What changed in this filing

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Item 1. Financial Statements

2023-10-31 compared with 2023-07-31 · 138 added, 94 removed, 415 unchanged (36% of the section changed)

3 unchanged sentences

(dollars in thousands, except per share data)

June 30, December 31,

September 30, December 31,

Cash and cash equivalents $ 60,391 $ 71,057

4 unchanged sentences

Real estate owned 11,705 —

Accumulated depreciation ( 41 ) —

Real estate owned, net 11,664 —

Accrued interest receivable 3,614 3,354

Prepaid expenses and other assets 1,537 2,497

Prepaid expenses and other assets, net 6,330 2,497

Total assets $ 749,986 $ 746,847

6 unchanged sentences

Shareholders' equity:

Common shares of beneficial interest, $ 0.001 par value, 25,000,000 shares authorized;

Common shares of beneficial interest, $ 0.001 par value per share;

25,000,000 shares authorized;

14,815,574 and 14,709,165 shares issued and outstanding, respectively

8 unchanged sentences

(amounts in thousands, except per share data)

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

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

2023 2022 2023 2022

11 unchanged sentences

Reimbursement of shared services expenses 642 594 1,913 1,742

Provision for credit losses 1,026 — 39 —

Reversal of credit losses ( 1,338 ) — ( 1,299 ) —

Expenses from real estate owned 516 — 734 —

28 unchanged sentences

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

Share grants 80 — 273 — — 273

Share repurchases ( 8 ) — ( 101 ) — — ( 101 )

Share forfeitures ( 1 ) — ( 2 ) — — ( 2 )

Net income — — — 7,473 — 7,473

Distributions — — — — ( 5,160 ) ( 5,160 )

Balance at September 30, 2023 14,816 $ 15 $ 239,337 $ 65,615 $ ( 34,686 ) $ 270,281

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

8 unchanged sentences

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

Share grants 85 — 259 — — 259

Share repurchases ( 9 ) — ( 96 ) — — ( 96 )

Net income — — — 5,176 — 5,176

Distributions — — — — ( 3,660 ) ( 3,660 )

Balance at September 30, 2022 14,714 $ 15 $ 238,417 $ 45,530 $ ( 15,553 ) $ 268,409

See accompanying notes.

2 unchanged sentences

(dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

2 unchanged sentences

Accretion of purchase discount ( 3,307 ) ( 9,167 )

Provision for credit losses 39 —

Reversal of credit losses ( 1,299 ) —

Amortization of loan origination and exit fees ( 2,529 ) ( 2,935 )

Amortization of deferred financing costs 1,002 784

Straight line rental income ( 362 ) —

Depreciation and amortization 308 —

Share based compensation 970 889

11 unchanged sentences

Real estate owned improvements ( 1,339 ) —

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

Net cash used in investing activities ( 10,702 ) ( 111,870 )

CASH FLOWS FROM FINANCING ACTIVITIES:

15 unchanged sentences

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 June 30,

As of September 30,

Cash and cash equivalents $ 60,391 $ 76,371

36 unchanged sentences

We evaluate the estimated allowance for each of our loans individually and we consider our internal loan risk rating as the primary credit quality indicator underlying our assessment.

If a loan is determined to be collateral dependent (because the repayment of the loan is expected to be provided substantially through the operation or sale of the underlying collateral property) and the borrower is experiencing financial difficulties, but foreclosure is not probable, we may elect to apply a practical expedient to determine the loan's allowance for credit losses by comparing the collateral's fair value to the amortized cost basis of the loan.

For collateral-dependent loans for which foreclosure is probable, the related allowance for credit losses is determined using the fair value of the collateral compared to the loan's amortized cost.

For collateral-dependent loans for which foreclosure is probable, the related allowance for credit losses is determined using the fair value, less costs to sell, if applicable, of the collateral compared to the loan's amortized cost.

SEVEN HILLS REALTY TRUST

19 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 June 30, 2023 and December 31, 2022:

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

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

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

Number of loans 26 27

16 unchanged sentences

(dollars in thousands, except per share data)

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

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

Principal Balance Deferred Fees and Other Items Amortized Cost

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

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

Additional funding 919 — 919

1 unchanged sentence

Repayments ( 2,174 ) — ( 2,174 )

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

Net amortization of deferred fees — 762 762

Purchase discount accretion — 1,075 1,075

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

Balance at September 30, 2023 $ 675,215 $ ( 4,086 ) $ 671,129

Principal Balance Deferred Fees and Other Items Amortized Cost

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

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

Additional funding 4,267 — 4,267

3 unchanged sentences

Purchase discount accretion — 1,596 1,596

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:

Balance at September 30, 2022 $ 705,460 $ ( 10,306 ) $ 695,154

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

Principal Balance Deferred Fees and Other Items Amortized Cost

6 unchanged sentences

Purchase discount accretion — 3,307 3,307

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

Balance at September 30, 2023 $ 675,215 $ ( 4,086 ) $ 671,129

Principal Balance Deferred Fees and Other Items Amortized Cost

5 unchanged sentences

Purchase discount accretion — 9,167 9,167

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

Balance at September 30, 2022 $ 705,460 $ ( 10,306 ) $ 695,154

SEVEN HILLS REALTY TRUST

1 unchanged sentence

(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

The tables below detail the property type and geographic location of the properties securing the loans in our portfolio as of September 30, 2023 and December 31, 2022:

September 30, 2023 December 31, 2022

Property Type Number of Loans

8 unchanged sentences

4 93,346 14 % 4 110,656 17 %

Hotel 1 17,063 2 % — — — %

26 $ 671,129 100 % 27 $ 669,929 100 %

1 unchanged sentence

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

June 30, 2023 December 31, 2022

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

September 30, 2023 December 31, 2022

Geographic Location Number of Loans

10 unchanged sentences

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

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

As of September 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:

September 30, 2023

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

16 unchanged sentences

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

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.

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

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.

4 unchanged sentences

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:

The tables below represent the changes to the allowance for credit losses during the three and nine months ended September 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

(Reversal of) provision for credit losses

( 1,660 ) 322 ( 1,338 )

Balance at September 30, 2023 $ 3,281 $ 2,047 $ 5,328

Loans Held for Investment, net Unfunded Loan Commitments Total

2 unchanged sentences

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

Provision for credit losses 16 23 39

Write offs ( 708 ) — ( 708 )

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

(Reversal of) provision for credit losses

( 1,644 ) 345 ( 1,299 )

( 708 ) — ( 708 )

Balance at September 30, 2023 $ 3,281 $ 2,047 $ 5,328

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.

The decrease in the allowance for credit losses during the three months ended September 30, 2023 is primarily attributable to a reversal of credit losses of $ 740 for estimated costs to sell related to the reclassification of the property located in Yardley, PA from held for sale to held for investment, favorable changes in the macroeconomic outlook, most notably in CRE pricing forecasts and loan repayments.

The decrease in the allowance for credit losses during the nine months ended September 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, loan repayments and favorable changes in CRE pricing forecasts mentioned above.

SEVEN HILLS REALTY TRUST

5 unchanged sentences

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 .

As of September 30, 2023, this loan had an amortized cost of $ 23,988 and a risk rating of 2.

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.

In October 2023, the borrower repaid the full outstanding principal amount on this loan.

In August 2023, we amended the agreement governing our loan secured by an office property in Dublin, OH.

As part of this amendment, the borrower repaid $ 2,000 of the outstanding principal amount and the maturity date was extended by one year to August 16, 2024.

As of September 30, 2023, this loan had an amortized cost of $ 20,690 and a risk rating of 2.

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

In October 2023, the borrower repaid the full outstanding principal amount on this loan.

There were no other modifications to our loan portfolio for borrowers experiencing financial difficulties during the nine months ended September 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.

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.

During the nine months ended September 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 September 30, 2023 or December 31, 2022.

As of September 30, 2023 and October 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.

1 unchanged sentence

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.

Upon acquisition, we allocate the fair value of the real estate owned in accordance with ASC 805, Business Combinations.

We generally expect to sell real estate owned within one year of acquisition and classify real estate owned as held for sale when it meets the criteria required by ASC 360, Impairments and Disposals of Long-Lived Assets.

Upon acquisition, real estate owned is recognized at the lesser of the fair value of the property less estimated costs to sell, if applicable, 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.

If the amortized cost of the loan exceeds the fair value of the property less estimated costs to sell, if applicable, 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, if applicable, 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.

Subsequent to acquisition, costs incurred related to improvements to the property are capitalized and depreciated over their estimated useful lives and costs related to the operation of the property are expensed as incurred.

We regularly evaluate real estate owned for indicators of impairment.

Impairment indicators may include declining tenant occupancy, lack of progress leasing vacant space, tenant bankruptcies, low long term prospects for improvement in property performance, weak or declining tenant profitability, cash flow or liquidity, our decision to dispose of an asset before the end of its estimated useful life and legislative, market or industry changes that could permanently reduce the value of a property.

If there is an indication that the carrying value of an asset is not recoverable, we estimate the projected undiscounted cash flows to determine if an impairment loss should be recognized.

The future net undiscounted cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates.

We determine the amount of any impairment loss by comparing the carrying value to estimated fair value.

We estimate fair value through an evaluation of recent financial performance and projected discounted cash flows using standard industry valuation methods.

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

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

As of June 30, 2023, the property met the held for sale criteria required by ASC 360 and was classified as held for sale.

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.

As of September 30, 2023, although there was not a change to the plan of sale, the property did not meet the held for sale criteria required by ASC 360 and was classified as held for investment.

As a result, we recorded a reversal of credit losses of $ 740 for estimated costs to sell in our condensed consolidated statements of operations during the three months ended September 30, 2023.

We accounted for the acquisition as an asset acquisition and allocated the fair value of the assumed assets and liabilities on the acquisition date as follows:

Acquisition Date Fair Value

Land Buildings and Improvements Acquired Real Estate Leases

June 2023 $ 14,800 $ 2,880 $ 7,325 $ 4,595

Other assets related to real estate owned of $ 5,290 , including $ 4,337 of acquired real estate leases, net and $ 362 of straight line rent receivables, are included in prepaid expenses and other assets, net in our condensed consolidated balance sheets at September 30, 2023.

As of September 30, 2023, the weighted average remaining life of acquired real estate leases was 7.4 years.

Accrued expenses and other liabilities related to real estate owned of $ 762 are included in accounts payable, accrued liabilities and other liabilities in our condensed consolidated balance sheets at September 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)

We increased revenue from real estate owned to record revenue on a straight line basis by $ 295 and $ 362 for the three and nine months ended September 30, 2023, respectively.

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

Secured Financing Agreements

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

Our secured financing agreements at September 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;

6 unchanged sentences

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:

In August 2023, we amended the related fee letter to increase the maximum amount of available advancements under the UBS Master Repurchase Facility to $ 205,000 .

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

As of September 30, 2023 and October 27, 2023, we had a $ 474,866 and $ 446,461 , respectively, aggregate outstanding principal balance under our Secured Financing Facilities.

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

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

Debt Obligation

3 unchanged sentences

Principal Balance

June 30, 2023:

September 30, 2023:

Citibank Master Repurchase Facility $ 215,000 $ 136,730 $ 136,539 7.38 % 0.6 $ 199,509

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 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.

As of September 30, 2023, our Citibank Master Repurchase Facility, UBS Master Repurchase Facility and Wells Fargo Master Repurchase Facility mature on March 15, 2025, February 18, 2025 and March 11, 2025, respectively.

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

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

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

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

Year Principal Payments on

6 unchanged sentences

See our 2022 Annual Report for further information regarding the fair value of financial instruments.

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Carrying Value Fair Value Carrying Value Fair Value

3 unchanged sentences

Secured Financing Facilities $ 473,337 $ 473,836 $ 471,521 $ 471,362

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

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

Shareholders' Equity

Common Share Awards

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.

On May 23, 2023, in accordance with our Trustee compensation arrangements, we awarded to each of our then 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 .

On September 13, 2023, we awarded an aggregate of 80,000 of our common shares to our officers and certain other employees of Tremont Realty Capital LLC, or Tremont, and of The RMR Group LLC, or RMR, valued at the closing price of our common shares on Nasdaq that day.

The aggregate value of common shares awarded was $ 876 .

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.

During the nine months ended September 30, 2023, we purchased 13,257 of our common shares from certain of our current and former officers and current and former officers and employees of Tremont and 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 $ 138 .

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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:

For the nine months ended September 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

1 unchanged sentence

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

July 24, 2023 August 17, 2023 0.35 5,160

$ 1.05 $ 15,455

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.

On October 12, 2023, we declared a quarterly distribution of $ 0.35 per common share, or $ 5,185 , to shareholders of record on October 23, 2023.

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

Management Agreement with Tremont

We have no employees.

The personnel and various services we require to operate our business are provided to us by Tremont Realty Capital LLC, or Tremont, pursuant to a 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.

The personnel and various services we require to operate our business are provided to us by Tremont, pursuant to a 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.

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

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.

19 unchanged sentences

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

See Note 7 for information relating to the awards of our common shares we made in September 2023 to our officers and certain other employees of Tremont and/or RMR and common shares we purchased from certain of our current and former officers and 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.

We include amounts recognized as expense for awards of our common shares to our officers and employees of Tremont and/or RMR in general and administrative expenses in our condensed consolidated statements of operations.

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

1 unchanged sentence

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

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

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

3 unchanged sentences

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

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

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.

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

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

Also under the terms of this property management agreement, we 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.

We recognized property management and construction supervision fees of $ 8 for the three and nine months ended September 30, 2023, related to real estate owned.

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.

8 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 June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

2 unchanged sentences

Net income used in calculating net income per common share - basic and diluted $ 7,417 $ 5,143 $ 19,759 $ 20,747

Denominators:

Weighted average common shares outstanding - basic and diluted 14,640 14,551 14,609 14,526

Net income per common share - basic and diluted $ 0.51 $ 0.35 $ 1.35 $ 1.43

SEVEN HILLS REALTY TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Commitments and Contingencies

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.

As of September 30, 2023, we had unfunded loan commitments of $ 45,182 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 1.1 years as of September 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 .

As of September 30, 2023, we had estimated unspent lease related costs of $ 474 .

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