What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-04-28 compared with 2024-10-28 · 153 added, 209 removed, 207 unchanged (64% of the section changed)

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We are a Maryland REIT.

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

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

We define transitional CRE as commercial properties subject to redevelopment or repositioning activities that are expected to increase the value of the properties.

Tremont is registered with the Securities and Exchange Commission, or SEC, as an investment adviser under the Investment Advisers Act of 1940, as amended.

We believe that Tremont provides us with significant experience and expertise in investing in middle market and transitional CRE.

We believe that Tremont provides us with significant experience and expertise in investing in middle market transitional CRE.

We operate our business in a manner that is consistent with our qualification for taxation as a REIT under the IRC.

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We evaluate the credit quality of each of our loans at least quarterly.

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 will record an allowance for credit losses by comparing the collateral's fair value to the amortized cost basis of the loan.

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 record an 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.

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Market Conditions.

Heading into 2024, CRE investors seemed cautiously optimistic that inflation had peaked, that the U.S.

economy was likely headed for a “soft-landing” and that the Federal Open Market Committee of the U.S.

Federal Reserve, or the FOMC, was poised to reduce the federal funds rate by 125 to 150 basis points through a series of rate cuts in 2024.

With the anticipation of lower interest rates in the future, investors delayed sale or refinancing decisions, which resulted in tepid CRE investment and transaction volume during the third quarter of 2024.

In September 2024, citing progress toward its 2% inflation target, the FOMC lowered the targeted federal funds rate by 50 basis points, to a range of 4.75% to 5.00%, the first reduction since March 2020.

This first rate cut in over four years by the FOMC provided CRE owners relief from the recent high borrowing costs and uncertainty regarding the timing and magnitude of future rate cuts.

The September federal funds rate cut and updated projections by the FOMC for future rate cuts has provided CRE investors a renewed sense of optimism that both financing and investment sale transaction activity will accelerate in the fourth quarter of 2024 and into 2025.

With additional clarity on the intentions of the FOMC and the direction of future interest rates, CRE owners are better positioned to make sale or refinance decisions and opt between floating or fixed rate financing options.

CRE owners are also now more likely to qualify for new financing, instead of having to sell properties at distressed prices, to repay debt.

Borrowers with well performing cash flowing properties will continue to benefit from numerous financing options.

The CMBS financing market, a key provider of debt liquidity to the CRE industry, has seen increased activity through the first half of 2024.

Strong demand from bond buyers has allowed borrowers to take advantage of tightening credit spreads for 10-year and 5-year loans, the latter of which has become more popular among bond investors and borrowers.

Life insurance companies continue to expand their product offerings to borrowers, with low leverage, fixed rate term debt for stabilized assets as well as floating rate capital for more transitional properties, which were once reserved for banks and alternative lenders, like us.

The banking sector continues to be impacted by legacy CRE exposure and increased capital charges imposed by regulators but have become more active of late, primary for new loans to strategic, long-term clients.

Agency lenders, Fannie-Mae and Freddie-Mac continue to be active lenders in the market;

however, they are facing increased competition from CMBS/conduit providers, life-insurance companies and alternative lenders, like us.

Overall, the debt capital markets remain liquid, and lenders continue to compete for quality financing opportunities.

Although CRE investors feel that the risk of a prolonged period of elevated interest rates is largely over, other challenges remain ahead.

Special servicing rates for CMBS and CRE-CLO financed loans continue to increase and lenders have become more willing to foreclose on borrowers unable to support underperforming properties.

Furthermore, certain segments of the CRE industry continue to experience a deterioration in operating fundamentals.

office market continues to suffer from the post pandemic shift in work habits and weak demand for office space.

Retail assets, particularly needs based and grocery anchored retail, have benefited from a strong consumer and employment market, but recent reports of declining retail sales and weakening consumer demand may eventually have an impact on the performance of retail assets.

The industrial sector remains a preferred asset class among lenders and investors, but oversupply in certain markets and more measured corporate demand have impacted the pace of rent growth.

The lack of affordable housing in the United States and the rent versus own dynamic continue to favor the apartment sector.

Oversupply in certain markets, however, has caused a slowdown, and in some markets a decline, in rent growth.

For most markets, it is expected that the imbalance between supply and demand will be short lived and once they reach equilibrium, rent growth will return.

Over $2 trillion in CRE debt is scheduled to mature over the next two years.

These maturities, coupled with a lower and more stabilized interest rate environment, are likely to provide investors with greater investment opportunities which will spurn lending activity.

Looking forward, geopolitical uncertainty and the impact of the U.S.

presidential election may pose additional risks to the CRE industry, however, we believe that the CRE lending market remains well positioned to handle these challenges.

CRE investors entered 2025 with cautious optimism.

By the end of 2024, citing progress towards attaining its 2% inflation target, the Federal Open Market Committee, or FOMC, lowered the targeted federal funds rate by a combined 100 basis points, providing borrowers relief from a sustained period of elevated borrowing costs.

Despite falling short of many borrowers’ expectations, the FOMC’s initial reduction gave borrowers a level of certainty and conviction around buy, sell or refinance decisions, and debt liquidity continued to return to the market.

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Despite increasing delinquency rates within certain segments of the market, in particular for recent vintage multifamily loans, property fundamentals overall have continued to improve.

Supply and demand imbalances, specifically for multifamily and industrial properties, have been showing signs of leveling off with property values trending upwards.

Strong investor demand for CMBS and CRE collateralized loan obligations, or CLO, bonds and fresh allocations from life insurance companies and agency lenders such as Fannie-Mae and Freddie-Mac helped to drive credit spreads and borrowing costs downward, increasing financing activity for much of the quarter.

The cautious optimism that was common in the markets earlier in the year has now begun to wane as investors direct their attention to the administration’s new trade policies and recent tariff announcements.

Although we believe markets had already priced in a baseline level of tariffs, the ultimate scope and magnitude of the announced rates were unexpected, creating new uncertainty and capital markets volatility.

The FOMC’s dual mandate to ensure price stability and to maximize employment is again in focus.

An increased risk of an economic recession may lead to job losses and the FOMC may need to consider lowering the target federal funds rate, a potentially welcome outcome for leveraged property owners.

Alternatively, widespread tariffs, if prolonged, may contribute to greater inflation, which could cause the FOMC to consider maintaining or even increasing rates to slow potential, long-term inflationary pressures.

With close to $2 trillion in CRE debt scheduled to mature over the next two years, property owners may face difficult decisions if market volatility persists.

At the beginning of the year, borrowers believed they had a clear view on the path of short-term rates while 5 and 10-year U.S.

Treasury yields remained somewhat elevated.

Today, it is much less clear what the FOMC’s intentions are going forward and what the outlook is for short-term interest rates in the current economic climate.

As for longer term interest rates, the 5 and 10-year U.S.

Treasury yields continue to be elevated and quite volatile, making it difficult for borrowers that must refinance maturing loans to lock in long-term fixed rates in this environment.

Despite the fact that many uncertainties exist today, we continue to believe that the CRE debt markets, property owners and lenders are well positioned to handle these uncertain times and conditions as we move deeper into 2025.

Changes in Interest Rates.

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

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

The interest income on our loans and interest expense on our borrowings float with benchmark rates, such as SOFR.

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therefore, changes to income from investments, net, may not move proportionately with the increase or decrease in benchmark rates.

As of September 30, 2024, SOFR was 4.85%, and as a result, one of our loan investments currently has an active interest rate floor.

As of March 31, 2025, SOFR was 4.32%, and as a result, one of our loan investments had an active interest rate floor.

Size of Portfolio .

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

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Prepayment Risk.

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

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

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

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

however, unanticipated prepayments could negatively impact our operating results.

Non-GAAP Financial Measures

We present Distributable Earnings, Distributable Earnings per common share and Adjusted Book Value per common share, which are considered “non-GAAP financial measures” within the meaning of the applicable SEC rules.

These non-GAAP financial measures do not represent net income, net income per common share or cash generated from operating activities and should not be considered as alternatives to net income or net income per common share determined in accordance with GAAP or as an indication of our cash flows from operations determined in accordance with GAAP, a measure of our liquidity or operating performance or an indication of funds available for our cash needs.

In addition, our methodologies for calculating these non-GAAP financial measures may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures;

therefore, our reported Distributable Earnings and Distributable Earnings per common share may not be comparable to distributable earnings and distributable earnings per common share as reported by other companies.

We believe that Adjusted Book Value per common share is a meaningful measure of our capital adequacy because it excludes the impact of certain non-cash estimates or adjustments, including the unaccreted purchase discount resulting from the excess of the fair value of the loans Tremont Mortgage Trust, or TRMT, then held for investment and that we acquired as a result of our merger with TRMT on September 30, 2021, or the Merger, over the consideration we paid in the Merger and our allowance for credit losses for our loan portfolio and unfunded loan commitments.

Adjusted Book Value per common share does not represent book value per common share or alternative measures determined in accordance with GAAP.

Our methodology for calculating Adjusted Book Value per common share may differ from the methodologies employed by other companies to calculate the same or similar supplemental capital adequacy measures;

therefore, our Adjusted Book Value per common share may not be comparable to the adjusted book value per common share reported by other companies.

In order to maintain our qualification for taxation as a REIT, we are generally required to distribute substantially all of our taxable income, subject to certain adjustments, to our shareholders.

We believe that one of the factors that investors consider important in deciding whether to buy or sell securities of a REIT is its distribution rate.

Over time, Distributable Earnings and Distributable Earnings per common share may be useful indicators of distributions to our shareholders and are measures that are considered by our Board of Trustees when determining the amount of distributions.

We believe that Distributable Earnings and Distributable Earnings per common share provide meaningful information to consider in addition to net income, net income per common share and cash flows from operating activities determined in accordance with GAAP.

These measures help us to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations.

In addition, Distributable Earnings, excluding incentive fees, is used in determining the amount of base management and management incentive fees payable by us to Tremont under our management agreement.

Distributable Earnings

We calculate Distributable Earnings and Distributable Earnings per common share as net income and net income per common share, respectively, computed in accordance with GAAP, including realized losses not otherwise included in net income determined in accordance with GAAP, and excluding:

(a) depreciation and amortization of real estate owned and related intangible assets, if any;

(b) non-cash equity compensation expense;

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

and (d) one-time events pursuant to changes in GAAP and certain non-cash items, if any.

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

This is generally at the time a loan is repaid, or in the case of foreclosure, when the real estate assets are acquired, but may also be when, in our determination, it is nearly certain that all amounts due will not be collected.

The realized loss amount reflected in Distributable Earnings will equal the difference between the cash or fair value of the assets received or expected to be received and the carrying value of the loan.

Adjusted Book Value per Common Share

The table below calculates our book value per common share:

September 30, 2024 December 31, 2023

Shareholders' equity $ 269,506 $ 271,248

Total outstanding common shares 14,906 14,811

Book value per common share 18.08 18.31

Unaccreted purchase discount per common share (1)

Allowance for credit losses per common share (2)

Adjusted Book Value per common share $ 18.71 $ 18.87

(1) Excludes the impact of the unaccreted purchase discount resulting from the excess of the fair value of the loans TRMT then held for investment and that we acquired as a result of the Merger over the consideration we paid in the Merger.

The purchase discount of $36,443 was allocated to each acquired loan and was accreted into income over the remaining term of the respective loan.

As of September 30, 2024, the purchase discount was fully accreted.

As of December 31, 2023, the unaccreted purchase discount was $2,347.

(2) Excludes the impact of our allowance for credit losses.

As of September 30, 2024 and December 31, 2023, our allowance for credit losses for our loan portfolio and unfunded loan commitments was $9,358 and $5,828, respectively.

Our Loan Portfolio

The table below details overall statistics for our loan portfolio as of September 30, 2024 and December 31, 2023:

As of September 30, 2024 As of December 31, 2023

The table below details overall statistics for our loan portfolio as of March 31, 2025 and December 31, 2024:

As of March 31, 2025 As of December 31, 2024

Number of loans 23 21

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(4) LTV represents the initial loan amount divided by the underwritten in-place value of the underlying collateral at closing.

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Loan Portfolio Details

The table below details our loan portfolio as of September 30, 2024:

The table below details our loan portfolio as of March 31, 2025:

# Location Property Type Origination Date Committed Principal Amount Principal

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1 Olmsted Falls, OH Multifamily 01/28/2021 $ 54,575 $ 54,575 S + 4.00% S + 4.29% 01/28/2026 63 % 2

2 Dallas, TX Office 08/25/2021 46,811 43,511 S + 3.25% S + 3.27% 08/25/2026 72 % 4

2 Passaic, NJ Industrial 09/08/2022 47,000 44,767 S + 3.85% S + 4.28% 09/08/2027 69 % 3

3 Dallas, TX Office 08/25/2021 46,811 43,511 S + 3.25% S + 3.27% 08/25/2026 72 % 4

4 Boston, MA Hotel 12/16/2024 45,000 39,800 S + 3.95% S + 4.39% 12/16/2029 49 % 3

5 Brandywine, MD Retail 03/29/2022 42,500 42,200 S + 3.85% S + 4.78% 03/29/2027 62 % 3

5 Starkville, MS Multifamily 03/22/2022 37,250 37,250 S + 4.00% S + 4.33% 03/22/2027 70 % 2

6 Oxford, MS Multifamily 11/26/2024 42,000 42,000 S + 2.95% S + 3.35% 11/26/2029 75 % 2

7 San Marcos, TX Multifamily 01/14/2025 31,200 28,005 S + 3.25% S + 3.68% 01/14/2030 62 % 3

8 Farmington Hills, MI Multifamily 05/24/2022 30,520 29,501 S + 3.15% S + 3.52% 05/24/2027 75 % 3

7 Downers Grove, IL Office 09/25/2020 30,000 29,500 S + 4.25% S + 4.64% 11/25/2024 67 % 4

9 Downers Grove, IL (4)

Office 09/25/2020 30,000 29,500 S + 5.00% S + 5.31% 05/23/2025 67 % 4

10 Anaheim, CA Hotel 11/29/2023 29,000 29,000 S + 4.00% S + 4.56% 11/29/2028 55 % 2

9 Las Vegas, NV Multifamily 06/10/2022 28,950 25,333 S + 3.30% S + 4.08% 06/10/2027 60 % 3

11 Fountain Inn, SC Industrial 07/13/2023 27,500 24,300 S + 4.25% S + 4.85% 07/13/2026 76 % 1

12 Plano, TX Office 07/01/2021 27,385 26,569 S + 3.75% S + 3.76% 07/01/2026 78 % 4

13 Las Vegas, NV Multifamily 06/10/2022 25,992 25,448 S + 3.30% S + 4.07% 06/10/2027 60 % 3

14 Fayetteville, GA Industrial 10/06/2023 25,250 25,250 S + 3.35% S + 3.73% 10/06/2028 55 % 3

13 Carlsbad, CA (4)

Office 10/27/2021 24,750 24,417 S + 3.25% S + 3.58% 10/27/2026 78 % 4

15 Carlsbad, CA Office 10/27/2021 24,750 24,417 S + 3.25% S + 3.26% 10/27/2026 78 % 4

16 Fontana, CA Industrial 11/18/2022 24,355 22,000 S + 3.75% S + 4.09% 11/18/2026 72 % 3

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18 Downers Grove, IL Office 12/09/2021 23,530 23,530 S + 4.25% S + 4.54% 12/09/2026 72 % 3

17 Bellevue, WA Office 11/05/2021 21,000 20,000 S + 3.85% S + 4.19% 11/05/2026 68 % 4

19 Bellevue, WA (5)

Office 11/05/2021 21,000 20,000 S + 3.85% S + 3.89% 11/05/2026 68 % 4

20 Waco, TX Multifamily 03/06/2025 18,500 18,500 S + 3.35% S + 3.75% 03/06/2030 73 % 3

21 Newport News, VA Multifamily 04/25/2024 17,757 15,012 S + 3.15% S + 3.86% 04/25/2029 71 % 3

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(3) LTV represents the initial loan amount divided by the underwritten in-place value of the underlying collateral at closing.

(4) In October 2024, the maturity of this loan was extended to January 27, 2025.

As of September 30, 2024, we had $594,421 in aggregate loan commitments, consisting of a diverse portfolio, geographically and by property type, of 20 first mortgage loans.

As of September 30, 2024, we had five loans representing approximately 26% of the amortized cost of our loan portfolio with a loan risk rating of “4” or “higher risk”.

(4) In April 2025, the borrower exercised a 30 day extension option which extended the maturity date of the loan to May 23, 2025.

(5) In April 2025, the coupon rate was reduced from SOFR + 3.85% to SOFR + 2.85% and the maturity date was extended by three years to April 7, 2028.

As of March 31, 2025, we had $690,913 in aggregate loan commitments, consisting of a diverse portfolio, geographically and by property type, of 23 first mortgage loans.

As of March 31, 2025, we had five loans representing approximately 22% of the amortized cost of our loan portfolio with a loan risk rating of “4” or “higher risk”.

In August 2024, we amended the agreement governing our loan secured by an office property in Dallas, TX.

As part of this amendment, the loan commitment was reduced by $3,189, the borrower was required to contribute $2,900 to cash reserves and the maturity date was extended by two years to August 25, 2026.

As of September 30, 2024, this loan had an amortized cost of $43,511 and a risk rating of 4.

As of March 31, 2025, this loan had an amortized cost of $43,511 and a risk rating of 4.

In August 2024, we amended the agreement governing our loan secured by an office property in Plano, TX.

As part of this amendment, the coupon rate was reduced from SOFR + 4.75% to SOFR + 3.75% and the maturity date was extended by two years to July 1, 2026.

As of September 30, 2024, this loan had an amortized cost of $26,634 and a risk rating of 4.

As of March 31, 2025, this loan had an amortized cost of $26,635 and a risk rating of 4.

In November 2024, we amended the agreement governing our loan secured by an office property in Carlsbad, CA.

As part of this amendment, the borrower was required to contribute $1,100 to cash reserves and the maturity date was extended by two years to October 27, 2026.

As of March 31, 2025, this loan had an amortized cost of $24,413 and a risk rating of 4.

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In February 2025, we amended the agreement governing our loan secured by an office property in Downers Grove, IL, which extended the term of the loan by 60 days to April 25, 2025 with an option to extend the loan for an additional 30 days.

In April 2025, the borrower exercised its option to extend the loan by 30 days to May 23, 2025.

As of March 31, 2025, this loan had an amortized cost of $29,642 and a risk rating of 4.

In April 2025, we amended the agreement governing our loan secured by an office property in Bellevue, WA.

As part of this amendment, the borrower was required to contribute $1,625 to cash reserves, the coupon rate was reduced from SOFR + 3.85% to SOFR + 2.85% and the maturity date was extended by three years to April 7, 2028.

As of March 31, 2025, this loan had an amortized cost of $19,999 and a risk rating of 4.

All of the loans in our portfolio are structured with risk mitigation mechanisms, such as cash flow sweeps or interest reserves, to help protect us against investment losses.

In addition, we actively engage with our borrowers regarding their execution of the business plans for the underlying collateral, among other things.

As of September 30, 2024 and October 24, 2024, all of our borrowers had paid their debt service obligations owed and due to us.

We did not have any outstanding past due loans or nonaccrual loans as of September 30, 2024.

As of March 31, 2025 and April 24, 2025, all of our borrowers had paid their debt service obligations owed and due to us.

We did not have any outstanding past due loans or nonaccrual loans as of March 31, 2025.

However, our borrowers' businesses, operations and liquidity may be materially adversely impacted by current inflationary pressures, interest rate fluctuations, supply chain issues or a prolonged economic slowdown or recession could amplify those negative impacts.

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Financing Activities

The table below is an overview of our Secured Financing Facilities as of September 30, 2024:

The table below is an overview of our Secured Financing Facilities as of March 31, 2025:

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

Citibank Master Repurchase Facility 09/27/2026 $ 59,714 $ 155,286 $ 215,000 $ 103,390

UBS Master Repurchase Facility 02/18/2026 $ 181,989 $ 68,011 $ 250,000 $ 269,609

Citibank Master Repurchase Facility 09/27/2026 93,314 121,686 215,000 145,773

BMO Facility Various 103,855 46,145 150,000 146,471

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Total $ 442,026 $ 297,974 $ 740,000 $ 642,889

The table below details our Secured Financing Facilities activities during the three months ended September 30, 2024:

Carrying Value

Balance at June 30, 2024 $ 417,939

Borrowings 16,086

Repayments (57,741)

Deferred fees (747)

Amortization of deferred fees 391

Balance at September 30, 2024 $ 375,928

The table below details our Secured Financing Facilities activities during the nine months ended September 30, 2024:

The table below details our Secured Financing Facilities activities during the three months ended March 31, 2025:

Carrying Value

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Borrowings 22,404

Repayments (104,765)

Deferred fees (92)

Amortization of deferred fees 366

Balance at September 30, 2024 $ 375,928

As of September 30, 2024, outstanding advancements under our Secured Financing Facilities had a weighted average interest rate of 7.25% per annum, excluding associated fees and expenses.

As of September 30, 2024 and October 24, 2024, we had a $377,334 aggregate outstanding principal balance under our Secured Financing Facilities.

As of September 30, 2024, we were in compliance with all covenants and other terms under our Secured Financing Facilities.

In September 2024, we amended our amended and restated master repurchase agreement with Citibank, or the Citibank Master Repurchase Agreement.

The amendment to the amended and restated Citibank Master Repurchase Agreement made certain changes to the agreement and related fee letter, including extending the stated maturity date to September 27, 2026.

In October 2024, we amended our master repurchase and securities contract with Wells Fargo, or the Wells Fargo Master Repurchase Agreement.

The amendment to the Wells Fargo Master Repurchase Agreement made certain changes to the agreement and related fee letter, including extending the stated maturity date to March 11, 2026.

Balance at March 31, 2025 $ 440,474

As of March 31, 2025, outstanding advancements under our Secured Financing Facilities had a weighted average interest rate of 6.52% per annum, excluding associated fees and expenses.

As of March 31, 2025 and April 24, 2025, we had a $442,026 aggregate outstanding principal balance under our Secured Financing Facilities.

As of March 31, 2025, we were in compliance with all covenants and other terms under our Secured Financing Facilities.

For further information regarding our Secured Financing Facilities, see Note 5 to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

Three Months Ended September 30, 2024 Compared to Three Months Ended June 30, 2024:

Three Months Ended March 31, 2025 Compared to Three Months Ended December 31, 2024:

Three Months Ended

September 30, 2024 June 30, 2024 Change % Change

INCOME FROM INVESTMENTS:

Interest and related income $ 15,741 $ 16,415 $ (674) (4.1 %)

Purchase discount accretion 420 782 (362) (46.3 %)

interest and related expenses (7,875) (8,385) 510 (6.1 %)

Income from loan investments, net 8,286 8,812 (526) (6.0 %)

Revenue from real estate owned 571 568 3 0.5 %

Total revenue 8,857 9,380 (523) (5.6 %)

OTHER EXPENSES:

Base management fees 1,083 1,082 1 0.1 %

Incentive fees 486 370 116 31.4 %

General and administrative expenses 1,011 1,081 (70) (6.5 %)

Reimbursement of shared services expenses 635 691 (56) (8.1 %)

Provision for credit losses 1,518 1,315 203 15.4 %

Expenses from real estate owned 634 599 35 5.8 %

Total other expenses 5,367 5,138 229 4.5 %

Income before income taxes 3,490 4,242 (752) (17.7 %)

Income tax expense (11) (13) 2 (15.4 %)

Net income $ 3,479 $ 4,229 $ (750) (17.7 %)

Weighted average common shares outstanding - basic and diluted 14,723 14,691 32 0.2 %

Net income per common share - basic and diluted $ 0.23 $ 0.28 $ (0.05) (17.9 %)

Interest and related income .

The decrease in interest and related income was primarily the result of a lower average outstanding principal balance for our loan investment portfolio as a result of loan repayments and a prepayment premium received during the three months ended June 30, 2024.

The weighted average aggregate principal balance of our loan investments was approximately $581,000 for the three months ended September 30, 2024 as compared to approximately $601,000 for the three months ended June 30, 2024.

Purchase discount accretion.

The decrease in purchase discount accretion was primarily due to the purchase discount recorded as part of the Merger becoming fully accreted during the three months ended September 30, 2024.

Interest and related expenses.

The decrease in interest and related expenses was primarily the result of lower outstanding principal balances under our Secured Financing Facilities as a result of loan repayments during the three months ended September 30, 2024.

The weighted average principal balance was approximately $393,000 for the three months ended September 30, 2024 as compared to approximately $422,000 for the three months ended June 30, 2024.

Revenue from real estate owned.

Revenue from real estate owned represents revenue from the operations of an office property located in Yardley, PA that was transferred to real estate owned through a deed in lieu of foreclosure in June 2023.

Incentive fees.

We recognize management incentive fees payable to Tremont in accordance with our management agreement.

The increase in management incentive fees was due to higher "core earnings," as defined in our management agreement, for the three months ended September 30, 2024 as compared to the three months ended June 30, 2024.

General and administrative expenses .

The decrease in general and administrative expenses was primarily due to a decrease in share based compensation resulting from shares awarded to our Trustees during the three months ended June 30, 2024.

Reimbursement of shared services expenses.

Reimbursement of shared services expenses represents reimbursement of the costs for the services that Tremont arranges on our behalf from RMR.

The decrease in reimbursement of shared services expenses was primarily the result of an adjustment to our estimate of costs for the usage of shared services from RMR during the three months ended September 30, 2024.

Provision for credit losses.

The provision for credit losses represents the increase in the allowance for credit losses on our loan portfolio and unfunded commitments.

The increase in the allowance for credit losses during the three months ended September 30, 2024 was primarily attributable to declining values for CRE and unfavorable CRE pricing forecasts used in our CECL model and increased provisions for our office loans.

Expenses from real estate owned.

Expenses from real estate owned represent expenses from the operations of an office property located in Yardley, PA that was transferred to real estate owned through a deed in lieu of foreclosure in June 2023.

The increase in expenses from real estate owned was primarily due to increases in maintenance expenses.

Income tax expense.

Income tax expense represents income taxes paid or payable by us in certain jurisdictions where we are subject to state income taxes.

The decrease in net income was due to the changes noted above.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023:

Nine Months Ended September 30,

2024 2023 Change % Change

March 31, 2025 December 31, 2024 Change % Change

INCOME FROM INVESTMENTS:

Interest and related income $ 14,322 $ 13,948 $ 374 2.7 %

Purchase discount accretion 2,347 3,307 (960) (29.0 %)

interest and related expenses (7,437) (6,836) (601) 8.8 %

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Reimbursement of shared services expenses 550 630 (80) (12.7 %)

Provision for (reversal of) credit losses 3,530 (1,299) 4,829 (371.7 %)

Reversal of credit losses (153) (450) 297 (66.0 %)

Expenses from real estate owned 594 611 (17) (2.8 %)

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Interest and related income .

The decrease in interest and related income was primarily the result of lower outstanding principal balances under our loan investment portfolio.

The weighted average principal balance was approximately $598,000 for the nine months ended September 30, 2024 as compared to approximately $646,000 for the nine months ended September 30, 2023.

Purchase discount accretion.

The decrease in purchase discount accretion was primarily due to the purchase discount recorded as part of the Merger becoming fully accreted during the nine months ended September 30, 2024.

The increase in interest and related income was primarily the result of greater outstanding principal balances, partially offset by a decrease in the weighted average coupon rates under our loan investment portfolio during the three months ended March 31, 2025.

The weighted average principal balance was approximately $641,000 for the three months ended March 31, 2025 compared to approximately $603,000 for the three months ended December 31, 2024.

The weighted average coupon rate was 8.07% as of March 31, 2025 compared to 8.24% as of December 31, 2024.

Interest and related expenses.

The increase in interest and related expenses was primarily the result of higher benchmark interest rates and higher spreads on advances under our Secured Financing Facilities, partially offset by lower outstanding principal balances under our Secured Financing Facilities during the nine months ended September 30, 2024.

The weighted average principal balance was approximately $418,000 for the nine months ended September 30, 2024 as compared to approximately $447,000 for the nine months ended September 30, 2023.

The increase in interest and related expenses was primarily the result of greater outstanding principal balances, partially offset by a decrease in the weighted average coupon rates under our Secured Financing Facilities during the three months ended March 31, 2025.

The weighted average principal balance was approximately $432,000 for the three months ended March 31, 2025 compared to approximately $411,000 for the three months ended December 31, 2024.

The weighted average coupon rate was 6.52% as of March 31, 2025 compared to 6.62% as of December 31, 2024.

Revenue from real estate owned.

Incentive fees.

We recognize management incentive fees payable to Tremont in accordance with our management agreement.

The increase in management incentive fees was due to higher "core earnings," as defined in our management agreement, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

The increase in revenue from real estate owned was primarily due to higher operating expense reimbursement during the three months ended March 31, 2025 as compared to the three months ended December 31, 2024.

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Base management and incentive fees.

We recognize base management and incentive fees payable to Tremont in accordance with our management agreement.

The decrease in base management and incentive fees was due to lower “core earnings”, as defined in our management agreement, during the three months ended March 31, 2025 as compared to the three months ended December 31, 2024.

General and administrative expenses .

The increase in general and administrative expenses was primarily due to an increase in share based compensation, partially offset by decreases in professional fees during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.

The increase in general and administrative expenses was primarily due to trustee stock grants during the three months ended March 31, 2025.

Reimbursement of shared services expenses.

Reimbursement of shared services expenses represents reimbursement of the costs for the services that Tremont arranges on our behalf from RMR.

The increase in reimbursement of shared services expenses was primarily the result of higher usage of shared services from RMR during the nine months ended September 30, 2024.

Provision for (reversal of) credit losses.

The provision for (reversal of) credit losses represents the increase in the allowance for credit losses on our loan portfolio and unfunded commitments.

The increase in the allowance for credit losses during the nine months ended September 30, 2024 was primarily attributable to declining values for CRE and unfavorable CRE pricing forecasts used in our CECL model and increased provisions for our office loans.

The decrease in reimbursement of shared services expenses was primarily the result of lower usage of shared services from RMR during the three months ended March 31, 2025 as compared to the three months ended December 31, 2024.

Reversal of credit losses.

The reversal of credit losses represents the decrease in the allowance for credit losses on our loan portfolio and unfunded commitments.

The decrease in the allowance for credit losses during the three months ended March 31, 2025 was primarily attributable to certain of our loans nearing maturity and improved performance at certain of the collateral properties underlying our loans, partially offset by higher total loan commitments as of March 31, 2025 as compared to December 31, 2024, including future funding of our unfunded loan commitments.

Expenses from real estate owned.

The decrease in expenses from real estate owned was primarily due to decreases in maintenance expenses during the three months ended March 31, 2025 as compared to the three months ended December 31, 2024.

Income tax expense.

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The decrease in net income was due to the changes noted above.

Reconciliation of Net Income to Distributable Earnings

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

Three Months Ended Nine Months Ended

September 30, 2024 June 30, 2024 September 30, 2024 September 30, 2023

Non-GAAP Financial Measures

We present Adjusted Book Value per common share, Distributable Earnings and Distributable Earnings per common share, which are considered “non-GAAP financial measures” within the meaning of the applicable SEC rules.

These non-GAAP financial measures do not represent book value per common share, net income, net income per common share or cash generated from operating activities and should not be considered as alternatives to book value per common share, net income or net income per common share determined in accordance with GAAP or as an indication of our cash flows from operations determined in accordance with GAAP, a measure of our liquidity or operating performance or an indication of funds available for our cash needs.

therefore, our reported Adjusted Book Value per common share, Distributable Earnings and Distributable Earnings per common share may not be comparable to adjusted book value per common share, distributable earnings and distributable earnings per common share as reported by other companies.

Adjusted Book Value per Common Share

Adjusted Book Value per common share does not represent book value per common share or alternative measures determined in accordance with GAAP.

therefore, our Adjusted Book Value per common share may not be comparable to the adjusted book value per common share reported by other companies.

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The table below calculates our book value per common share and Adjusted Book Value per common share, which is a non-GAAP financial measure:

March 31, 2025 December 31, 2024

Shareholders' equity $ 268,945 $ 269,278

Total outstanding common shares 14,907 14,903

Book value per common share 18.04 18.07

Allowance for credit losses per common share (1)

Adjusted Book Value per common share $ 18.63 $ 18.67

(1) Excludes the impact of our allowance for credit losses.

As of March 31, 2025 and December 31, 2024, our allowance for credit losses for our loan portfolio and unfunded loan commitments was $8,755 and $8,908, respectively.

Distributable Earnings

In order to maintain our qualification for taxation as a REIT, we are generally required to distribute substantially all of our taxable income, subject to certain adjustments, to our shareholders.

We believe that one of the factors that investors consider important in deciding whether to buy or sell securities of a REIT is its distribution rate.

(a) depreciation and amortization of real estate owned and related intangible assets, if any;

(b) non-cash equity compensation expense;

and (d) one-time events pursuant to changes in GAAP and certain non-cash items, if any.

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

This is generally at the time a loan is repaid, or in the case of foreclosure, when the underlying asset is sold, but may also be when, in our determination, it is nearly certain that all amounts due will not be collected.

The realized loss amount reflected in Distributable Earnings will equal the difference between the cash received or expected to be received and the carrying value of the loan.

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

Three Months Ended

March 31, 2025 December 31, 2024

Net income $ 4,532 $ 4,879

Non-cash equity compensation expense 356 159

Non-cash accretion of purchase discount (420) (782) (2,347) (3,307)

Provision for credit losses

1,518 1,315 3,530 (1,299)

Reversal of credit losses (153) (450)

Depreciation and amortization of real estate owned 269 279

Exit fees collected on loans acquired in Merger (1)

Distributable Earnings $ 5,004 $ 4,867

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Distributable Earnings per common share - basic and diluted $ 0.34 $ 0.33

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

In accordance with GAAP, exit fees payable with respect to loans acquired in the Merger were accreted as a component of the purchase discount and were excluded from Distributable Earnings as a non-cash item.

Accordingly, these exit fees have been recognized in Distributable Earnings upon collection.

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

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For further information regarding the risks associated with our loan portfolio, see Note 3 to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 and elsewhere in this Management Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q and Part I, Item 1A, "Risk Factors" of our 2024 Annual Report.

Pursuant to the terms of our Citibank Master Repurchase Facility, our UBS Master Repurchase Facility and Wells Fargo Master Repurchase Facility, we may sell to, and later repurchase from, UBS, Citibank and Wells Fargo, the purchased assets related to the applicable facility.

The initial purchase price paid by UBS of each purchased asset is up to 80% of the lesser of the market value of the purchased asset or the unpaid principal balance of such purchased asset, subject to UBS's approval.

Pursuant to the terms of our Citibank Master Repurchase Facility, our UBS Master Repurchase Facility and our Wells Fargo Master Repurchase Facility, we may sell to, and later repurchase from, Citibank, UBS and Wells Fargo, the purchased assets related to the applicable facility.

The initial purchase price paid by Citibank of each purchased asset is up to 75% of the lesser of the market value of the purchased asset or the unpaid principal balance of such purchased asset, subject to Citibank's approval.

The initial purchase price paid by Wells Fargo for each purchased asset is up to 75% or 80%, depending on the property type of the purchased asset’s real estate collateral, of the lesser of the market value of the purchased asset or the unpaid principal balance of such purchased asset, and subject to Wells Fargo’s approval.

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

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

The interest rates related to our Citibank, UBS and Wells Fargo purchased assets are calculated at SOFR plus a premium within a fixed range, determined by the debt yield and property type of the purchased asset’s real estate collateral.

Citibank has the discretion to make advancements at margins higher than 75%, and UBS and Wells Fargo each have discretion to make advancements higher than 80%.

Citibank has the discretion to make advancements at margins higher than 75%, and UBS and Wells Fargo each has the discretion to make advancements at margins higher than 80%.

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

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The table below is a summary of our sources and uses of cash flows for the periods presented:

Nine Months Ended September 30,

Three Months Ended March 31,

Cash and cash equivalents at beginning of period $ 70,750 $ 87,855

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Cash and cash equivalents at end of period $ 41,637 $ 93,298

The increase in cash provided by operating activities for the 2024 period compared to the 2023 period was primarily the result of increased interest income earned on cash balances invested and a prepayment premium received in the 2024 period.

The increase in cash provided by investing activities was primarily due to increased loan repayments and decreased loan originations in the 2024 period.

The decrease in cash used in financing activities was primarily due to increased repayments and lower proceeds from our Secured Financing Facilities in the 2024 period.

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The decrease in cash provided by operating activities for the 2025 period compared to the 2024 period was primarily due to lower net interest income resulting from lower weighted average interest rates under our loan investment portfolio.

The decrease in cash provided by investing activities was primarily due to increased loan originations and decreased loan repayments in the 2025 period.

The increase in cash provided by financing activities was primarily due to decreased repayments on our Secured Financing Facilities and increased proceeds from our Secured Financing Facilities in the 2025 period.

Distributions

During the nine months ended September 30, 2024, we declared and paid regular quarterly distributions to our common shareholders totaling $15,556, or $1.05 per common share, using cash on hand.

On October 16, 2024, we declared a regular quarterly distribution of $0.35 per common share, or $5,216, to shareholders of record on October 28, 2024.

We expect to pay this distribution to our common shareholders on or about November 14, 2024 using cash on hand.

During the three months ended March 31, 2025, we declared and paid regular quarterly distributions to our common shareholders totaling $5,216, or $0.35 per common share, using cash on hand.

On April 10, 2025, we declared a regular quarterly distribution of $0.35 per common share, or $5,217, to shareholders of record on April 22, 2025.

We expect to pay this distribution to our common shareholders on or about May 15, 2025 using cash on hand.

For further information regarding distributions, see Note 7 to our Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Contractual Obligations and Commitments

Our contractual obligations and commitments as of September 30, 2024 were as follows:

Our contractual obligations and commitments as of March 31, 2025 were as follows:

Payment Due by Period

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(2) The allocation of outstanding advancements under our Secured Financing Facilities is based on the earlier of the current maturity date of each loan investment with respect to which the individual borrowing relates or the maturity date of the respective Secured Financing Facilities.

(3) Projected interest payments are attributable only to our debt service obligations at existing rates as of September 30, 2024 and are not intended to estimate future interest costs which may result from debt prepayments, additional borrowings, new debt issuances or changes in interest rates.

(4) Lease related costs include capital expenditures used to improve tenants' spaces pursuant to lease agreements or leasing related costs, such as brokerage commissions, related to the Yardley, PA property.

(3) Projected interest payments are attributable only to our debt service obligations at existing rates as of March 31, 2025 and are not intended to estimate future interest costs which may result from debt prepayments, additional borrowings, new debt issuances or changes in interest rates.

Debt Covenants

Our principal debt obligations as of September 30, 2024 were the outstanding balances under our Secured Financing Facilities.

Our principal debt obligations as of March 31, 2025 were the outstanding balances under our Secured Financing Facilities.

The agreements governing our Master Repurchase Facilities, or our Master Repurchase Agreements, provide for acceleration of the date of repurchase of any then purchased assets and the liquidation of the purchased assets by UBS, Citibank or Wells Fargo, as applicable, upon the occurrence and continuation of certain events of default, including a change of control of us, which includes Tremont ceasing to act as our sole manager or to be a wholly owned subsidiary of RMR.

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The Master Repurchase Guarantees contain financial covenants, which require us to maintain a minimum tangible net worth, a minimum liquidity and a minimum interest coverage ratio and to satisfy a total indebtedness to stockholders' equity ratio.

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In connection with our facility loan program agreement and the security agreement with BMO, or the BMO Loan Program Agreement, we have agreed to guarantee certain of the obligations under the BMO Loan Program Agreement and the BMO Facility Loan Agreements pursuant to a limited guaranty from us to and for the benefit of the administrative agent for itself and such other lenders, or the BMO Guaranty.

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

As of September 30, 2024, we had a $273,479 aggregate outstanding principal balance under our Master Repurchase Facilities.

As of March 31, 2025, we had a $338,171 aggregate outstanding principal balance under our Master Repurchase Facilities.

Our Master Repurchase Agreements are structured with risk mitigation mechanisms, including a cash flow sweep, which would allow UBS, Citibank and Wells Fargo, as applicable, to control interest payments from our borrowers under our loans that are financed under our respective Master Repurchase Facilities, and the ability to accelerate dates of repurchase and institute margin calls, which may require us to pay down balances associated with one or more of our loans that are financed under our Master Repurchase Facilities.

As of September 30, 2024, we had a $103,855 aggregate outstanding principal balance under the BMO Facility.

As of September 30, 2024, we were in compliance with all covenants and other terms under our Secured Financing Facilities.

As of March 31, 2025, we had a $103,855 aggregate outstanding principal balance under the BMO Facility.

As of March 31, 2025, we were in compliance with all covenants and other terms under our Secured Financing Facilities.

Related Person Transactions

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We may engage in additional transactions with related persons, including businesses to which RMR, Tremont or their respective subsidiaries provide management services.

Critical Accounting Estimates

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

Actual results could differ from those estimates.

Significant estimates in our condensed consolidated financial statements include revenue recognition, loans held for investment, allowance for credit losses and real estate owned.

A discussion of our critical accounting estimates is included in our 2024 Annual Report.

There have been no significant changes in our critical accounting estimates since the year ended December 31, 2024.

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Quantitative and Qualitative Disclosures About Market Risk

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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 2. Management’s Discussion and Analysis