Seven Hills Realty Trust 10-Q

Item 1. Financial Statements SEVEN HILLS REALTY TRUST CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share data) (unaudited) March 31, December 31, 2025 2024 ASSETS Cash and cash equivalents $ 41,637 $ 70,750 Loans held for investment 660,237 609,916 Allowance for credit losses ( 7,648 ) ( 8,074 ) Loans held for investment, net 652,589 601,842 Real estate owned, net 11,085 11,187 Acquired real estate leases, net 3,209 3,366 Accrued interest receivable 3,329 2,954 Prepaid expenses and other assets, net 2,553 2,709 Total assets $ 714,402 $ 692,808 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable, accrued liabilities and other liabilities $ 3,751 $ 3,982 Secured financing facilities, net 440,474 417,796 Due to related persons 1,232 1,752 Total liabilities 445,457 423,530 Commitments and contingencies Shareholders' equity: Common shares of beneficial interest, $ 0.001 par value per share; 25,000,000 shares authorized; 14,907,123 and 14,902,773 shares issued and outstanding, respectively 15 15 Additional paid in capital 240,776 240,425 Cumulative net income 94,012 89,480 Cumulative distributions ( 65,858 ) ( 60,642 ) Total shareholders' equity 268,945 269,278 Total liabilities and shareholders' equity $ 714,402 $ 692,808 See accompanying notes. 1 Table of Contents SEVEN HILLS REALTY TRUST CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands, except per share data) (unaudited) Three Months Ended March 31, 2025 2024 INCOME FROM INVESTMENTS: Interest and related income $ 14,322 $ 16,311 Purchase discount accretion — 1,145 Less: interest and related expenses ( 7,437 ) ( 8,673 ) Income from loan investments, net 6,885 8,783 Revenue from real estate owned 709 579 Total revenue 7,594 9,362 OTHER EXPENSES: Base management fees 1,079 1,080 Incentive fees 18 50 General and administrative expenses 963 963 Reimbursement of shared services expenses 550 691 (Reversal of) provision for credit losses ( 153 ) 697 Expenses from real estate owned 594 645 Total other expenses 3,051 4,126 Income before income taxes 4,543 5,236 Income tax expense ( 11 ) ( 3 ) Net income $ 4,532 $ 5,233 Weighted average common shares outstanding - basic and diluted 14,757 14,675 Net income per common share - basic and diluted $ 0.30 $ 0.35 See accompanying notes. 2 Table of Contents SEVEN HILLS REALTY TRUST CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (amounts in thousands) (unaudited) Number of Common Shares Common Shares Additional Paid In Capital Cumulative Net Income Cumulative Distributions Total Balance at December 31, 2024 14,903 $ 15 $ 240,425 $ 89,480 $ ( 60,642 ) $ 269,278 Share grants 5 — 356 — — 356 Share repurchases ( 1 ) — ( 5 ) — — ( 5 ) Net income — — — 4,532 — 4,532 Distributions — — — — ( 5,216 ) ( 5,216 ) Balance at March 31, 2025 14,907 $ 15 $ 240,776 $ 94,012 $ ( 65,858 ) $ 268,945 Balance at December 31, 2023 14,811 $ 15 $ 239,443 $ 71,660 $ ( 39,870 ) $ 271,248 Share grants — — 336 — — 336 Share repurchases ( 6 ) — ( 75 ) — — ( 75 ) Net income — — — 5,233 — 5,233 Distributions — — — — ( 5,184 ) ( 5,184 ) Balance at March 31, 2024 14,805 $ 15 $ 239,704 $ 76,893 $ ( 45,054 ) $ 271,558 See accompanying notes. 3 Table of Contents SEVEN HILLS REALTY TRUST CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) Three Months Ended March 31, 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,532 $ 5,233 Adjustments to reconcile net income to net cash provided by operating activities: Accretion of purchase discount — ( 1,145 ) (Reversal of) provision for credit losses ( 153 ) 697 Amortization of loan origination and exit fees ( 513 ) ( 582 ) Amortization of deferred financing costs 366 325 Straight line rental income ( 16 ) ( 278 ) Depreciation and amortization 280 368 Share based compensation 356 336 Changes in operating assets and liabilities: Accrued interest receivable ( 375 ) 232 Prepaid expenses and other assets 149 336 Accounts payable, accrued liabilities and other liabilities ( 420 ) 2 Due to related persons ( 520 ) ( 800 ) Net cash provided by operating activities 3,686 4,724 CASH FLOWS FROM INVESTING ACTIVITIES: Origination of loans held for investment ( 45,735 ) — Additional funding of loans held for investment ( 4,073 ) ( 886 ) Repayment of loans held for investment — 40,440 Real estate owned improvements ( 93 ) — Net cash (used in) provided by investing activities ( 49,901 ) 39,554 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from secured financing facilities 22,404 — Repayments under secured financing facilities — ( 33,224 ) Payments of deferred financing costs ( 81 ) ( 352 ) Repurchase of common shares ( 5 ) ( 75 ) Distributions ( 5,216 ) ( 5,184 ) Net cash provided by (used in) financing activities 17,102 ( 38,835 ) (Decrease) increase in cash and cash equivalents ( 29,113 ) 5,443 Cash and cash equivalents at beginning of period 70,750 87,855 Cash and cash equivalents at end of period $ 41,637 $ 93,298 SUPPLEMENTAL DISCLOSURES: Interest paid $ 7,002 $ 8,421 Income taxes refunded $ — $ ( 64 ) 4 Table of Contents SEVEN HILLS REALTY TRUST NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) Note 1. Basis of Presentation The accompanying condensed consolidated financial statements are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2024, or our 2024 Annual Report. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim periods have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the accompanying condensed consolidated financial statements include the allowance for credit losses, the valuation of real estate owned and the fair value of financial instruments. Note 2. Recent Accounting Pronouncements In November 2024, the Financial Accounting Standards Board issued Accounting Standards Update, or ASU, No. 2024-03, Income Statement (Topic 220): Reporting Comprehensive Income - Expense Disaggregation Disclosures , or ASU No. 2024-03, which requires public entities to provide disaggregated disclosure of certain income statement expense captions within the footnotes to the financial statements. ASU No. 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. We are currently evaluating the impact ASU No. 2024-03 will have on our consolidated financial statements and disclosures. Note 3. Loans Held for Investment, net We originate first mortgage loans secured by middle market transitional commercial real estate, or CRE, which are generally to be held as long term investments. We fund our loan portfolio using cash on hand and advancements under our Secured Financing Facilities, as defined in Note 5. See Note 5 for further information regarding our secured financing agreements. The table below provides overall statistics for our loan portfolio as of March 31, 2025 and December 31, 2024: As of March 31, 2025 As of December 31, 2024 Number of loans 23 21 Total loan commitments $ 690,913 $ 641,213 Unfunded loan commitments (1) $ 29,524 $ 30,402 Principal balance $ 661,389 $ 610,811 Carrying value $ 652,589 $ 601,842 Weighted average coupon rate 8.07 % 8.24 % Weighted average all in yield (2) 8.46 % 8.62 % Weighted average floor 2.16 % 2.12 % Weighted average maximum maturity (years) (3) 2.6 2.6 Weighted average risk rating 2.9 3.1 (1) Unfunded loan commitments are primarily used to finance property improvements and leasing capital and are generally funded over the term of the loan. (2) All in yield represents the yield on a loan, including amortization of deferred fees over the initial term of the loan and excluding any purchase discount accretion. (3) Maximum maturity assumes all borrower loan extension options have been exercised, which options are subject to the borrower meeting certain conditions. 5 SEVEN HILLS REALTY TRUST NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) The tables below represent our loan activities during the three months ended March 31, 2025 and 2024: Principal Balance Deferred Fees and Other Items Amortized Cost Balance at December 31, 2024 $ 610,811 $ ( 895 ) $ 609,916 Additional funding 4,073 — 4,073 Originations 46,505 ( 770 ) 45,735 Net amortization of deferred fees — 513 513 Balance at March 31, 2025 $ 661,389 $ ( 1,152 ) $ 660,237 Principal Balance Deferred Fees and Other Items Amortized Cost Balance at December 31, 2023 $ 629,892 $ ( 3,430 ) $ 626,462 Additional funding 1,044 ( 158 ) 886 Repayments ( 40,304 ) ( 136 ) ( 40,440 ) Net amortization of deferred fees — 582 582 Purchase discount accretion — 1,145 1,145 Balance at March 31, 2024 $ 590,632 $ ( 1,997 ) $ 588,635 The tables below detail the property type and geographic location of the properties securing the loans in our portfolio as of March 31, 2025 and December 31, 2024: March 31, 2025 December 31, 2024 Property Type Number of Loans Amortized Cost Percentage of Value Number of Loans Amortized Cost Percentage of Value Multifamily 7 $ 212,840 32 % 5 $ 163,987 27 % Office 6 167,805 25 % 6 167,749 28 % Industrial 5 138,012 21 % 5 136,646 22 % Hotel 3 84,110 13 % 3 84,028 14 % Retail 2 57,470 9 % 2 57,506 9 % 23 $ 660,237 100 % 21 $ 609,916 100 % March 31, 2025 December 31, 2024 Geographic Location Number of Loans Amortized Cost Percentage of Value Number of Loans Amortized Cost Percentage of Value South 9 $ 238,213 36 % 7 $ 192,108 32 % West 6 142,962 22 % 6 142,560 23 % East 4 141,155 21 % 4 139,899 23 % Midwest 4 137,907 21 % 4 135,349 22 % 23 $ 660,237 100 % 21 $ 609,916 100 % 6 SEVEN HILLS REALTY TRUST NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) Credit Quality Information and Allowance for Credit Losses We evaluate the credit quality of each of our loans at least quarterly by assessing a variety of risk factors in relation to each loan and assigning a risk rating to each loan based on those factors. The higher the number, the greater the risk level. See our 2024 Annual Report for more information regarding our loan risk ratings. As of March 31, 2025 and December 31, 2024, the amortized cost of our loan portfolio within each internal risk rating by year of origination was as follows: March 31, 2025 Risk Rating Number of Loans Percentage of Portfolio 2025 2024 2023 2022 2021 Prior Total 1 2 6 % $ — $ — $ 24,251 $ — $ 15,263 $ — $ 39,514 2 4 21 % — 57,453 28,892 — 54,868 — 141,213 3 12 51 % 45,993 76,279 25,107 164,327 23,603 — 335,309 4 5 22 % — — — — 114,559 29,642 144,201 5 — — % — — — — — — — 23 100 % $ 45,993 $ 133,732 $ 78,250 $ 164,327 $ 208,293 $ 29,642 $ 660,237 December 31, 2024 Risk Rating Number of Loans Percentage of Portfolio 2024 2023 2022 2021 Prior Total 1 — — % $ — $ — $ — $ — $ — $ — 2 4 18 % 41,570 53,070 — 15,252 — 109,892 3 12 58 % 91,515 25,086 163,228 76,034 — 355,863 4 5 24 % — — — 114,556 29,605 144,161 5 — — % — — — — — — 21 100 % $ 133,085 $ 78,156 $ 163,228 $ 205,842 $ 29,605 $ 609,916 Allowance for credit losses We measure our allowance for credit losses using the current expected credit loss, or CECL, model, which is based upon historical experience, current conditions and reasonable and supportable forecasts incorporating forward-looking information that affect the collectability of the reported amount. The allowance for credit losses is a valuation account that is deducted from the related loans’ amortized cost basis in our condensed consolidated balance sheets. Our loans typically include commitments to fund incremental proceeds to borrowers over the life of the loan; these future funding commitments are also subject to the CECL model. The allowance for credit losses related to unfunded loan commitments is included in accounts payable, accrued liabilities and other liabilities in our condensed consolidated balance sheets. 7 SEVEN HILLS REALTY TRUST NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) Given the lack of historical loss data related to our loan portfolio, we estimate our expected losses using an analytical model that considers the likelihood of default and loss given default for each individual loan. This analytical model incorporates data from a third party database with historical loan loss information for commercial mortgage-backed securities, or CMBS, and CRE loans since 1998. We estimate the allowance for credit losses for our portfolio, including unfunded loan commitments, at the individual loan level. Significant inputs to the model include certain loan specific data, such as loan to value, or LTV, property type, geographic location, occupancy, vintage year, remaining loan term, net operating income, expected timing and amounts of future loan fundings and macroeconomic forecast assumptions, including the performance of CRE assets, unemployment rates, interest rates and other factors. We utilize the model to estimate credit losses over a reasonable and supportable economic forecast period of 12 months, followed by a straight-line reversion period of 12 months to average historical losses. Average historical losses are established using a population of third party historical loss data that approximates our portfolio as of the measurement date. 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. We have elected to exclude accrued interest receivable from amortized cost and not to measure an allowance for credit losses on accrued interest receivable. Accrued interest receivables are generally written off when payments are 120 days past due. Such amounts are reversed against interest income and no further interest will be recorded until it is collected. 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. See Note 2 to our Consolidated Financial Statements included in Part IV, Item 15 of our 2024 Annual Report for further information regarding our measurement of our allowance for credit losses. The tables below represent the changes to the allowance for credit losses during the three months ended March 31, 2025 and 2024. Loans Held for Investment, net Unfunded Loan Commitments Total Balance at December 31, 2024 $ 8,074 $ 834 $ 8,908 (Reversal of) provision for credit losses ( 426 ) 273 ( 153 ) Balance at March 31, 2025 $ 7,648 $ 1,107 $ 8,755 Loans Held for Investment, net Unfunded Loan Commitments Total Balance at December 31, 2023 $ 4,376 $ 1,452 $ 5,828 Provision for (reversal of) credit losses 773 ( 76 ) 697 Balance at March 31, 2024 $ 5,149 $ 1,376 $ 6,525 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, including future funding of our unfunded loan commitments. We may enter into loan modifications that include, among other changes, extensions of maturity dates, repurposing or required replenishment of reserves, increases or decreases in loan commitments and required pay downs of principal amounts outstanding. Loan modifications are evaluated to determine whether a modification results in a new loan or a continuation of an existing loan under ASC 310. 8 SEVEN HILLS REALTY TRUST NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) 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 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 the Secured Overnight Financing Rate, or SOFR, + 4.75 % to SOFR + 3.75 % and the maturity date was extended by two years to July 1, 2026. 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. 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. We did not have any outstanding past due loans or nonaccrual loans as of March 31, 2025 or December 31, 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. See our 2024 Annual Report for more information regarding our nonaccrual policy. As of March 31, 2025, we had unfunded loan commitments of $ 29,524 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 1.2 years as of March 31, 2025. Note 4. Real Estate Owned Real estate owned is property acquired in full or partial settlement of loan obligations, generally through foreclosure or by deed in lieu of foreclosure. Upon acquisition, we allocate the fair value of the real estate owned in accordance with ASC 805, Business Combinations. 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. In June 2023, we assumed legal title to an office property located in Yardley, PA through a deed in lieu of foreclosure. The table below presents the assets and liabilities of real estate owned in our condensed consolidated balance sheets: March 31, 2025 December 31, 2024 Land, building and improvements $ 11,733 $ 11,735 Less: accumulated depreciation ( 648 ) ( 548 ) Real estate owned, net 11,085 11,187 Acquired real estate leases, net 3,209 3,366 Prepaid expenses and other assets, net (1) 1,883 1,826 Total assets $ 16,177 $ 16,379 Accounts payable, accrued liabilities and other liabilities $ 409 $ 501 Total liabilities $ 409 $ 501 (1) Includes $ 1,110 and $ 1,094 of straight line rent receivables as of March 31, 2025 and December 31, 2024, respectively. 9 SEVEN HILLS REALTY TRUST NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) 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. We increased revenue from real estate owned to record revenue on a straight line basis by $ 16 and $ 278 for the three months ended March 31, 2025 and 2024, respectively. Expenses from real estate owned represents costs to operate the property and depreciation and amortization expense. 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. Note 5. Secured Financing Agreements As of March 31, 2025, we had secured financing facilities governed by master repurchase agreements with Wells Fargo, National Association, or Wells Fargo, Citibank, N.A., or Citibank, and UBS AG, or UBS; and a facility loan program with BMO Harris Bank N.A., or BMO. We refer to the Wells Fargo, Citibank and UBS facilities as our Master Repurchase Facilities and the BMO facility as our BMO Facility. Collectively, we refer to our Master Repurchase Facilities and the BMO Facility as our Secured Financing Facilities. See our 2024 Annual Report for more information regarding our Secured Financing Facilities. The table below summarizes our Secured Financing Facilities as of March 31, 2025 and December 31, 2024: Debt Obligation Weighted Average Collateral Maximum Facility Size Principal Balance Carrying Value Coupon Rate (1) Remaining Maturity (years) (2) Maturity Date Principal Balance March 31, 2025: UBS Master Repurchase Facility $ 250,000 $ 181,989 $ 181,619 6.77 % 0.6 2/18/2026 $ 269,609 Citibank Master Repurchase Facility 215,000 93,314 92,783 6.49 % 1.3 9/27/2026 145,773 BMO Facility 150,000 103,855 103,660 6.30 % 0.7 Various 146,471 Wells Fargo Master Repurchase Facility 125,000 62,868 62,412 6.22 % 0.6 3/11/2026 81,036 Total/weighted average $ 740,000 $ 442,026 $ 440,474 6.52 % 0.8 $ 642,889 December 31, 2024: UBS Master Repurchase Facility $ 250,000 $ 181,989 $ 181,566 6.85 % 0.7 2/18/2026 $ 267,084 Citibank Master Repurchase Facility 215,000 93,314 92,700 6.57 % 1.5 9/27/2026 145,520 BMO Facility 150,000 103,855 103,622 6.39 % 0.9 Various 145,234 Wells Fargo Master Repurchase Facility 125,000 40,464 39,908 6.31 % 0.6 3/11/2026 52,973 Total/weighted average $ 740,000 $ 419,622 $ 417,796 6.62 % 0.9 $ 610,811 (1) The weighted average coupon rate is determined using SOFR plus a spread ranging from 1.83 % to 2.95 %, as applicable, for the respective borrowings under our Secured Financing Facilities as of the applicable date. (2) The weighted average remaining maturity of our Master Repurchase Facilities is determined using the earlier of the underlying loan investment maturity date and the respective repurchase agreement maturity date. The weighted average remaining maturity of the BMO Facility is determined using the underlying loan investment maturity date. As of March 31, 2025, we were in compliance with the covenants and other terms of the agreements that govern our Secured Financing Facilities. 10 SEVEN HILLS REALTY TRUST NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) As of March 31, 2025, our outstanding borrowings under our Secured Financing Facilities had the following remaining maturities: Year Principal Payments on Secured Financing Facilities 2025 $ 222,303 2026 203,635 2027 16,088 2028 and thereafter — $ 442,026 Based upon the performance and payment history of our commercial mortgage loans, along with our ability to obtain financing under repurchase agreements and success in extending certain of our existing Master Repurchase Agreements, we believe it is probable that we will extend our Master Repurchase Facilities prior to their maturities. Note 6. Fair Value Measurements The carrying values of cash and cash equivalents and accounts payable approximate their fair values due to the short term nature of these financial instruments. We estimate the fair values of our loans held for investment and outstanding principal balances under our Secured Financing Facilities by using Level III inputs, including discounted cash flow analyses and currently prevailing market terms as of the measurement date. See our 2024 Annual Report for further information regarding the fair value of financial instruments. The table below provides information regarding financial assets and liabilities not carried at fair value in our condensed consolidated balance sheets: March 31, 2025 December 31, 2024 Carrying Value Fair Value Carrying Value Fair Value Financial assets Loans held for investment $ 652,589 $ 655,861 $ 601,842 $ 603,558 Financial liabilities Secured Financing Facilities $ 440,474 $ 441,125 $ 417,796 $ 418,492 There were no transfers of financial assets or liabilities within the fair value hierarchy during the three months ended March 31, 2025. Note 7. Shareholders' Equity Common Share Awards On March 19, 2025, in accordance with our Trustee compensation arrangements, we awarded one of our Trustees 4,709 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 $ 60 . Common Share Purchases During the three months ended March 31, 2025, we purchased 359 of our common shares from certain current and former officers of The RMR Group LLC, or RMR, in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares, valued at the closing price of our common shares on Nasdaq on the applicable purchase date. The aggregate value of common shares purchased was $ 5 . 11 SEVEN HILLS REALTY TRUST NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) Distributions For the three months ended March 31, 2025, we declared and paid regular quarterly distributions to common shareholders, using cash on hand, as follows: Record Date Payment Date Distribution per Share Total Distribution January 27, 2025 February 20, 2025 $ 0.35 $ 5,216 On April 10, 2025, we declared a 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 on or about May 15, 2025, using cash on hand. Note 8. Management Agreement with Tremont We have no employees. The personnel and various services we require to operate our business are provided to us, pursuant to a management agreement with Tremont Realty Capital LLC, or Tremont, which provides for the day to day management of our operations, subject to the oversight and direction of our Board of Trustees. We pay Tremont an annual base management fee payable quarterly ( 0.375 % per quarter) in arrears equal to 1.5 % of our “Equity,” as defined under our management agreement. We include these amounts in base management fees in our condensed consolidated statements of operations. Pursuant to the terms of our management agreement, we also pay Tremont management incentive fees, subject to Tremont earning those fees in accordance with the management agreement. We include these amounts in incentive fees in our condensed consolidated statements of operations. Tremont, and not us, is responsible for the costs of its employees who provide services to us, unless any such payment or reimbursement is specifically approved by a majority of our Independent Trustees, is a shared services cost or relates to awards made under any equity compensation plan adopted by us. We are required to pay or to reimburse Tremont and its affiliates for all other costs and expenses of our operations. Some of these overhead, professional and other services are provided by RMR, pursuant to a shared services agreement between Tremont and RMR. These reimbursements include an allocation of the cost of personnel employed by RMR. These shared services costs are subject to approval by a majority of our Independent Trustees at least annually. We include these amounts in reimbursement of shared services expenses in our condensed consolidated statements of operations. See our 2024 Annual Report for further information regarding our management agreement with Tremont. Note 9. Related Person Transactions We have relationships and historical and continuing transactions with Tremont, RMR, The RMR Group Inc., or RMR Inc., and others related to them, including other companies to which RMR or its subsidiaries provide management services and some of which have trustees or officers who are also our Trustees or officers. Tremont is a subsidiary of RMR, which is a majority owned subsidiary of RMR Inc., and RMR Inc. is the managing member of RMR. RMR provides certain shared services to Tremont that are applicable to us, and we reimburse Tremont or pay RMR for the amounts Tremont or RMR pays for those services. One of our Managing Trustees and Chair of our Board of Trustees, Adam D. Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., and he is also a director of Tremont, the chair of the board of directors, a managing director and the president and chief executive officer of RMR Inc., and an officer and employee of RMR. Matthew P. Jordan, our other Managing Trustee, is a director and the president and chief executive officer of Tremont. Mr. Jordan is also an officer of RMR Inc. and an officer and employee of RMR, and our other officers are officers and employees of Tremont and/or RMR. Certain of our Independent Trustees also serve as independent trustees of other public companies to which RMR or its subsidiaries provide management services. Adam D. Portnoy serves as the chair of the board and as a managing trustee of those companies and other officers of RMR, including Mr. Jordan and certain of our other officers and officers of Tremont serve as managing trustees or officers of certain of these companies. Our Manager, Tremont Realty Capital LLC. Tremont provides management services to us pursuant to our management agreement. See Note 8 for further information regarding our management agreement. As of March 31, 2025, Tremont owned 1,708,058 of our common shares, and Mr. Portnoy beneficially owned (including through Tremont and ABP Trust) 13.5 % of our outstanding common shares. 12 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 property management agreement with RMR in July 2023 with respect to 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 recognized property management and construction supervision fees of $ 21 and $ 9 for the three months ended March 31, 2025 and 2024, respectively, related to real estate owned. For further information about these and other such relationships and certain other related person transactions, refer to our 2024 Annual Report. Note 10. Income Taxes We have elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the IRC. Accordingly, we generally are not, and will not be, subject to U.S. federal income tax, provided that we meet certain distribution and other requirements. We are subject to certain state and local taxes, certain of which amounts are or will be reported as income taxes in our condensed consolidated statements of operations. Note 11. Weighted Average Common Shares We calculate net income per common share - basic using the two class method. We calculate net income per common share - diluted using the more dilutive of the two class or treasury stock method. Unvested share awards are considered participating securities and the related impact on earnings are considered when calculating net income per common share - basic and net income per common share - diluted. The calculation of net income per common share - basic and diluted is as follows (amounts in thousands, except per share data): Three Months Ended March 31, 2025 2024 Numerators: Net income $ 4,532 $ 5,233 Net income attributable to unvested share awards ( 51 ) ( 48 ) Net income used in calculating net income per common share - basic and diluted $ 4,481 $ 5,185 Denominators: Weighted average common shares outstanding - basic and diluted 14,757 14,675 Net income per common share - basic and diluted $ 0.30 $ 0.35 Note 12. Segment Reporting We manage our business on a consolidated basis and therefore have one reportable segment: originating and investing in floating rate first mortgage loans secured by CRE properties. The Chief Operating Decision Maker, or CODM, is our President and Chief Investment Officer. The CODM assesses performance, allocates resources and makes strategic decisions based on net income as shown in our condensed consolidated statements of operations. Our significant expense categories are included in our condensed consolidated statements of operations. The measure of segment assets is reported as total assets in our condensed consolidated balance sheets. 13 Tab le of Contents