repurchase Agreement.

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

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

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

The price differential (or interest rate) relating to a purchased asset is equal to LIBOR plus a premium of 200 to 250 basis points, determined by the yield of the purchased asset and the property type of the purchased asset’s real estate collateral.

The price differential (or interest rate) relating to a purchased asset was equal to LIBOR plus a premium of 200 to 250 basis points, determined by the yield of the purchased asset and the property type of the purchased asset’s real estate collateral.

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

The Citibank Guaranty, which requires us to guarantee 25 % of our subsidiary's prompt and complete payment of the purchase price, purchase price differential and any costs and expenses of Citibank related to our Citibank Master Repurchase Agreement.

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

The Citibank Guaranty also contains financial covenants, which require us to maintain a minimum tangible net worth, a minimum liquidity, a minimum interest coverage ratio and to satisfy a total indebtedness to tangible net worth ratio.

These maintenance provisions provide Citibank with the right, in certain circumstances related to a credit event, as defined in our Citibank Master Repurchase Agreement, to re-determine the value of purchased assets.

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

Our Citibank Master Repurchase Agreement also provides for acceleration of the date of repurchase of the purchased assets by us and Citibank’s liquidation of the purchased assets upon the occurrence and continuation of certain events of default, including a change of control of us, which includes our Manager ceasing to act as our sole manager or to be a wholly owned subsidiary of RMR LLC.

On November 9, 2021, one of our wholly owned subsidiaries entered into our facility loan program agreement and the security agreement with BMO Harris Bank N.A., or our BMO Loan Program Agreement, with BMO as administrative agent for the lenders.

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1 unchanged sentence

(dollars in thousands, except per share data)

Amounts advanced under an uncommitted credit facility in the maximum principal amount of $ 100 million, or the BMO Facility, may be used to fund new mortgage loan originations and/or fund future funding obligations under existing and new mortgage loans pursuant to separate agreements, or the BMO Facility Loan Agreements.

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

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

Our Citibank Master Repurchase Agreement also provides for acceleration of the date of repurchase of the purchased assets by us and Citibank’s liquidation of the purchased assets upon the occurrence and continuation of certain events of default, including a change of control of us, which includes Tremont ceasing to act as our sole manager or to be a wholly owned subsidiary of RMR.

On November 9, 2021, one of our wholly owned subsidiaries entered into our facility loan program agreement and the security agreement with BMO Harris Bank N.A., or BMO, or our BMO Loan Program Agreement, with BMO as administrative agent for the lenders.

Amounts advanced under an uncommitted credit facility, originally up to the maximum principal amount of $ 100,000 , or the BMO Facility, may be used to fund new mortgage loan originations and/or fund future funding obligations under existing and new mortgage loans pursuant to separate agreements, or the BMO Facility Loan Agreements.

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

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

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

On April 25, 2022, we amended our BMO Loan Program Agreement to increase the maximum principal amount available under our BMO Facility, from $ 100,000 to $ 150,000 .

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

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

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

Our BMO Loan Program Agreement provides for acceleration of all payment obligations due under the facility loans upon the occurrence and continuation of certain events of default, including a change of control of us, which includes our Manager ceasing to act as our sole manager or to be a wholly owned subsidiary of R MR LLC.

We refer to the UBS Master Repurchase Facility, the Citibank Master Repurchase Facility and the BMO Facility, collectively, as our Secured Financing Facilities.

We refer to the UBS Master Repurchase Agreement and the Citibank Master Repurchase Agreement, collectively, as our Master Repurchase Agreements, and to our Master Repurchase Agreements, the BMO Loan Program Agreement and the BMO Facility Loan Agreements, collectively, as our Secured Financing Agreements.

We refer to the UBS Guaranty, Citibank Guaranty and BMO Guaranty, collectively, as our Guarantees.

The weighted average interest rate for advancements under the UBS Master Repurchase Facility, the Citibank Master Repurchase Facility and the BMO Facility were 2.1 %, 1.9 % and 2.0 %, respectively, for the year ended December 31, 2021.

As of December 31, 2021, we have not received a margin call under any of our Master Repurchase Agreements and we were in compliance with all of the covenants and ot her terms under our Secured Financing Agreements and Guarantees.

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.

Our BMO Loan Program Agreement provides for acceleration of all payment obligations due under the BMO Facility Loan Agreements 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 R MR.

Wells Fargo Master Repurchase Facility

On March 11, 2022, one of our wholly owned subsidiaries entered into a master repurchase and securities agreement with Wells Fargo, National Association, or Wells Fargo, or the 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 amount to $ 250,000 , subject to certain terms and conditions.

We may sell to Wells Fargo, and later repurchase, commercial mortgage loans, which are referred to as purchased assets.

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.

Under the Wells Fargo Master Repurchase 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

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

The Wells Fargo Guaranty also contains 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.

Our Wells Fargo Master Repurchase Facility also contains margin maintenance provisions that provide Wells Fargo with the right, in certain circumstances related to a credit event, as defined in the Wells Fargo Master Repurchase Agreement, to redetermine the value of purchased assets.

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

In addition, our Wells Fargo Master Repurchase Agreement provides for acceleration of the date of repurchase of the purchased assets by us and Wells Fargo’s liquidation of the purchased assets upon the occurrence and continuation of certain events of default, including a change of control of us, which includes Tremont ceasing to act as our sole manager or to be a wholly owned subsidiary of RMR.

We refer to the UBS Master Repurchase Facility, Citibank Master Repurchase Facility, BMO Facility and Wells Fargo Master Repurchase Facility, collectively, as our Secured Financing Facilities.

We refer to the UBS Master Repurchase Agreement, Citibank Master Repurchase Agreement and Wells Fargo Master Repurchase Agreement, collectively, as our Master Repurchase Agreements, and to our Master Repurchase Agreements, the BMO Loan Program Agreement and the BMO Facility Loan Agreements, collectively, as our Secured Financing Agreements.

As of December 31, 2022, we were in compliance with the covenants and other terms of the agreements that govern our Secured Financing Facilities.

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

The table below summarizes our Secured Financing Agreements as of December 31, 2021:

The table below summarizes our Secured Financing Facilities as of December 31, 2022 and 2021:

Debt Obligation

Weighted Average Collateral

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

Maximum Facility Size Principal Balance Carrying Value Coupon Rate (1)

Remaining Maturity (years) (2)

Principal Balance

Master Repurchase Agreements

UBS Master Repurchase Facility $ 192,000 $ 167,928 $ 167,024 L + 1.99 %

2.0 $ 225,868

Citibank Master Repurchase Facility 213,482 161,825 161,724 L + 1.92 %

Asset Specific Financing

BMO Facility 100,000 11,116 10,879 S + 1.96 %

December 31, 2022:

Citibank Master Repurchase Facility $ 215,000 $ 150,647 $ 150,360 6.34 % 1.1 $ 205,234

UBS Master Repurchase Facility 192,000 144,437 143,887 6.48 % 1.1 198,254

BMO Facility 150,000 111,105 110,473 6.22 % 2.2 148,476

Wells Fargo Master Repurchase Facility 125,000 67,426 66,801 6.23 % 2.1 89,008

Total/weighted average $ 682,000 $ 473,615 $ 471,521 6.34 % 1.5 $ 640,972

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

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

December 31, 2021:

Citibank Master Repurchase Facility $ 213,482 $ 161,825 $ 161,724 2.03 % 0.7 $ 222,129

UBS Master Repurchase Facility 192,000 167,928 167,024 2.09 % 2.0 225,868

BMO Facility 100,000 11,116 10,879 2.01 % 2.7 14,821

Total/weighted average $ 505,482 $ 340,869 $ 339,627 2.06 % 1.4 $ 462,818

(1) The weighted average coupon rate is determined using LIBOR or SOFR plus a spread ranging from 1.80 % to 2.51 %, as applicable, for the respective borrowings under our Secured Financing Facilities as of the applicable date.

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

As of December 31, 2022, our Citibank Master Repurchase Facility, UBS Master Repurchase Facility and Wells Fargo Master Repurchase Facility mature on March 15, 2025, February 18, 2024 and March 11, 2025, respectively.

Our BMO Facility matures at various dates based on the respective underlying loans held for investment.

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(dollars in thousands, except per share data)

As of December 31, 2021, our outstanding borrowings had the following remaining maturities:

Principal Payments on

Secured Financing Facilities

As of December 31, 2022, our outstanding borrowings under our Secured Financing Facilities had the following remaining maturities:

Maturity Year Principal Payments

Due Upon Maturity

2023 $ 99,112

For the year ended December 31, 2021, we recorded interest expense of $ 1,514 , $ 724 and $ 15 related to our UBS Master Repurchase Facility, Citibank Master Repurchase Facility and BMO Facility, respectively.

For the year ended December 31, 2020, we recorded interest expense of $ 1,208 related to our former revolving credit facility with BNP Paribas Prime Brokerage International Ltd.

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

2026 and thereafter —

Fair Value of Financial Instruments

ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level I) and the lowest priority to unobservable inputs (Level III).

A financial asset’s or financial liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

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

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

We estimate the fair values of our loans held for investment and outstanding principal balances under our Secured Financing Facilities by using Level III inputs, including discounted cash flow analyses and currently prevailing market terms as of the measurement date, determined by significant unobservable market inputs, which include holding periods, discount rates based on LTV, property types and loan pricing expectations which are corroborated by a comparison with other market participants to determine the appropriate market spread to add to the current base interest.

The table below provides information regarding financial assets and liabilities not carried at fair value on a recurring basis in our consolidated balance sheets:

The carrying values of cash and cash equivalents, restricted cash and accounts payable approximate their fair values due to the short term nature of these financial instruments.

The table below provides carrying values and fair values of our financial assets and liabilities not carried at fair value in our consolidated balance sheets:

As of December 31,

2021 (Successor Basis) 2020 (Predecessor Basis)

Carrying Value Fair Value Carrying Value Fair Value

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Secured Financing Facilities $ 471,521 $ 471,362 $ 339,627 $ 341,679

There were no transfers of financial assets or liabilities within the fair value hierarchy during the year ended December 31, 2021.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

There were no transfers of financial assets or liabilities within the fair value hierarchy during the year ended December 31, 2022 or 2021.

Shareholders' Equity

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

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

The common shares awarded to our Trustees vest immediately.

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

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

During the years ended December 31, 2022 and 2021, we awarded to our officers and certain other employees of Tremont and of RMR annual share awards of 85,000 and 83,000 of our common shares, respectively, valued at $ 859 and $ 864 , in aggregate, respectively.

In accordance with our Trustee compensation arrangements, during the years ended December 31, 2022 and 2021, we awarded each of our then Trustees 6,000 of our common shares valued at $ 448 and $ 369 , respectively, as part of their annual compensation.

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

The common shares that we award to our Trustees as trustee compensation vest immediately.

The common shares we award to our officers and certain other employees of Tremont and of RMR vest in five equal annual installments beginning on the date of award.

We recognize any share forfeitures as they occur.

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

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

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

A summary of shares granted, forfeited, vested and unvested under the terms of the 2021 Plan for the year ended December 31, 2021 is as follows:

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

A summary of shares granted, forfeited, vested and unvested under the terms of the 2021 Plan for the years ended December 31, 2022 and 2021 is as follows:

Shares Weighted Average Grant

Date Fair Value Number of

Shares Weighted Average Grant

Date Fair Value

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Shares granted 127,000 $ 10.29 116,000 $ 10.63

Shares forfeited ( 1,016 ) $ 10.39 — $ —

Shares vested ( 87,888 ) $ 10.45 ( 50,786 ) $ 10.89

Shares granted at the Effective Time of the Merger 26,370 $ 10.31

Shares granted at the effective date of the Merger — $ — 26,370 $ 10.31

Unvested shares, end of year 129,680 $ 10.24 91,584 $ 10.39

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The weighted average period over which the compensation expense will be recorded is approximately 23 months.

During the year ended December 31, 2021, we recorded $ 627 of compensation expense related to the 2021 Plan.

During the years ended December 31, 2022 and 2021, we recorded $ 1,018 and $ 627 , respectively, of compensation expense related to the 2021 Plan.

At December 31, 2022, 251,074 of our common shares remained available for issuance under the 2021 Plan.

Common Share Purchases

During the year ended December 31, 2021, we purchased 5,530 of our common shares from certain former and current officers and employees of our Manager and RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares, valued at the closing price of our common shares on Nasdaq on the applicable purchase date.

The aggregate value of common shares purchased during the year ended December 31, 2021 was $ 57 .

During the years ended December 31, 2022 and 2021, we purchased 13,898 and 5,530 of our common shares, respectively, from certain of our current and former officers and employees of Tremont and/or RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares, valued at the closing price of our common shares on Nasdaq on the applicable purchase date.

The aggregate value of common shares purchased during the years ended December 31, 2022 and 2021 was $ 137 and $ 57 , respectively.

Distributions

For the year ended December 31, 2021, we declared and paid distributions to common shareholders as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Record Date Payment Date Distribution per Share Total Distribution

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

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

September 7, 2021 September 29, 2021 0.15 1,533

During the years ended December 31, 2022 and 2021, we paid distributions to common shareholders as follows:

Characterization of Distributions

Year Annual Per Share Distribution Total Distribution Return of Capital Ordinary Income Qualified Dividend

2022 $ 1.00 $ 14,636 — % 100 % — %

2021 $ 0.45 $ 4,595 21 % 79 % — %

On January 12, 2023, we declared a quarterly distribution of $ 0.35 per common share, or $ 5,148 , to shareholders of record on January 23, 2023.

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

Distributions per share paid by us to our common shareholders for the year ended December 31, 2021 were $ 0.45 .

The characterization of our distributions for 2021 was 79 % ordinary income and 21 % return of capital.

Management Agreement with our Manager

Management Agreement with Tremont

We have no employees.

The personnel and various services we require to operate our business are provided to us by our Manager, pursuant to a management agreement, which provides for the day to day management of our operations by our Manager, subject to the oversight and direction of our Board of Trustees.

Prior Agreements with RMR Advisors

Administration Agreement.

Prior to its merger with our Manager on January 6, 2021, RMR Advisors LLC, or RMR Advisors, performed administrative functions for us pursuant to an administration agreement with us.

RMR Advisors was also a party to a subadministration agreement with State Street Bank and Trust Company, or State Street, to perform substantially all fund accounting and other administrative services for us.

Under the administration agreement, RMR Advisors was entitled to reimbursement of the cost of providing administrative services.

On January 6, 2021, RMR Advisors merged with and into our Manager, with our Manager being the surviving entity, and our Manager assumed the administration agreement with us and the subadministration agreement with State Street.

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

We incurred administration service fees of $ 15 for the period from January 1, 2021 to March 16, 2021 and $ 77 for the year ended December 31, 2020, all of which related to the subadministration service fees payable by RMR Advisors to State Street and reimbursable by us;

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

Investment Advisory Agreement.

Prior to January 5, 2021, RMR Advisors provided us with a continuous investment program, made day to day investment decisions and generally managed our business affairs in accordance with our investment objectives and policies as a registered investment company pursuant to an investment advisory agreement.

The investment advisory agreement was terminated on January 5, 2021 with our deregistration as an investment company.

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

We incurred advisory fees of $ 22 for the period from January 1, 2021 to January 5, 2021 and $ 2,364 for the year ended December 31, 2020 which is included in advisory fees in our consolidated statement of operations.

We incurred internal audit and compliance costs reimbursable to RMR Advisors of $ 145 for the year ended December 31, 2020.

Current Management Agreement with our Manager

Effective January 5, 2021, we entered into a new management agreement with our Manager.

Prior to the Merger, our Manager also provided management services to TRMT.

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

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

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

Effective January 5, 2021, upon receipt of the Deregistration Order, we entered into a management agreement with Tremont.

T he personnel and various services we require to operate our business are provided to us by Tremont, pursuant to the management agreement, which provides for the day to day management of our operations by Tremont, subject to the oversight and direction of our Board of Trustees.

Prior to the Merger, Tremont also provided management services to TRMT.

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

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

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1 unchanged sentence

(dollars in thousands, except per share data)

Our management agreement with our Manager provides for an annual base management fee and an incentive fee, payable in cash, among other terms:

Our management agreement with Tremont provides for an annual base management fee and an incentive fee, payable in cash, among other terms:

• Base Management Fee .

We are required to pay our Manager the annual base management fee equal to 1.5 % of our “Equity”, payable in cash quarterly ( 0.375 % per quarter) in arrears.

Under our management agreement, “Equity” means (a) the sum of (i) our net asset value as of January 5, 2021, plus (ii) the net proceeds received by us from any future sale or issuance of shares of beneficial interest, plus (iii) our cumulative “Distributable Earnings,” as defined below, for the period commencing on January 5, 2021 to the end of the applicable most recent completed calendar quarter, less (b) (i) any distributions previously paid to holders of our common shares, (ii) any incentive fee previously paid to our Manager and (iii) any amount that we may have paid to repurchase our common shares.

We are required to pay Tremont the annual base management fee equal to 1.5 % of our “Equity”, payable in cash quarterly ( 0.375 % per quarter) in arrears.

Under our management agreement, “Equity” means (a) the sum of (i) our net asset value as of January 5, 2021, plus (ii) the net proceeds received by us from any future sale or issuance of shares of beneficial interest, plus (iii) our cumulative “Distributable Earnings,” as defined below, for the period commencing on January 5, 2021 to the end of the applicable most recent completed calendar quarter, less (b) (i) any distributions previously paid to holders of our common shares, (ii) any incentive fee previously paid to Tremont and (iii) any amount that we may have paid to repurchase our common shares.

All items in the foregoing sentence (other than clause (a)(iii)) are calculated on a daily weighted average basis.

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• Incentive Fee.

We are required to pay our Manager quarterly an incentive fee in arrears in cash equal to the difference between:

We are required to pay Tremont quarterly an incentive fee in arrears in cash equal to the difference between:

• The product of (i) 20 % and (ii) the difference between (A) our Distributable Earnings for the most recent 12 month period (or such lesser number of completed calendar quarters, if applicable), including the calendar quarter (or part thereof) for which the calculation of the incentive fee is being made, and (B) the product of (1) our Equity in the most recent 12 month period (or such lesser number of completed calendar quarters, if applicable), including the calendar quarter (or part thereof) for which the calculation of the incentive fee is being made, and (2) 7 % per year, and

▪ The sum of any incentive fees paid to our Manager with respect to the first three calendar quarters of the most recent 12 month period (or such lesser number of completed calendar quarters, if applicable).

• The sum of any incentive fees paid to Tremont with respect to the first three calendar quarters of the most recent 12 month period (or such lesser number of completed calendar quarters, if applicable).

No incentive fee shall be payable with respect to any calendar quarter unless Distributable Earnings for the 12 most recently completed calendar quarters (or such lesser number of completed calendar quarters, if applicable) in the aggregate is greater than zero.

Pursuant to the terms of our management agreement, no management incentive fees were payable until after the quarter ended March 31, 2021 and, thereafter, any management incentive fees are subject to our Manager earning those fees in accordance with the management agreement.

For purposes of the calculation of base management fees and incentive fees payable to our Manager under our management agreement, “Distributable Earnings” is defined as net income (or loss) attributable to our common shareholders, computed in accordance with GAAP, including realized losses not otherwise included in GAAP net income (loss), and excluding:

(a) the incentive fees earned by our Manager;

Pursuant to the terms of our management agreement, no management incentive fees were payable until after the quarter ended March 31, 2021 and, thereafter, any management incentive fees are subject to Tremont earning those fees in accordance with the management agreement.

For purposes of the calculation of base management fees and incentive fees payable to Tremont under our management agreement, “Distributable Earnings” is defined as net income (or loss) attributable to our common shareholders, computed in accordance with GAAP, including realized losses not otherwise included in GAAP net income (loss), and excluding:

(a) the incentive fees earned by Tremont;

(b) depreciation and amortization (if any);

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(d) unrealized gains, losses and other similar non-cash items that are included in net income for the period of the calculation (regardless of whether such items are included in or deducted from net income or in other comprehensive income or loss under GAAP);

and (e) one-time events pursuant to changes in GAAP and certain material non-cash income or expense items, in each case after discussion between our Manager and our Independent Trustees and approved by a majority of our Independent Trustees.

and (e) one-time events pursuant to changes in GAAP and certain material non-cash income or expense items, in each case after discussion between Tremont and our Independent Trustees and approved by a majority of our Independent Trustees.

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

Pursuant to the terms of our management agreement, the exclusion of depreciation and amortization from the calculation of Distributable Earnings shall only apply with respect to real property we own.

Our shares of beneficial interest that are entitled to a specific periodic distribution or have other debt characteristics will not be included in “Equity” for the purpose of calculating incentive fees payable to our Manager.

Instead, the aggregate distribution amount that accrues to such shares during the calendar quarter of such calculation will be subtracted from Distributable Earnings for purposes of calculating incentive fees, unless such distribution is otherwise already excluded from Distributable Earnings.

Equity and Distributable Earnings as defined in our management agreement are non-GAAP financial measures and may be different from our shareholders’ equity and our net income calculated according to GAAP.

We recognized base management fees of $ 3,221 for the year ended December 31, 2021.

No incentive fee was earned for the year ended December 31, 2021.

We recognized base management fees of $ 4,260 and $ 3,221 for the years ended December 31, 2022 and 2021.

No incentive fee was earned for the year ended December 31, 2022 or 2021.

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Termination Rights.

We have the right to terminate our management agreement with our Manager upon written notice delivered no later than 180 days prior to a renewal date by the affirmative vote of at least two-thirds (2/3) of our Independent Trustees based upon a determination that:

(a) our Manager’s performance is unsatisfactory and materially detrimental to us or (b) the base management fee and incentive fee, taken as a whole, payable to our Manager under our management agreement are not fair to us (provided that, in the instance of (b), our Manager will be afforded the opportunity to renegotiate the base management fee and incentive fee prior to termination).

Our management agreement may be terminated by our Manager before each annual renewal upon written notice delivered to our Board of Trustees no later than 180 days prior to an annual renewal date.

We have the right to terminate our management agreement with Tremont upon written notice delivered no later than 180 days prior to a renewal date by the affirmative vote of at least two-thirds (2/3) of our Independent Trustees based upon a determination that:

(a) Tremont’s performance is unsatisfactory and materially detrimental to us or (b) the base management fee and incentive fee, taken as a whole, payable to Tremont under our management agreement are not fair to us (provided that, in the instance of (b), Tremont will be afforded the opportunity to renegotiate the base management fee and incentive fee prior to termination).

Our management agreement may be terminated by Tremont before each annual renewal upon written notice delivered to our Board of Trustees no later than 180 days prior to an annual renewal date.

We may also terminate our management agreement at any time without the payment of any termination fee, with at least 30 days’ prior written notice from us upon the occurrence of a “cause event,” as defined in the management agreement.

Our Manager may terminate our management agreement in certain other circumstances, including if we become required to register as an investment company under the 1940 Act, as amended, for our uncured “material breach,” as defined in our management agreement, we materially reduce our Manager’s duties and responsibilities or scope of its authority under our management agreement or we cease or take steps to cease to conduct the business of originating or investing in CRE loans.

Tremont may terminate our management agreement in certain other circumstances, including if we become required to register as an investment company under the 1940 Act for our uncured “material breach,” as defined in our management agreement, we materially reduce Tremont’s duties and responsibilities or scope of its authority under our management agreement or we cease or take steps to cease to conduct the business of originating or investing in CRE loans.

Termination Fee.

In the event our management agreement is terminated by us without a cause event or by our Manager for a material breach, we will be required to pay our Manager a termination fee equal to:

(a) three times the sum of (i) the average annual base management fee and (ii) the average annual incentive fee, in each case paid or payable to our Manager during the 24 month period immediately preceding the most recently completed calendar quarter prior to the date of termination or, if such termination occurs within 24 months of its initial commencement, the base management fee and the incentive fee will be annualized for such two year period based on such fees earned by our Manager during the period from the effective date of the agreement through the most recently completed calendar quarter prior to the termination date, plus (b) $ 1,600 .

No termination fee will be payable if our management agreement is terminated by us for a cause event or by our Manager without our material breach.

In addition, as described above, in connection with the Merger and the termination of TRMT’s management agreement with our Manager, the initial organizational costs related to TRMT’s formation and the costs of its initial public offering and the concurrent private placement that our Manager had paid pursuant to that management agreement of $ 6,680 will be included in the “Termination Fee” under and as defined in our management agreement with our Manager.

In the event our management agreement is terminated by us without a cause event or by Tremont for a material breach, we will be required to pay Tremont a termination fee equal to:

(a) three times the sum of (i) the average annual base management fee and (ii) the average annual incentive fee, in each case paid or payable to Tremont during the 24 month period immediately preceding the most recently completed calendar quarter prior to the date of termination or, if such termination occurs within 24 months of its initial commencement, the base management fee and the incentive fee will be annualized for such two year period based on such fees earned by Tremont from January 5, 2021, through the most recently completed calendar quarter prior to the termination date, plus (b) $ 1,600 .

No termination fee will be payable if our management agreement is terminated by us for a cause event or by Tremont without our material breach.

In addition, as described above, in connection with the Merger and the termination of TRMT’s management agreement with Tremont, the initial organizational costs related to TRMT’s formation and the costs of its initial public offering and the concurrent private placement that Tremont had paid pursuant to that management agreement of $ 6,680 will be included in the “Termination Fee” under and as defined in our management agreement with Tremont.

Expense Reimbursement.

Our Manager, and not us, is responsible for the costs of its employees who provide services to us, including the cost of our Manager’s personnel who originate our loans, unless any such payment or reimbursement is specifically approved by a majority of our Independent Trustees, is a shared services cost or relates to awards made under any equity compensation plan adopted by us.

Generally, it is the practice of our Manager and RMR LLC to treat individuals who spend 50 % or more of their business time providing services to our Manager as employees of our Manager.

We are required to pay or to reimburse our Manager and its affiliates for all other costs and expenses of our operations, including but not limited to, the cost of rent, utilities, office furniture, equipment, machinery and other overhead type expenses, the costs of legal, accounting, auditing, tax planning and tax return preparation, consulting services, diligence costs related to our investments, investor relations expenses and other professional services, and other costs and expenses not specifically required under our management agreement to be borne by our Manager.

Some of these overhead, professional and other services are provided by RMR LLC pursuant to a shared services agreement between our Manager and RMR LLC.

We reimburse our Manager for shared services costs our Manager pays to RMR LLC and its affiliates, and these reimbursements include an allocation of the cost of applicable personnel employed by RMR LLC and our share of RMR LLC’s costs of providing our internal audit function, with such shared services costs being subject to approval by a majority of our Independent Trustees at least annually.

Our Audit Committee appoints our Director of Internal Audit and our Compensation Committee approves the costs of our internal audit function.

We incurred shared services costs of $ 1,565 for the year ended December 31, 2021, payable to our Manager as reimbursement for shared services costs it paid to RMR LLC.

We include these amounts in reimbursement of shared services expenses in our consolidated statement of operations.

Tremont, and not us, is responsible for the costs of its employees who provide services to us, including the cost of Tremont’s personnel who originate our loans, unless any such payment or reimbursement is specifically approved by a majority of our Independent Trustees, is a shared services cost or relates to awards made under any equity compensation plan adopted by us.

Generally, it is the practice of Tremont and RMR to treat individuals who spend 50 % or more of their business time providing services to Tremont as employees of Tremont.

We are required to pay or to reimburse Tremont and its affiliates for all other costs and expenses of our operations, including but not limited to, the cost of rent, utilities, office furniture, equipment, machinery and other overhead type expenses, the costs of legal, accounting, auditing, tax planning and tax return preparation, consulting services, diligence costs related to our investments, investor relations expenses and other professional services, and other costs and expenses not specifically required under our management agreement to be borne by Tremont.

Some of these overhead, professional and other services are provided by RMR pursuant to a shared services agreement between Tremont and RMR.

We reimburse Tremont for shared services costs Tremont pays to RMR and its affiliates, and these reimbursements include an allocation of the cost of applicable personnel employed by RMR and our share of RMR’s costs of providing our internal audit function, with such shared services costs being subject to approval by a majority of our Independent Trustees at least annually.

We incurred shared services costs of $ 2,232 and $ 1,565 for the years ended December 31, 2022 and 2021, respectively, payable to Tremont as reimbursement for shared services costs it paid to RMR.

We include these amounts in reimbursement of shared services expenses in our consolidated statements of operations.

Business Opportunities.

Under our management agreement, we and our Manager have agreed that for so long as our Manager is managing us, neither our Manager nor any of its affiliates, including RMR LLC, will sponsor or manage any other publicly traded REIT that invests primarily in first mortgage loans secured by middle market and transitional CRE located in the United States, unless such activity is approved by our Independent Trustees.

However, our management agreement does not prohibit our Manager or its affiliates (including RMR LLC) or their respective directors, trustees, officers, employees or agents from competing or providing services to other persons, funds and investment vehicles, including Centre Street Finance LLC, a

Under our management agreement, we and Tremont have agreed that for so long as Tremont is managing us, neither Tremont nor any of its affiliates, including RMR, will sponsor or manage any other publicly traded REIT that invests primarily in first mortgage loans secured by middle market and transitional CRE located in the United States, unless such activity is approved by our Independent Trustees.

However, our management agreement does not prohibit Tremont or its affiliates (including RMR) or their respective directors, trustees, officers, employees or agents from competing or providing services to other persons, funds and investment vehicles, private REITs or other entities that may compete with us, including, among other things, with respect to the origination, acquisition, making, arranging or managing of first mortgage loans secured by middle market or transitional CRE or other investments like those we intend to make.

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(dollars in thousands, except per share data)

private fund focused on originating and investing in mortgage loans, private REITs or other entities that may compete with us, including, among other things, with respect to the origination, acquisition, making, arranging or managing of first mortgage loans secured by middle market or transitional CRE or other investments like those we intend to make.

Because our Manager and RMR LLC will not be prohibited from competing with us in all circumstances, and RMR LLC provides management services to other companies, conflicts of interest exist with regard to the allocation of investment opportunities and for the time and attention of our Manager, RMR LLC and their personnel.

Our management agreement acknowledges these conflicts of interest and, in that agreement, we agree that our Manager, RMR LLC and their subsidiaries may resolve such conflicts in good faith in their fair and reasonable discretion.

In the case of such a conflict, our Manager, RMR LLC and their subsidiaries will endeavor to allocate such investment opportunities in a fair and reasonable manner, taking into account such factors as they deem appropriate.

Our management agreement also provides that if our Manager, its affiliates (including RMR LLC) or any of their respective directors, trustees, officers, employees or agents acquires knowledge of a potential business opportunity, we renounce any potential interest or expectation in, or right to be offered or to participate in, such business opportunity to the maximum extent permitted by Maryland law.

Because Tremont and RMR will not be prohibited from competing with us in all circumstances, and RMR provides management services to other companies, conflicts of interest exist with regard to the allocation of investment opportunities and for the time and attention of Tremont, RMR and their personnel.

Our management agreement acknowledges these conflicts of interest and, in that agreement, we agree that Tremont, RMR and their subsidiaries may resolve such conflicts in good faith in their fair and reasonable discretion.

In the case of such a conflict, Tremont, RMR and their subsidiaries will endeavor to allocate such investment opportunities in a fair and reasonable manner, taking into account such factors as they deem appropriate.

Our management agreement also provides that if Tremont, its affiliates (including RMR) or any of their respective directors, trustees, officers, employees or agents acquires knowledge of a potential business opportunity, we renounce any potential interest or expectation in, or right to be offered or to participate in, such business opportunity to the maximum extent permitted by Maryland law.

Liability and Indemnification .

Our Manager maintains a contractual as opposed to a fiduciary relationship with us.

Pursuant to our management agreement, our Manager does not assume any responsibility other than to render the services called for thereunder in good faith and is not responsible for any action of our Board of Trustees in following or declining to follow its advice or recommendations.

Under the terms of our management agreement, our Manager and its affiliates, including RMR LLC, and their respective directors, trustees, officers, shareholders, owners, members, managers, employees and personnel will not be liable to us or any of our Trustees, shareholders or subsidiaries, or any of the trustees, directors or shareholders of any of our subsidiaries, for any acts or omissions related to the provision of services to us under our management agreement, except by reason of acts or omissions that have been determined in a final, non-appealable adjudication to have constituted bad faith, fraud, intentional misconduct, gross negligence or reckless disregard of the duties of our Manager under our management agreement.

In addition, under the terms of our management agreement, we agree to indemnify, hold harmless and advance expenses to our Manager and its affiliates, including RMR LLC, and their respective directors, trustees, officers, shareholders, owners, members, managers, employees and personnel from and against any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever, including all reasonable attorneys’, accountants’ and experts’ fees and expenses, arising from any acts or omissions related to the provision of services to us or the performance of any matters pursuant to an instruction by our Board of Trustees, except to the extent there is a final, non-appealable adjudication that such acts or omissions constituted bad faith, fraud, intentional misconduct, gross negligence or reckless disregard of the duties of our Manager under our management agreement.

Tremont maintains a contractual as opposed to a fiduciary relationship with us.

Pursuant to our management agreement, Tremont does not assume any responsibility other than to render the services called for thereunder in good faith and is not responsible for any action of our Board of Trustees in following or declining to follow its advice or recommendations.

Under the terms of our management agreement, Tremont and its affiliates, including RMR, and their respective directors, trustees, officers, shareholders, owners, members, managers, employees and personnel will not be liable to us or any of our Trustees, shareholders or subsidiaries, or any of the trustees, directors or shareholders of any of our subsidiaries, for any acts or omissions related to the provision of services to us under our management agreement, except by reason of acts or omissions that have been determined in a final, non-appealable adjudication to have constituted bad faith, fraud, intentional misconduct, gross negligence or reckless disregard of the duties of Tremont under our management agreement.

In addition, under the terms of our management agreement, we agree to indemnify, hold harmless and advance expenses to Tremont and its affiliates, including RMR, and their respective directors, trustees, officers, shareholders, owners, members, managers, employees and personnel from and against any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever, including all reasonable attorneys’, accountants’ and experts’ fees and expenses, arising from any acts or omissions related to the provision of services to us or the performance of any matters pursuant to an instruction by our Board of Trustees, except to the extent there is a final, non-appealable adjudication that such acts or omissions constituted bad faith, fraud, intentional misconduct, gross negligence or reckless disregard of the duties of Tremont under our management agreement.

Such persons will also not be liable for trade errors that may result from ordinary negligence, including errors in the investment decision making or trade process.

In addition to the fees and expense reimbursements payable to our Manager under our management agreement, our Manager and its affiliates may benefit from other fees paid to them in respect of our investments.

For example, if we seek to securitize some of our CRE loans, our Manager or its affiliates may act as collateral manager.

In any of these or other capacities, our Manager and its affiliates may receive fees for their services if approved by a majority of our Independent Trustees.

In addition to the fees and expense reimbursements payable to Tremont under our management agreement, Tremont and its affiliates may benefit from other fees paid to them in respect of our investments.

For example, if we seek to securitize some of our CRE loans, Tremont or its affiliates may act as collateral manager.

In any of these or other capacities, Tremont and its affiliates may receive fees for their services if approved by a majority of our Independent Trustees.

Related Person Transactions

We have relationships and historical and continuing transactions with our Manager, RMR LLC, The RMR Group Inc., or RMR Inc., and others related to them, including other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers.

Our Manager is a subsidiary of RMR LLC, which is a majority owned subsidiary of RMR Inc., and RMR Inc.

is the managing member of RMR LLC.

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

One of our Managing Trustees and Chair of our Board of Trustees, Adam Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., and he is also a director of our Manager, a managing director and the president and chief executive officer of RMR Inc., and an officer and employee of RMR LLC.

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

Lorenzini as our President and G.

Douglas Lanois as our Chief Financial Officer and Treasurer.

Lorenzini and Lanois succeeded Fernando Diaz and Brian E.

Donley, respectively, who each resigned from our Company, effective January 5, 2021.

In addition, on January 5, 2021, Jennifer B.

Clark resigned as our Managing Trustee,

We have relationships and historical and continuing transactions with Tremont, RMR, The RMR Group Inc., or RMR Inc., and others related to them, including other companies to which RMR or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers.

Tremont is a subsidiary of RMR, which is a majority owned subsidiary of RMR Inc., and RMR Inc.

is the managing member of RMR.

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

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

Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., and he is also a director of Tremont, the chair of the board of directors, a managing director and the president and chief executive officer of RMR Inc., and an officer and employee of RMR.

Jordan, our other Managing Trustee, is a director and the president and chief executive officer of Tremont.

Jordan is also an officer of RMR Inc.

and an officer and employee of RMR, and our other officers are officers and employees of Tremont and/or RMR.

Our Independent Trustees also serve as independent directors or independent trustees of other public companies to which RMR or its subsidiaries provide management services.

Portnoy serves as the chair of the board and as a managing director or managing trustee of those companies and other officers of RMR, including Mr.

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

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and our Board of Trustees elected Matthew P.

Jordan as successor Managing Trustee to fill the vacancy created by Ms.

Clark’s resignation.

Also effective January 1, 2021, Mr.

Jordan was appointed as a director and the president and chief executive officer of our Manager.

Jordan is an officer of RMR Inc.

and an officer and employee of RMR LLC, and Messrs.

Lorenzini and Lanois are officers and employees of our Manager and/or RMR LLC.

Our Independent Trustees also serve as independent directors or independent trustees of other public companies to which RMR LLC or its subsidiaries provide management services.

Adam Portnoy serves as the chair of the board and as a managing director or managing trustee of those companies and other officers of RMR LLC, including Mr.

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

Our Manager, Tremont Realty Capital LLC.

Our Manager provides management services to us pursuant to our management agreement.

Tremont provides management services to us pursuant to our management agreement.

See Note 9 for further information regarding our management agreement.

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

As of December 31, 2021, our Manager owned 825,651 of our common shares, or approximately 5.7 % of our outstanding common shares.

RMR Advisors .

Under our previous investment advisory agreement with RMR Advisors, RMR Advisors provided us with a continuous investment program, made day to day investment decisions and generally managed our business affairs in accordance with our investment objectives and policies.

This agreement was terminated on January 5, 2021 in connection with the Business Change.

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

See Note 10 for further information regarding our investment advisory agreement.

RMR Advisors was a wholly owned subsidiary of RMR LLC until it merged out of existence pursuant to its merger with our Manager.

and RMR LLC .

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

Tremont also provided management services to TRMT until the Merger.

On May 11, 2022, Tremont purchased 882,407 of our common shares from Diane Portnoy, the mother of Adam D.

Tremont paid an aggregate purchase price of $ 9,469 for these shares.

As of December 31, 2022, Tremont owned 1,708,058 of our common shares, or approximately 11.6 % of our outstanding common shares, and Mr.

Portnoy beneficially owned (including through Tremont and ABP Trust) 13.4 % of our outstanding common shares.

RMR provides certain shared services to Tremont which are applicable to us, and we reimburse Tremont or pay RMR for the amounts Tremont or RMR pays for those services.

See Note 9 for further information regarding this shared services arrangement.

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

As described further in Note 4, we and TRMT merged on September 30, 2021.

Prior to the Merger, Adam D.

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

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

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

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

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

Effective as of the Effective Time, John L.

Effective upon the Merger, John L.

Harrington resigned from our Board of Trustees;

he had served as one of our Independent Trustees and as an independent trustee of TRMT.

Share Awards to our Officers and Employees of our Manager and RMR LLC.

During the year ended December 31, 2021, we awarded to our officers and employees of our Manager and/or RMR LLC awards of 83,000 of our common shares, which were valued at $ 10.41 per share, based upon the per share closing price of our common shares on Nasdaq on the day those shares were issued.

One fifth of these awards vested on the award date and one fifth vests on each of the next four anniversaries of the award date.

These awards to employees of our Manager and RMR LLC are in addition to the share awards to our Managing Trustees, as Trustee compensation, and the fees we paid to our Manager.

We purchased common shares awarded to certain of our officers and employees of our Manager and/or RMR LLC in satisfaction of tax withholding obligations in connection with the vesting of awards of our common shares.

Share Awards to our Officers and Employees of Tremont and RMR .

As described further in Note 8, we award shares to our officers and other employees of Tremont and/or RMR annually.

Generally, one fifth of these awards vests on the award date and one fifth vests on each of the next four anniversaries of the award dates.

These awards to employees of Tremont and RMR are in addition to the share awards to our Managing Trustees, as Trustee compensation, and the fees we paid to Tremont.

We purchased common shares awarded to certain of our officers and employees of Tremont and/or RMR in satisfaction of tax withholding obligations in connection with the vesting of awards of our common shares.

See Note 8 for further information regarding these purchases.

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

Acceleration of Unvested Shares of a Former Officer.

Douglas Lanois resigned as our Chief Financial Officer and Treasurer, effective September 30, 2022.

Our Compensation Committee approved the acceleration of all 3,648 of the unvested shares owned by Mr.

Lanois of us as of his separation date, January 1, 2023.

We recognized share based compensation of $ 24 related to the acceleration of these shares during the year ended December 31, 2022.

We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended.

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

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

We are also subject to certain state and local taxes, certain of which amounts are or will be reported as income taxes in our consolidated statement of operations.

For the year ended December 31, 2021, we incurred income tax expense of $ 282 on realized gains on the disposition of our securities portfolio as a result of the Business Change.

We are subject to certain state and local taxes, certain of which amounts are or will be reported as income taxes in our consolidated statements of operations.

Weighted Average Common Shares

We calculate net income per common share - basic using the two class method.

We calculate net income per common share - diluted using the more dilutive of the two class or treasury stock method.

Unvested share awards and the related impact on earnings are considered when calculating net income per common share - basic and net income per common share - diluted.

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(dollars in thousands, except per share data)

Weighted Average Common Shares

We calculate net income per common share - basic by dividing net income by the weighted average number of common shares outstanding during the period.

We calculate net income per common share - diluted using the more dilutive of the two class or treasury stock method.

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

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

For the Year Ended December 31, 2021

Weighted average common shares for basic net income per share 11,304

Effect of dilutive securities:

unvested share awards —

Weighted average common shares for diluted net income per share 11,304

The calculation of basic and diluted earnings per common share is as follows (amounts in thousands, except per share data):

Year Ended December 31,

Net income $ 27,640 $ 24,650

Income attributable to unvested participating securities ( 193 ) —

Net income used in calculating net income per common share $ 27,447 $ 24,650

Denominators:

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

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

Commitments and Contingencies

Unfunded Loan Commitments

As of December 31, 2021, we had unfunded loan commitments of $ 57,772 related to our loans held for investment that are not reflected in our consolidated balance sheet.

As of December 31, 2022, we had unfunded loan commitments of $ 49,007 related to our loans held for investment that are not reflected in our consolidated balance sheets.

These unfunded loan commitments had a weighted average initial maturity of 1.6 years as of December 31, 2022.

See Note 5 for further information related to our loans held for investment.

Secured Borrowings

As of December 31, 2021, we had an aggregate of $ 340,869 in principal amount outstanding under our Secured Financing Facilities with a weighted average life to maturity of 1.4 years.

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

Legal Proceedings

During the year ended December 31, 2021, eight lawsuits had been filed by purported shareholders of ours (then known as RMR Mortgage Trust, or RMRM) and TRMT in connection with the proposed Merger between us and TRMT.

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

Tremont Mortgage Trust, et al.

1:21-cv-05435 (S.D.N.Y., filed June 21, 2021), Lee v.

Tremont Mortgage Trust, et al ., Case No.

1:21-cv-05618 (S.D.N.Y., filed June 29, 2021), Merewether v.

Tremont Mortgage Trust, et al ., Case No.

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

RMR Mortgage Trust, et al ., Case No.

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

Tremont Mortgage Trust, et al ., Case No.

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

Tremont Mortgage Trust, et al.

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

Tremont Mortgage Trust, et al.

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

and Wilson v.

Tremont Mortgage Trust, et al.

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

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

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

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

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

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

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

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

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

The Parthenakis complaint also sought an order requiring the Parthenakis

SEVEN HILLS REALTY TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

defendants to account to plaintiffs for all damages suffered as a result of their wrongdoing.

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

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

On October 14, 2021, the plaintiff in the Bishins action filed a notice of voluntary dismissal.

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

We incurred $ 240 in connection with the final settlement of the complaints, which is included in other transaction related costs in our consolidated statement of operations.

SEVEN HILLS REALTY TRUST

SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

6 unchanged sentences

First Mortgage Loans (4)

Office, Downers Grove, IL L + 4.25 %

11/25/2023 11/25/2024 I/O — $ 29,500 $ 29,384

Lab, Durham, NC L + 4.35 %

12/17/2023 12/17/2025 I/O — 13,500 13,398

Retail, Los Angeles, CA L + 4.25 %

1 Multifamily, Olmsted Falls, OH L + 4.00 %

01/28/2024 01/28/2026 I/O — $ 46,083 $ 46,164

Office / Industrial, Aurora, IL L + 4.35 %

2 Office, Dallas, TX L + 3.25 %

08/25/2024 08/25/2026 I/O — 43,450 39,314

Office, Miami, FL L + 4.50 %

3 Industrial, Passaic, NJ S + 3.85 %

09/08/2025 09/08/2027 I/O — 38,440 38,010

Multifamily, Olmstead Falls, OH L + 4.00 %

4 Retail, Brandywine, MD S + 3.85 %

03/29/2025 03/29/2027 I/O — 42,200 41,906

Office / Industrial, Colorado Springs, CO L + 4.50 %

5 Retail, West Bloomfield, MI L + 3.85 %

12/16/2023 12/16/2024 I/O — 37,453 37,363

Industrial, Londonderry, NH L + 4.00 %

6 Multifamily, Starkville, MS S + 4.00 %

03/22/2025 03/22/2027 I/O — 36,787 36,506

Office, Plano, TX L + 4.75 %

7 Industrial, Summerville, SC L + 3.50 %

12/20/2024 12/20/2026 I/O — 35,000 34,769

Multifamily, Portland, OR L + 3.57 %

8 Multifamily, Farmington Hills, MI S + 3.15 %

05/24/2025 05/24/2027 I/O — 28,691 28,746

Multifamily, Seattle, WA L + 3.55 %

9 Office, Downers Grove, IL L + 4.25 %

11/25/2023 11/25/2024 I/O — 29,500 29,528

Retail, Sandy Springs, GA L + 3.75 %

10 Multifamily, Las Vegas, NV S + 3.30 %

06/10/2025 06/10/2027 I/O — 24,223 24,035

11 Office, St.

Louis, MO L + 3.25 %

03/20/2023 06/20/2023 I/O — 28,866 28,998

Retail, Coppell, TX L + 3.50 %

12 Office, Plano, TX L + 4.75 %

07/01/2024 07/01/2026 I/O — 26,152 26,048

Office, Yardley, PA L + 3.75 %

13 Office, Carlsbad, CA L + 3.25 %

10/27/2024 10/27/2026 I/O — 23,825 23,672

Industrial, Allentown, PA L + 3.50 %

14 Industrial, Fontana, CA S + 3.75 %

11/18/2024 11/18/2026 I/O — 22,000 21,758

Office, Dublin, OH L + 3.75 %

15 Office, Downers Grove, IL L + 4.25 %

12/09/2024 12/09/2026 I/O — 23,530 23,493

Office, Westminster, CO L + 3.75 %

16 Office, Dublin, OH S + 3.75 %

02/18/2023 02/18/2023 I/O — 22,507 22,728

17 Office, Bellevue, WA L + 3.85 %

11/05/2024 11/05/2026 I/O — 20,000 19,868

18 Multifamily, Portland, OR L + 3.57 %

07/09/2024 07/09/2026 I/O — 19,687 19,611

Office, Dallas, TX L + 3.25 %

19 Multifamily, Ames, IA L + 3.80 %

11/15/2024 11/15/2026 I/O — 17,820 17,704

Office, Carlsbad, CA L + 3.25 %

20 Office / Industrial, Aurora, IL L + 4.35 %

12/18/2023 12/18/2024 I/O — 16,429 16,485

Multifamily, Bellevue, WA L + 3.85 %

21 Office, Yardley, PA L + 4.58 %

12/19/2023 12/19/2024 I/O — 15,583 15,643

Multifamily, Ames, IA L + 3.80 %

22 Retail, Sandy Springs, GA L + 3.75 %

09/23/2024 09/23/2026 I/O — 15,017 14,918

Office, Downers Grove, IL L + 4.25 %

23 Retail, Delray Beach, FL S + 4.25 %

03/18/2024 03/18/2026 I/O — 15,149 15,061

Retail, West Bloomfield, MI L + 3.85 %

24 Office, Westminster, CO L + 3.75 %

05/25/2024 05/25/2026 I/O — 14,634 13,428

Industrial, Summerville, SC L + 3.50 %

25 Multifamily, Portland, OR L + 3.57 %

07/30/2024 07/30/2026 I/O — 13,400 12,183

$ 590,590 $ 570,780

26 Multifamily, Seattle, WA L + 3.55 %

08/16/2024 08/16/2026 I/O — 12,354 12,282

27 Industrial, Allentown, PA S + 3.50 %

01/24/2024 01/24/2025 I/O — 9,775 9,708

Total $ 678,555 $ 669,929

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

1 unchanged sentence

(3) Represents only third party prior liens.

(4) As of December 31, 2021, none of our borrowers was delinquent in payment.

(4) As of December 31, 2022, none of our borrowers were delinquent in payment.

SEVEN HILLS REALTY TRUST

SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE (CONTINUED)

DECEMBER 31, 2022

(dollars in thousands)

Reconciliation of Mortgage Loans on Real Estate:

Carrying Value

Balance as of January 1, 2021 $ 91,879

10 unchanged sentences

Balance as of December 31, 2021 570,780

Additions during the year:

Originations 203,244

Additional funding 17,310

Purchase discount accretion 10,689

Net amortization of deferred fees 3,780

Deductions during the year:

Repayments ( 133,568 )

Deferred fees ( 2,306 )

Balance as of December 31, 2022 $ 669,929

Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

6 unchanged sentences

Lorenzini President February 13, 2023

Douglas Lanois Chief Financial Officer and Treasurer February 17, 2022

Douglas Lanois (principal financial and accounting officer)

/s/ Tiffany R.

Sy Chief Financial Officer and Treasurer February 13, 2023

Sy (principal financial and accounting officer)

/s/ Barbara D.

Gilmore Independent Trustee February 13, 2023

/s/ Phyllis M.

Hollis Independent Trustee February 13, 2023

/s/ Matthew P.

8 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 9A. Controls and Procedures