What changed in this filing

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Item 1. Financial Statements

2023-07-31 compared with 2023-04-25 · 174 added, 78 removed, 335 unchanged (43% of the section changed)

3 unchanged sentences

(dollars in thousands, except per share data)

March 31, December 31,

June 30, December 31,

Cash and cash equivalents $ 81,806 $ 71,057

3 unchanged sentences

Loans held for investment, net 625,324 669,929

Real estate owned 15,592 —

Accrued interest receivable 3,417 3,354

19 unchanged sentences

(amounts in thousands, except per share data)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

INCOME FROM INVESTMENTS:

2 unchanged sentences

interest and related expenses ( 7,927 ) ( 3,007 ) ( 15,621 ) ( 4,744 )

Income from investments, net 9,347 13,777

Income from loan investments, net 8,941 7,498 18,288 21,275

Revenue from real estate owned 149 — 149 —

Total revenue 9,090 7,498 18,437 21,275

OTHER EXPENSES:

Base management fees 1,074 1,063 2,146 2,126

Incentive fees 192 — 192 —

General and administrative expenses 1,281 1,304 2,077 2,176

Reimbursement of shared services expenses 628 514 1,271 1,148

Reversal of credit losses ( 987 ) —

Provision for credit losses 1,026 — 39 —

Expenses from real estate owned 218 — 218 —

Other transaction related costs — — — 37

3 unchanged sentences

Net income $ 4,644 $ 4,578 $ 12,447 $ 15,704

Weighted average common shares outstanding - basic 14,582 14,505

Weighted average common shares outstanding - diluted 14,582 14,519

Weighted average common shares outstanding - basic and diluted 14,605 14,521 14,594 14,514

Net income per common share - basic and diluted $ 0.32 $ 0.31 $ 0.85 $ 1.08

15 unchanged sentences

Balance at March 31, 2023 14,707 15 238,612 53,498 ( 24,378 ) 267,747

Share grants 42 — 579 — — 579

Share repurchases ( 3 ) — ( 24 ) — — ( 24 )

Share forfeitures ( 1 ) — — — — —

Net income — — — 4,644 — 4,644

Distributions — — — — ( 5,148 ) ( 5,148 )

Balance at June 30, 2023 14,745 $ 15 $ 239,167 $ 58,142 $ ( 29,526 ) $ 267,798

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

3 unchanged sentences

Balance at March 31, 2022 14,597 15 237,706 35,776 ( 8,244 ) 265,253

Share grants 42 — 548 — — 548

Share forfeitures ( 1 ) — — — — —

Net income — — — 4,578 — 4,578

Distributions — — — — ( 3,649 ) ( 3,649 )

Balance at June 30, 2022 14,638 $ 15 $ 238,254 $ 40,354 $ ( 11,893 ) $ 266,730

See accompanying notes.

2 unchanged sentences

(dollars in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

2 unchanged sentences

Accretion of purchase discount ( 2,232 ) ( 7,571 )

Reversal of credit losses ( 987 ) —

Provision for credit losses 39 —

Amortization of loan origination and exit fees ( 1,767 ) ( 2,112 )

11 unchanged sentences

Repayment of loans held for investment 69,469 59,843

Cash assumed from transfer of loans held for investment to real estate owned 1,742 —

Real estate owned improvements ( 1,228 ) —

Net cash provided by (used in) investing activities 29,177 ( 89,512 )

6 unchanged sentences

Net cash (used in) provided by financing activities ( 29,806 ) 105,306

Increase (decrease) in cash, cash equivalents and restricted cash 13,241 ( 17,333 )

Increase in cash, cash equivalents and restricted cash 10,977 22,101

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

3 unchanged sentences

Income taxes paid $ 125 $ 92

NON-CASH INVESTING ACTIVITIES:

Transfer of loans held for investment to real estate owned $ 14,060 $ —

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 condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows:

As of March 31,

As of June 30,

Cash and cash equivalents $ 81,806 $ 48,230

16 unchanged sentences

Actual results could differ from those estimates.

Significant estimates in the accompanying condensed consolidated financial statements include the allowance for credit losses and the fair value of financial instruments.

Significant estimates in the accompanying condensed consolidated financial statements include the allowance for credit losses, the valuation of real estate owned and the fair value of financial instruments.

Certain prior year amounts have been reclassified to conform to current year presentation.

6 unchanged sentences

The allowance for credit losses required under ASU No.

2016-13 is a valuation account that is deducted from the related loans’ amortized cost basis on our condensed consolidated balance sheets.

2016-13 is a valuation account that is deducted from the related loans’ amortized cost basis in our condensed consolidated balance sheets.

Our loans typically include commitments to fund incremental proceeds to borrowers over the life of the loan;

these future funding commitments are also subject to the CECL model.

The allowance for credit losses related to unfunded loan commitments is included in accounts payable, accrued liabilities and other liabilities on our condensed consolidated balance sheets.

The allowance for credit losses related to unfunded loan commitments is included in accounts payable, accrued liabilities and other liabilities in our condensed consolidated balance sheets.

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 commercial real estate, or CRE, loans since 1998.

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

We estimate the allowance for credit losses for our loan portfolio, including unfunded loan commitments, at the individual loan level.

9 unchanged sentences

Upon adoption of ASU No.

2016-13 using the modified retrospective transition method and, based on our loan portfolio, the then current economic environment and expectations for future conditions, we recorded a cumulative-effect adjustment reducing our cumulative net income on our condensed consolidated balance sheets by $ 6,595 , establishing an allowance for credit losses of $ 4,893 with respect to our then outstanding loans held for investment and increasing accounts payable, accrued liabilities and other liabilities by $ 1,702 with respect to our then unfunded loan commitments.

2016-13 using the modified retrospective transition method and, based on our loan portfolio, the then current economic environment and expectations for future conditions, we recorded a cumulative-effect adjustment reducing our cumulative net income in our condensed consolidated balance sheets by $ 6,595 , establishing an allowance for credit losses of $ 4,893 with respect to our then outstanding loans held for investment and increasing accounts payable, accrued liabilities and other liabilities by $ 1,702 with respect to our then unfunded loan commitments.

No reserve for loan losses or allowance for credit losses was recognized within our consolidated financial statements prior to our adoption of ASU No.

3 unchanged sentences

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

Instead, an entity must determine whether a modification results in a new loan or continuation of an existing loan under Accounting Standards Codification, or ASC, 310, Receivables (Topic 310) , or ASC 310 .

Instead, an entity must determine whether a modification results in a new loan or continuation of an existing loan under Accounting Standards Codification, or ASC, 310, Receivables (Topic 310).

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

8 unchanged sentences

See Note 5 for further information regarding our secured financing agreements.

The table below provides overall statistics for our loan portfolio as of March 31, 2023 and December 31, 2022:

As of March 31, 2023 As of December 31, 2022

The table below provides overall statistics for our loan portfolio as of June 30, 2023 and December 31, 2022:

As of June 30, 2023 As of December 31, 2022

Number of loans 24 27

16 unchanged sentences

(dollars in thousands, except per share data)

The tables below represent our loan activities during the three months ended March 31, 2023 and 2022:

The tables below represent our loan activities during the three months ended June 30, 2023 and 2022:

Principal Balance Deferred Fees and Other Items Amortized Cost

Balance at December 31, 2022 $ 678,555 $ ( 8,626 ) $ 669,929

Balance at March 31, 2023 $ 628,696 $ ( 6,626 ) $ 622,070

Additional funding 2,140 — 2,140

Originations 37,500 ( 484 ) 37,016

Repayments ( 17,551 ) — ( 17,551 )

Transfer to real estate owned ( 15,865 ) ( 95 ) ( 15,960 )

Net amortization of deferred fees — 763 763

Purchase discount accretion — 1,047 1,047

Balance at June 30, 2023 $ 634,920 $ ( 5,395 ) $ 629,525

Principal Balance Deferred Fees and Other Items Amortized Cost

Balance at March 31, 2022 $ 636,831 $ ( 14,121 ) $ 622,710

Additional funding 4,926 — 4,926

Originations 51,620 ( 321 ) 51,299

Repayments ( 11,092 ) ( 108 ) ( 11,200 )

Net amortization of deferred fees — 814 814

Purchase discount accretion — 1,636 1,636

Balance at June 30, 2022 $ 682,285 $ ( 12,100 ) $ 670,185

The tables below represent our loan activities during the six months ended June 30, 2023 and 2022:

Principal Balance Deferred Fees and Other Items Amortized Cost

3 unchanged sentences

Repayments ( 69,294 ) ( 175 ) ( 69,469 )

Transfer to real estate owned ( 15,865 ) ( 95 ) ( 15,960 )

Net amortization of deferred fees — 1,767 1,767

Purchase discount accretion — 2,232 2,232

Balance at March 31, 2022 $ 636,831 $ ( 14,121 ) $ 622,710

The tables below detail the property type and geographic location of the properties securing the loans in our portfolio as of March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

Balance at June 30, 2023 $ 634,920 $ ( 5,395 ) $ 629,525

Principal Balance Deferred Fees and Other Items Amortized Cost

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

Additional funding 8,230 — 8,230

Originations 142,804 ( 1,469 ) 141,335

Repayments ( 59,339 ) ( 504 ) ( 59,843 )

Net amortization of deferred fees — 2,112 2,112

Purchase discount accretion — 7,571 7,571

Balance at June 30, 2022 $ 682,285 $ ( 12,100 ) $ 670,185

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED 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 June 30, 2023 and December 31, 2022:

June 30, 2023 December 31, 2022

Property Type Number of Loans

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The amortized cost of this loan investment was reflected in office and industrial based on the fair value of the building at the time of origination relative to the total fair value of the property.

During the three months ended March 31, 2023, our loan investment in Aurora, IL was repaid.

March 31, 2023 December 31, 2022

During the six months ended June 30, 2023, our loan investment in Aurora, IL was repaid.

June 30, 2023 December 31, 2022

Geographic Location Number of Loans

2 unchanged sentences

Midwest 8 $ 230,793 37 % 9 $ 251,208 37 %

West 8 148,085 24 % 8 146,837 22 %

South 6 171,681 27 % 6 166,616 25 %

West 7 137,610 22 % 8 146,837 22 %

East 3 89,441 14 % 4 105,268 16 %

24 $ 629,525 100 % 27 $ 669,929 100 %

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Credit Quality Information

2 unchanged sentences

See our 2022 Annual Report for more information regarding our loan risk ratings.

As of March 31, 2023 and December 31, 2022, the amortized cost of our loan portfolio within each internal risk rating by year of origination was as follows:

March 31, 2023

As of June 30, 2023 and December 31, 2022, the amortized cost of our loan portfolio within each internal risk rating by year of origination was as follows:

June 30, 2023

Risk Rating Number of Loans Percentage of Portfolio 2023 2022 2021 Prior Total

5 unchanged sentences

24 100 % $ 37,157 $ 207,924 $ 298,817 $ 85,627 $ 629,525

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

December 31, 2022

6 unchanged sentences

27 100 % $ 206,022 $ 340,818 $ 78,448 $ 44,641 $ 669,929

The weighted average risk rating of our loans by carrying value was 2.9 as of March 31, 2023 and December 31, 2022, respectively.

Certain of our borrowers' business operations or tenants, particularly 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 and which have continued to be impacted.

The weighted average risk rating of our loans by amortized cost was 3.0 and 2.9 as of June 30, 2023 and December 31, 2022, respectively.

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 have taken or 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.

The table below represents the changes to the allowance for credit losses during the three months ended March 31, 2023:

The borrower of our loan secured by an office property located in Yardley, PA did not pay its debt service obligations due in May 2023, resulting in an event of default.

In June 2023, we assumed legal title to the property through a deed in lieu of foreclosure.

See Note 4 for further information.

The tables below represent the changes to the allowance for credit losses during the three and six months ended June 30, 2023:

Loans Held for Investment, net Unfunded Loan Commitments Total

Balance at March 31, 2023 $ 4,135 $ 1,473 $ 5,608

Provision for credit losses 774 252 1,026

Write offs ( 708 ) — ( 708 )

Balance at June 30, 2023 $ 4,201 $ 1,725 $ 5,926

Loans Held for Investment, net Unfunded Loan Commitments Total

Balance at December 31, 2022 $ — $ — $ —

1 unchanged sentence

2016-13 4,893 1,702 6,595

Reversal of credit losses ( 758 ) ( 229 ) ( 987 )

Balance At March 31, 2023 $ 4,135 $ 1,473 $ 5,608

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.

Loan modifications are evaluated to determine whether a modification results in a new loan or a continuation of an existing loan under ASC 310.

There were no such modifications to our loan portfolio for borrowers experiencing financial difficulties during the three months ended March 31, 2023.

Provision for credit losses 16 23 39

Write offs ( 708 ) — ( 708 )

Balance at June 30, 2023 $ 4,201 $ 1,725 $ 5,926

We estimate credit losses over a reasonable and supportable forecast period of 12 months, followed by a straight-line reversion period of 12 months back to average historical losses.

The increase in the allowance for credit losses during the three months ended June 30, 2023 is primarily attributable to unfavorable changes in the macroeconomic outlook, most notably in CRE pricing forecasts, partially offset by a write off related to the loan transferred to real estate owned in June 2023.

The decrease in the allowance for credit losses during the six months ended June 30, 2023, compared to the January 1, 2023 cumulative-effect adjustment upon adoption of ASU No.

2016-13, is primarily attributable to a write off related to the loan transferred to real estate owned in June 2023 and loan repayments, partially offset by the unfavorable changes in CRE pricing forecasts mentioned above.

SEVEN HILLS REALTY TRUST

1 unchanged sentence

(dollars in thousands, except per share data)

We estimate credit losses over a reasonable and supportable forecast period of 12 months, followed by a straight-line reversion period of 12 months back to average historical losses.

The decrease in the allowance for credit losses during the three months ended March 31, 2023, compared to the January 1, 2023 cumulative-effect adjustment upon adoption of ASU No.

2016-13, is primarily attributable to favorable changes in the macroeconomic outlook, most notably in near-term CRE pricing forecasts, and loan repayments.

Loan modifications are evaluated to determine whether a modification results in a new loan or a continuation of an existing loan under ASC 310.

In June 2023, we amended the agreement governing our loan secured by an office property in St.

As part of this amendment, the borrower repaid $ 5,000 of the outstanding principal amount and the maturity date was extended by six months to December 19, 2023.

As of June 30, 2023, this loan had an amortized cost of $ 23,956 and a risk rating of 3 .

We accounted for the amendment as a modification to the existing loan because the changes to the terms were determined to be minor.

There were no other modifications to our loan portfolio for borrowers experiencing financial difficulties during the six months ended June 30, 2023.

We have elected to exclude accrued interest receivable from amortized cost and not to measure an allowance for credit losses on accrued interest receivable.

1 unchanged sentence

Such amounts are reversed against interest income and no further interest will be recorded until it is collected.

We did not have any past due loans or nonaccrual loans as of March 31, 2023 or December 31, 2022.

As of March 31, 2023 and April 20, 2023, all of our borrowers had paid all of their debt service obligations owed and due to us.

During the three and six months ended June 30, 2023, we reversed $ 88 of accrued interest related to the loan transferred to real estate owned in June 2023.

We did not have any outstanding past due loans or nonaccrual loans as of June 30, 2023 or December 31, 2022.

As of June 30, 2023 and July 27, 2023, all of our borrowers with outstanding loans had paid their debt service obligations owed and due to us.

See our 2022 Annual Report for more information regarding our nonaccrual policy.

Real Estate Owned

Real estate owned is property acquired in full or partial settlement of loan obligations generally through foreclosure or by deed in lieu of foreclosure.

We generally expect to sell real estate owned within one year of acquisition and expect to meet the held for sale criteria required by ASC 360, Impairments and Disposals of Long-Lived Assets, within a short period of time following the acquisition.

As such, we classify real estate owned as held for sale.

Real estate owned is recognized at the lesser of the fair value of the property less estimated costs to sell and the amortized cost of the loan secured by the property at the time of acquisition.

The fair value of the property is determined using Level III inputs and standard industry valuation methods, including discounted cash flow analyses and sales comparisons.

If the amortized cost of the loan exceeds the fair value of the property less estimated costs to sell, the difference is recorded through the allowance for credit losses as a write off.

Conversely, if the fair value of the property less estimated costs to sell exceeds the amortized cost of the loan, the difference is recorded through the allowance for credit losses as a recovery.

Any related shortfall or excess of previously established allowances for credit losses is recognized in the condensed consolidated statements of operations as a provision for or reversal of credit losses, respectively.

After acquisition, costs incurred related to improvements to the property are capitalized to the extent they do not cause the carrying value of the property to exceed net realizable value and costs related to the operation and disposition of the property are expensed as incurred.

Any subsequent declines in the fair value of the property less estimated costs to sell are recognized as impairment losses in the condensed consolidated statements of operations.

In June 2023, we assumed legal title to an office property located in Yardley, PA through a deed in lieu of foreclosure.

The amortized cost basis of $ 15,960 of the related loan exceeded the fair value of the property, including cash assumed of $ 1,742 and net liabilities assumed of $ 550 , less estimated costs to sell of $ 740 , by $ 708 .

The previously established allowance for credit losses for the related loan was $ 1,335 , resulting in a decrease to our provision for credit losses of $ 627 recorded in our condensed consolidated statements of operations for the three and six months ended June 30, 2023.

Upon assumption of legal title of the property, we also assumed $ 2,258 of outstanding commitments for lease related costs pursuant to previously executed tenant leases.

Other assets related to real estate owned of $ 202 , including $ 67 of straight line rent receivables, are included in prepaid expenses and other assets in our condensed consolidated balance sheets at June 30, 2023.

Accrued expenses and other liabilities related to real estate owned of $ 689 are included in accounts payable, accrued liabilities and other liabilities in our condensed consolidated balance sheets at June 30, 2023.

There were no other assets or accrued expenses and other liabilities related to real estate owned at December 31, 2022.

Revenue from real estate owned represents rental income from operating leases with tenants and is recognized on a straight line basis over the lease term.

Expenses from real estate owned represents costs related to the acquisition of the property and costs to operate and dispose of the property.

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Secured Financing Agreements

Our secured financing agreements at March 31, 2023 consisted of agreements that govern:

Our secured financing agreements at June 30, 2023 consisted of agreements that govern:

our master repurchase facility with Wells Fargo, National Association, or Wells Fargo, or the Wells Fargo Master Repurchase Facility;

4 unchanged sentences

See our 2022 Annual Report for more information regarding our Secured Financing Facilities.

As of March 31, 2023, we were in compliance with the covenants and other terms of the agreements that govern our Secured Financing Facilities.

As of March 31, 2023 and April 20, 2023, we had a $ 435,490 and $ 426,340 , respectively, aggregate outstanding principal balance under our Secured Financing Facilities.

The table below summarizes our Secured Financing Facilities as of March 31, 2023 and December 31, 2022:

In July 2023, we amended and restated our master repurchase agreement with UBS, or the UBS Master Repurchase Agreement.

The amended and restated UBS Master Repurchase Agreement made certain changes to the agreement and related fee letter, including extending the stated maturity date to February 18, 2025.

As of June 30, 2023, we were in compliance with the covenants and other terms of the agreements that govern our Secured Financing Facilities.

As of June 30, 2023 and July 27, 2023, we had a $ 454,465 and $ 441,786 , respectively, aggregate outstanding principal balance under our Secured Financing Facilities.

The table below summarizes our Secured Financing Facilities as of June 30, 2023 and December 31, 2022:

Debt Obligation

3 unchanged sentences

Principal Balance

March 31, 2023:

June 30, 2023:

Citibank Master Repurchase Facility $ 215,000 $ 150,101 $ 149,878 7.20 % 0.8 $ 201,543

11 unchanged sentences

(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 March 31, 2023, 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.

As of June 30, 2023, 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.

2 unchanged sentences

(dollars in thousands, except per share data)

As of March 31, 2023, our outstanding borrowings under our Secured Financing Facilities had the following remaining maturities:

As of June 30, 2023, our outstanding borrowings under our Secured Financing Facilities had the following remaining maturities:

Year Principal Payments on

2 unchanged sentences

2026 and thereafter —

Fair Value of Financial Instruments

Fair Value Measurements

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.

2 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Carrying Value Fair Value Carrying Value Fair Value

3 unchanged sentences

Secured Financing Facilities $ 452,690 $ 452,299 $ 471,521 $ 471,362

There were no transfers of financial assets or liabilities within the fair value hierarchy during the three months ended March 31, 2023.

There were no transfers of financial assets or liabilities within the fair value hierarchy during the six months ended June 30, 2023.

Shareholders' Equity

Common Share Awards

During the three months ended March 31, 2023, we purchased 1,503 of our common shares from a former officer of ours and a former officer and employee of The RMR Group LLC, 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 The Nasdaq Stock Market LLC, or Nasdaq, on the applicable purchase date.

On May 23, 2023, in accordance with our Trustee compensation arrangements, we awarded to each of our seven Trustees 6,000 of our common shares, valued at the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq on that day.

The aggregate value of common shares awarded was $ 387 .

Common Share Purchases

During the six months ended June 30, 2023, we purchased 4,079 of our common shares from a former officer of ours and former officers and employees of The RMR Group LLC, 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 was $ 37 .

Distributions

For the three months ended March 31, 2023, we declared and paid regular quarterly distributions to common shareholders, using cash on hand, as follows:

Record Date Payment Date Distribution per Share Total Distribution

January 23, 2023 February 16, 2023 $ 0.35 $ 5,147

On April 13, 2023, we declared a quarterly distribution of $ 0.35 per common share, or $ 5,147 , to shareholders of record on April 24, 2023.

We expect to pay this distribution on or about May 18, 2023, using cash on hand.

SEVEN HILLS REALTY TRUST

1 unchanged sentence

(dollars in thousands, except per share data)

Distributions

For the six months ended June 30, 2023, we declared and paid regular quarterly distributions to common shareholders, using cash on hand, as follows:

Record Date Payment Date Distribution per Share Total Distribution

January 23, 2023 February 16, 2023 $ 0.35 $ 5,147

April 24, 2023 May 18, 2023 0.35 5,148

$ 0.70 $ 10,295

On July 13, 2023, we declared a quarterly distribution of $ 0.35 per common share, or $ 5,161 , to shareholders of record on July 24, 2023.

We expect to pay this distribution on or about August 17, 2023, using cash on hand.

Management Agreement with Tremont

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We pay Tremont an annual base management fee payable quarterly ( 0.375 % per quarter) in arrears equal to 1.5 % of our “Equity,” as defined under our management agreement.

We recognized base management fees of $ 1,072 and $ 1,063 for the three months ended March 31, 2023 and 2022, respectively.

We include these amounts in base management fees in our condensed consolidated statements of operations.

Pursuant to the terms of our management agreement, we also pay Tremont management incentive fees, subject to Tremont earning those fees in accordance with the management agreement.

We did no t incur any management incentive fees for either of the three months ended March 31, 2023 or 2022.

We include these amounts in incentive fees in our condensed consolidated statements of operations.

Tremont, and not us, is responsible for the costs of its employees who provide services to us, 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.

3 unchanged sentences

These shared services costs are subject to approval by a majority of our Independent Trustees at least annually.

We incurred shared services costs of $ 643 and $ 634 payable to Tremont for the three months ended March 31, 2023 and 2022, respectively.

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

1 unchanged sentence

Related Person Transactions

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

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

6 unchanged sentences

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

Some of our Independent Trustees also serve as independent directors or independent trustees of other public companies to which RMR provides management services.

Portnoy serves as the chair of the board and as a managing director or managing trustee of those companies.

Some of our Independent Trustees also serve as independent trustees of other public companies to which RMR provides management services.

Portnoy serves as the chair of the board and as a managing trustee of those companies.

Other officers of RMR and Tremont serve as managing trustees or officers of certain of these companies.

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Our Manager, Tremont Realty Capital LLC.

3 unchanged sentences

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

As of March 31, 2023, Tremont owned 1,708,058 of our common shares, and Mr.

As of June 30, 2023, Tremont owned 1,708,058 of our common shares, and Mr.

Portnoy beneficially owned (including through Tremont and ABP Trust) 13.5 % of our outstanding common shares.

3 unchanged sentences

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

Property Management Agreement with RMR.

We entered into a new property management agreement with RMR in July 2023 with respect to the real estate owned in Yardley, PA.

Pursuant to this agreement, RMR will provide property management services and we will pay management fees equal to 3.0 % of gross collected rents.

Also under the terms of this property management agreement, we will pay RMR additional fees for construction supervision services equal to 5.0 % of the cost of such construction.

Either we or RMR may terminate this agreement upon 30 days' prior notice.

No termination fee would be payable as a result of terminating the agreement.

We did not incur property management or construction supervision fees during the three or six months ended June 30, 2023 or 2022.

For further information about these and other such relationships and certain other related person transactions, refer to our definitive Proxy Statement for our 2023 Annual Meeting of Shareholders and to our 2022 Annual Report.

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

We have elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the IRC.

7 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Net income $ 4,644 $ 4,578 $ 12,447 $ 15,704

1 unchanged sentence

Net income used in calculating net income per common share - basic and diluted $ 4,601 $ 4,549 $ 12,342 $ 15,605

Weighted average common shares outstanding - basic 14,582 14,505

Effect of dilutive securities:

unvested share awards — 14

Weighted average common shares outstanding - diluted 14,582 14,519

Weighted average common shares outstanding - basic and diluted 14,605 14,521 14,594 14,514

Net income per common share - basic and diluted $ 0.32 $ 0.31 $ 0.85 $ 1.08

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Commitments and Contingencies

As of March 31, 2023, we had unfunded loan commitments of $ 45,779 related to our loans held for investment that are not reflected in our condensed consolidated balance sheets.

These unfunded loan commitments had a weighted average initial maturity of 1.4 years as of March 31, 2023.

As of June 30, 2023, we had unfunded loan commitments of $ 42,902 related to our loans held for investment that are not reflected in our condensed consolidated balance sheets.

These unfunded loan commitments had a weighted average initial maturity of 1.3 years as of June 30, 2023.

See Note 3 for further information related to our loans held for investment.

As of June 30, 2023, we had estimated unspent lease related costs of $ 726 .

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-Q

Item 1. Financial Statements