What changed in this filing

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Item 1A. Risk Factors

2025-02-18 compared with 2024-02-20 · 42 added, 38 removed, 678 unchanged (11% of the section changed)

6 unchanged sentences

• loans secured by properties in transition or requiring significant renovation involve a greater risk of loss than loans secured by stabilized properties;

current economic conditions, including inflation, rising or sustained high interest rates, supply chain challenges, labor availability, geopolitical instability and economic downturn, among other factors;

• the CRE loans that we originate or acquire are subject to the ability of the property owner to generate net operating income from the underlying property, as well as the risks of defaults and foreclosure, which may be impacted by current economic conditions, including inflation, uncertainty surrounding interest rates and sustained high interest rates, supply chain challenges, labor availability, geopolitical instability and economic downturn, among other factors;

• we are subject to the covenants and conditions contained in our Master Repurchase Agreements and in our facility loan agreement and security agreement with BMO Harris Bank N.A., or BMO, or the BMO Loan Program Agreement, which may restrict our operations and ability to make investments and distributions.

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and global economies, the CRE industry and/or the local economies in the markets in which the properties relating to our investments are located.

Unfavorable market, economic and CRE industry conditions may be due to, among other things, rising or sustained high interest rates and inflation, labor market challenges, supply chain disruptions, volatility in the capital markets, pandemics (such as the COVID-19 pandemic) or other public health safety concerns, geopolitical instability (such as the war in Ukraine), and other conditions beyond our control.

Unfavorable market, economic and CRE industry conditions may be due to, among other things, uncertainty surrounding interest rates or sustained high interest rates and inflation, labor market challenges, supply chain disruptions, volatility in the capital markets, pandemics or other public health safety concerns, geopolitical instability (such as the war in Ukraine and conflicts in the Middle East), the new presidential administration, and other conditions beyond our control.

Current and future economic conditions in the United States may affect the demand for real estate and real estate financing, real estate values, CRE transaction and leasing activity, rents, capital market stability and liquidity and capital costs.

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and global capital markets in the past have led to significant and widespread investor concerns over the integrity of the capital markets.

The current situation related to SVB, Signature and other regional banks could in the future lead to further rules and regulations for public companies, banks, financial institutions and other participants in the U.S.

The situation related to SVB, Signature and other regional banks could in the future lead to further rules and regulations for public companies, banks, financial institutions and other participants in the U.S.

and global capital markets, and complying with the requirements of any such rules or regulations may be burdensome.

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We cannot be sure that we will have access to such debt or equity capital on favorable terms at the desired times, or at all, which may cause us to reduce or suspend our investment activities or dispose of assets at an inopportune time or price, which could negatively affect our financial condition, results of operations and ability to make or sustain our distributions to our shareholders.

If the market value of our common shares does not increase or declines, our cost of equity capital will remain high or further increase, and we may not be able to practically or otherwise raise equity capital by issuing additional equity securities.

If the market price of our common shares does not increase or declines, our cost of equity capital will remain high or further increase, and we may not be able to practically or otherwise raise equity capital by issuing additional equity securities.

Prepayment rates may adversely affect our ability to generate returns, which could negatively impact our ability to make or sustain distributions to our shareholders.

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• changes in market practice, such as those that arose or were intensified in response to the COVID-19 pandemic;

• changes in national, regional or local economic conditions and/or specific industry segments, including current and future economic conditions caused by pandemics, such as the COVID-19 pandemic;

• changes in national, regional or local economic conditions and/or specific industry segments, including current and future economic conditions caused by pandemics;

• rising inflationary pressures and effects of inflation on borrower and tenant businesses;

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• changes in laws and regulations, including fiscal policies, zoning ordinances and environmental legislation and the related costs of compliance;

• acts of God, earthquakes, hurricanes, health epidemics, pandemics and other public health safety events or concerns, such as the COVID-19 pandemic, and other natural disasters, or acts of war, sabotage, terrorism, social unrest or civil disturbances, in each case which may result in uninsured or underinsured losses.

• acts of God, earthquakes, hurricanes, health epidemics, pandemics and other public health safety events or concerns, and other natural disasters, or acts of war, sabotage, terrorism, social unrest or civil disturbances, in each case which may result in uninsured or underinsured losses.

We may need to foreclose on loans that are in default, which could result in losses.

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• adverse weather, natural disasters and adverse impacts from climate change;

• acts of God, earthquakes, hurricanes, pandemics or other public health safety events or concerns, such as the COVID-19 pandemic, and other natural disasters, climate change, or acts of war, sabotage, terrorism, social unrest and civil disturbances, in each case which may result in uninsured or underinsured losses;

• acts of God, earthquakes, hurricanes, pandemics or other public health safety events or concerns, and other natural disasters, climate change, or acts of war, sabotage, terrorism, social unrest and civil disturbances, in each case which may result in uninsured or underinsured losses;

• changes in government regulations, such as rent control;

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We are subject to various risks related to the ownership of certain real property.

Real property we may own in the future but do not use in the ordinary course of our operations subjects us to risks particular to CRE property.

We have in the past owned, and may own in the future, certain properties as a result of foreclosure of loans secured by such properties.

Real property we own or may own in the future, but do not use in the ordinary course of our operations subjects us to risks particular to CRE property.

We currently own, have in the past owned, and may own in the future, certain properties as a result of foreclosure of loans secured by such properties.

Tenants of properties we may own may elect to not renew their leases, or to renew them for less space than they currently occupy, which could increase vacancy, place downward pressure on occupancy, rental rates and income and property valuation.

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In efforts to combat rising inflation, the Federal Open Market Committee of the U.S.

Federal Reserve (the “FOMC”) has raised interest rates multiple times since March 2022 and may continue to raise interest rates in 2024.

Federal Reserve, or FOMC, raised interest rates eleven times during 2022 and 2023 and then paused rate increases in the fourth quarter of 2023 following the deceleration of inflationary growth.

The FOMC cut interest rates three times between September 2024 and December 2024, and it may seek to further reduce interest rates, increase interest rates or maintain current interest rates.

Changes in interest rates may materially and negatively affect us in several ways, including:

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If interest rates go up, investors may expect a higher distribution rate than we are able to pay, which may increase our cost of capital, or they may sell our common shares and seek alternative investments that offer higher distribution rates.

Sales of our common shares may cause a decline in the market value of our common shares.

Sales of our common shares may cause a decline in the market price of our common shares.

Third party expectations relating to ESG factors may impose additional costs and expose us to new risks.

There is an increasing focus from investors, borrowers, tenants, and their customers, employees, other stakeholders and regulators concerning corporate sustainability, specifically related to ESG factors.

There remains a continued focus from investors, borrowers, tenants, and their customers, employees, other stakeholders and regulators concerning corporate sustainability, specifically related to ESG factors.

Some investors may use these factors to guide their investment strategies and, in some cases, may choose not to invest in us and/or potential borrowers may choose not to do business with us if they believe our policies relating to corporate sustainability are inadequate.

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In an extreme eventuality, it is possible that such regulations could cause us to cease operations.

In addition, the Biden Administration is taking a more active approach to economic and financial regulation than the Trump Administration, particularly to promote policy goals involving climate change, racial equity, ESG matters, cybersecurity, consumer financial protection and infrastructure.

We cannot predict the ultimate content, timing or effect of legislative and/or regulatory action under the Biden Administration nor the impact of such changes on our business and operations.

In addition, the Biden Administration took a more active approach to economic and financial regulation than the first Trump Administration, particularly to promote policy goals involving climate change, racial equity, ESG matters, cybersecurity, consumer financial protection and infrastructure.

We cannot predict the ultimate content, timing or effect of legislative and/or regulatory action under the second Trump Administration nor the impact of such changes on our business and operations.

Further, loans that we originate or acquire may be subject to U.S.

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The cybersecurity risks to us, RMR, Tremont and third party vendors are heightened by, among other things, the evolving nature of the threats faced, advances in computer capabilities, new discoveries in the field of cryptography and new and increasingly sophisticated methods used to perpetrate illegal or fraudulent activities, including cyberattacks, email or wire fraud and other attacks exploiting security vulnerabilities in RMR’s, Tremont’s or other third parties’ information technology networks and systems or operations.

Although much of RMR’s and Tremont’s staff returned to RMR’s offices during the COVID-19 pandemic, flexible working arrangements have resulted in a higher extent of remote working than they experienced prior to the pandemic.

Although much of RMR’s and Tremont’s staff work from RMR’s offices for the majority of the work week, flexible working arrangements have resulted in increased remote working.

This and other possible changing work practices have adversely impacted, and may in the future adversely impact, RMR’s and Tremont’s ability to maintain the security, proper function and availability of RMR’s and Tremont’s information technology and systems since remote working by their employees could strain RMR’s and Tremont’s technology resources and introduce operational risk, including heightened cybersecurity risk.

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In addition, RMR’s or Tremont’s data security, data privacy, investor reporting and business continuity processes could be impacted by a third party’s inability to perform in a remote work environment or by the failure of, or attack on, its information systems and technology.

In July 2023, the SEC adopted rules requiring public companies to disclose material cybersecurity incidents on Form 8-K and periodic disclosure of a registrant’s cybersecurity risk management, strategy, and governance in Annual Reports on Form 10-K.

With the SEC particularly focused on cybersecurity, we expect increased scrutiny of our policies and systems designed to manage our cybersecurity risks and our related disclosures.

We also expect to face increased costs to comply with these SEC rules, including increased costs for cybersecurity training and management.

Many jurisdictions in which we operate have laws and regulations relating to data privacy, cybersecurity and protection of personal information, including, the California Consumer Privacy Act and the New York SHIELD Act.

In addition, the SEC has indicated that one of its examination priorities for the Office of Compliance Inspections and Examinations is to continue to examine cybersecurity procedures and controls, including testing the implementation of these procedures and controls.

Any failure by RMR, Tremont or other third party vendors to maintain the security, proper function and availability of their information technology and systems could result in financial losses, interrupt our operations, damage our reputation, cause us to be in default of material contracts and subject us to liability claims or regulatory penalties, any of which could materially and adversely affect our business and the market value of our securities.

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They and other RMR personnel may have conflicts in allocating their time and resources between us and RMR and other companies to which RMR or its subsidiaries provide services.

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

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

Tremont, RMR, their affiliates and the entities to which they provide management services are generally not prohibited from competing with us.

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as of December 31 , 2024 , Mr.

Portnoy beneficially owned, in aggregate, 13.5% of our outstanding common shares (including through Tremont and ABP Trust), 9.8% of Diversified Healthcare Trust’s outstanding common shares, 1.5% of Office Properties Income Trust’s outstanding common shares, 1.3% of Industrial Logistics Properties Trust’s outstanding common shares, and 1.1% of Service Properties Trust’s outstanding common shares.

Portnoy beneficially owned, in aggregate, 13.5% of our outstanding common shares (including through Tremont and ABP Trust), 9.8% of Diversified Healthcare Trust’s outstanding common shares, 1.3% of Industrial Logistics Properties Trust’s outstanding common shares, 1.2% of Service Properties Trust’s outstanding common shares and 1.1% of Office Properties Income Trust’s outstanding common shares.

Our executive officers may also own equity investments in other companies to which Tremont, RMR or their subsidiaries provide management services.

These multiple responsibilities, relationships and cross ownerships may give rise to conflicts of interest or the perception of such conflicts of interest with respect to matters involving us, RMR Inc., RMR, our Managing Trustees, the other companies to which RMR or its subsidiaries provide management services and their related parties.

Conflicts of interest or the perception of conflicts of interest could have a material adverse impact on our reputation, business and the market value of our common shares and other securities and we may be subject to increased risk of litigation as a result.

Conflicts of interest or the perception of conflicts of interest could have a material adverse impact on our reputation, business and the market price of our common shares and other securities and we may be subject to increased risk of litigation as a result.

We cannot be sure that our Code of Conduct, governance guidelines, investment allocation policy or other procedural protections we adopt will be sufficient to enable us to identify, adequately address or mitigate actual or alleged conflicts of interest or ensure that our transactions with related persons are made on terms that are at least as favorable to us as those that would have been obtained with an unrelated person.

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Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain actions and proceedings that may be initiated by our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our Trustees, officers, manager or agents.

Our bylaws currently provide that, unless the dispute has been referred to binding arbitration, the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for:

Our bylaws currently provide that, other than any action arising under the Securities Act of 1933, as amended, or the Securities Act, the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for:

(1) any Internal Corporate Claim, as such term is defined under the Maryland General Corporation Law;

(2) any derivative action or proceeding brought on our behalf;

(3) any action asserting a claim for breach of a fiduciary duty owed by any of our Trustees, officers, manager or other agents to us or our shareholders;

(3) any action asserting a claim against us or any of our Trustees, officers, manager or other agents arising pursuant to Maryland law, our declaration of trust or bylaws brought by or on behalf of a shareholder, either on his, her or its own behalf, on our behalf or on behalf of any series or class of our shareholders or shareholders against us or any of our Trustees, officers, manager or other agents, including any claims relating to the meaning, interpretation, effect, validity, performance or enforcement of our declaration of trust or bylaws;

(4) any action asserting a claim against us or any of our Trustees, officers, manager or other agents arising pursuant to Maryland law, our declaration of trust or bylaws, including any disputes, claims or controversies brought by or on behalf of a shareholder, either on his, her or its own behalf, on our behalf or on behalf of any series or class of our shareholders or shareholders against us or any of our Trustees, officers, manager or other agents, including any claims relating to the meaning, interpretation, effect, validity, performance or enforcement of our declaration of trust or bylaws;

or (5) any action asserting a claim against us or any of our Trustees, officers, manager or other agents that is governed by the internal affairs doctrine of the State of Maryland.

The exclusive forum provision of our bylaws does not apply to any action for which the Circuit Court for Baltimore City, Maryland does not have jurisdiction.

The exclusive forum provision of our bylaws does not establish exclusive jurisdiction in the Circuit Court for Baltimore City, Maryland for claims that arise under the Securities Act, the Exchange Act or other federal securities laws if there is exclusive or concurrent jurisdiction in the federal courts.

Unless we otherwise consent in writing, the sole and exclusive forum for claims that arise under the Securities Act is the federal district courts of the United States of America, to the fullest extent of the law.

Any person or entity purchasing or otherwise acquiring or holding any interest in our common shares shall be deemed to have notice of and to have consented to these provisions of our bylaws, as they may be amended from time to time.

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Our Board of Trustees determines our operational, financing and investment policies and may amend or revise our policies, including our policies with respect to our intention to maintain our qualification for taxation as a REIT, investments, growth, operations, indebtedness, capitalization and distributions, or approve transactions that deviate from these policies, without a vote of, or notice to, our shareholders.

Policy changes could adversely affect the market value of our common shares and our ability to pay distributions to our shareholders.

Policy changes could adversely affect the market price of our common shares and our ability to pay distributions to our shareholders.

Further, our organizational documents do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur.

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(1) substantially change the manner in which we conduct our operations to avoid being required to register as an investment company under the 1940 Act;

or (2) register as an investment company under the 1940 Act, either of which could have an adverse effect on us and the market value of our common shares.

or (2) register as an investment company under the 1940 Act, either of which could have an adverse effect on us and the market price of our common shares.

If we or any of our subsidiaries were required to register as an investment company under the 1940 Act, the registered entity would become subject to substantial regulation with respect to capital structure (including the ability to use leverage), management, operations, transactions with affiliated persons (as defined in the 1940 Act), portfolio composition, including restrictions with respect to diversification and industry concentration and compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations.

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(2) sell our assets in a manner that, or at a time when, we would not otherwise choose to do so;

or (3) register as an investment company, any of which could negatively affect the sustainability of our business and our ability to pay distributions, which could have an adverse effect on our business and the market value for our common shares.

Risks Relating to Taxation

Risks Relating to Our Taxation

Our failure to remain qualified for taxation as a REIT under the IRC could have significant adverse consequences.

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In order to meet these requirements, it may be necessary for us to sell or forgo attractive investments.

If we cease to qualify for taxation as a REIT under the IRC, then our ability to raise capital might be adversely affected, we may be subject to material amounts of federal and state income taxes, our cash available for distribution to our shareholders could be reduced, and the market value of our common shares could decline.

In addition, if we lose or revoke our qualification for taxation as a REIT under the IRC for a taxable year, we will generally be prevented from requalifying for taxation as a REIT for the next four taxable years.

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As a result, from time to time we may not have sufficient cash to meet our REIT distribution requirements.

If we do not have other funds available in these situations, among other things, we may borrow funds on unfavorable terms, sell investments at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions in order to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year.

If we do not have other funds available in these situations, among other things, we may borrow funds on unfavorable terms, sell investments at disadvantageous prices or distribute amounts that would otherwise be invested in future acquisitions in order to pay distributions sufficient to enable us to distribute enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year.

These alternatives could increase our costs or reduce our shareholders’ equity.

Thus, compliance with the REIT distribution requirements may hinder our ability to grow, which could cause the market value of our common shares to decline.

Thus, compliance with the REIT distribution requirements may hinder our ability to grow, which could cause the market price of our common shares to decline.

We may in the future choose to pay dividends in our common shares, in which case shareholders may be required to pay income taxes in excess of the cash dividends that they receive.

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As a result, shareholders may be required to pay income taxes with respect to these dividends in excess of the cash dividends received.

If a shareholder sells our common shares that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market value of our common shares at the time of the sale.

If a shareholder sells our common shares that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common shares at the time of the sale.

Furthermore, with respect to some non-U.S.

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However, for tax years beginning before 2026, REIT dividends paid to noncorporate shareholders are generally taxed at an effective tax rate lower than applicable ordinary income tax rates due to the availability of a deduction under the IRC for specified forms of income from passthrough entities.

More favorable rates will nevertheless continue to apply to regular corporate “qualified” dividends, which may cause some investors to perceive that an investment in a REIT is less attractive than an investment in a non-REIT entity that pays dividends, thereby reducing the demand and market value of our common shares.

Even if we remain qualified for taxation as a REIT under the IRC, we may face other tax liabilities that reduce our cash flow.

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In either case, our shareholders could suffer adverse tax consequences through the recognition of UBTI or the other adverse consequences that flow from excess inclusion income.

Furthermore, in such an event, our common shares could become ineligible for inclusion in those market indexes that exclude UBTI-generating stock, which could adversely affect demand for our common shares and the market value of our common shares.

The tax on prohibited transactions limits our ability to engage in transactions, including some methods of securitizing mortgage loans that would be treated as sales for U.S.

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Changes in market conditions could adversely affect the market value of our securities.

As with other publicly traded equity securities and REIT securities, the market value of our common shares and other securities depends on various market conditions that are subject to change from time to time.

As with other publicly traded equity securities and REIT securities, the market price of our common shares and other securities depends on various market conditions that are subject to change from time to time.

We believe that one of the factors that investors consider important in deciding whether to buy or sell equity securities of a REIT is the distribution rate, considered as a percentage of the market price of the equity securities, relative to interest rates.

There is a general market perception that REIT shares outperform in low interest rate environments and underperform in rising interest rate environments when compared to the broader market.

In efforts to combat rising inflation, the FOMC raised interest rates multiple times since March 2022 and may continue to raise interest rates in 2024.

In efforts to combat rising inflation, the FOMC raised interest rates eleven times during 2022 and 2023 and then paused rate increases in the fourth quarter of 2023 following the deceleration of inflationary growth.

The FOMC cut interest rates three times between September 2024 and December 2024, and it may seek to further reduce interest rates, increase interest rates or maintain current interest rates.

In addition, the U.S.

and global economies have continued to experience high inflation, constrained labor availability, supply chain challenges, global instability and economic downturn.

and global economies have continued to experience inflation above historic levels, constrained labor availability, supply chain challenges, global instability and economic downturn.

These conditions have negatively impacted REIT share prices and, if they continue or worsen, may have further adverse impacts on the market value of our securities.

We may use debt leverage or sell assets to pay distributions to our shareholders in the future.

If our earnings are at any time insufficient to fund distributions to our shareholders at the level that may in the future be established by our Board of Trustees, we may pay distributions to our shareholders with the proceeds of borrowings or other leverage or from sales of our assets.

Funding distributions to our shareholders from our future borrowings or asset sales may constitute a return of capital to our investors, which would have the effect of reducing our shareholders’ bases in our common shares.

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 1A. Risk Factors