UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~March 3031, ~~2020~~2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-38199

Tremont Mortgage Trust

(Exact Name of Registrant as Specified in Its Charter)


Maryland			82-1719041
(State of Organization)			(IRS Employer Identification No.)

Two Newton Place, 255 Washington Street, Suite 300, Newton, MA 02458-1634

(Address of Principal Executive Offices) (Zip Code)

Registrant’s Telephone Number, Including Area Code 617-796-8317

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of each exchange on which registered

Common Shares of Beneficial Interest

TRMT

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided in Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of registrant's common shares of beneficial interest, $0.01 par value per share, outstanding as of ~~November~~April 223, ~~2020~~2021: 8,~~303~~305,~~254~~911

Table of Contents

TREMONT MORTGAGE TRUST

FORM 10-Q

~~September~~March 3031, ~~2020~~2021

INDEX

		Page
PART I	Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets — September 30, 2020 and December 31, 2019	1
	Condensed Consolidated Balance Sheets — March 31, 2021 and December 31, 2020	1
	Condensed Consolidated Statements of Operations — Three and Nine Months Ended September 30, 2020 and 2019	2
	Condensed Consolidated Statements of Operations — Three Months Ended March 31, 2021 and 2020	2
	Condensed Consolidated Statements of Shareholders’ Equity — Three and Nine Months Ended September 30, 2020 and 2019	3
	Condensed Consolidated Statements of Shareholders’ Equity — Three Months Ended March 31, 2021 and 2020	3
	Condensed Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2020 and 2019	4
	Condensed Consolidated Statements of Cash Flows — Three Months Ended March 31, 2021 and 2020	4
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1614
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3026
Item 4.	Controls and Procedures	3127
	Warning Concerning Forward-Looking Statements	3228
PART II	Other Information	3633
Item 1A.	Risk Factors	3633
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6.	Exhibits	38
Item 5.	Other Information	39
	Signatures	39
Item 6.	Exhibits	40
	Signatures	41

References in this Quarterly Report on Form 10-Q to the Company, we, us or our include Tremont Mortgage Trust and its consolidated subsidiaries unless otherwise expressly stated or the context indicates otherwise.

Table of Contents

PART I. Financial Information

Item 1. Financial Statements

TREMONT MORTGAGE TRUST

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(unaudited)

	September 30,		December 31,
	March 31,		December 31,
	2020		2019
	2021		2020
ASSETS
Cash and cash equivalents	$	1110,~~036~~890	$	810,~~732~~521
Restricted cash	—		143
Loans held for investment, net	260,179		282,246
Loans held for investment, net	280,219		242,078
Accrued interest receivable	922		996
Accrued interest receivable	946		755
Prepaid expenses and other assets	313		419
Prepaid expenses and other assets	40		221
Total assets	$	272,304	$	294,182
Total assets	$	292,241	$	251,929
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued liabilities and deposits	$	~~658~~748	$	15,~~011~~041
Master repurchase facility, net	~~200~~180,~~501~~040		~~164~~200,~~694~~233
Due to related persons	19987		35
Total liabilities	~~201~~181,~~178~~775		~~165~~205,~~708~~279
Commitments and contingencies
Shareholders' equity:
Common shares of beneficial interest, $0.01 par value per share; 25,000,000 shares authorized; 8,303,254 and 8,239,610 shares issued and outstanding, respectively	83		82
Common shares of beneficial interest, $0.01 par value per share; 25,000,000 shares authorized; 8,305,911 and 8,302,911 shares issued and outstanding, respectively	83		83
Additional paid in capital	89,~~035~~211		8889,~~869~~160
Cumulative net income	812,~~590~~363		110,~~937~~788
Cumulative distributions	(611,~~645~~128)		(411,~~667~~128)
Total shareholders’ equity	9190,~~063~~529		8688,~~221~~903
Total liabilities and shareholders' equity	$	~~292~~272,~~241~~304	$	~~251~~294,~~929~~182

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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TREMONT MORTGAGE TRUST

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share data)

(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2020		2019		2020		2019
	2021		2020
INCOME FROM INVESTMENTS:
Interest income from investments	$	4,~~632~~486	$	4,~~959~~284	$	~~13,412~~	$	~~11,872~~
Less: interest and related expenses	(1,~~242~~135)		(1,~~992~~757)		~~(4,367)~~		~~(5,572)~~
Income from investments, net	3,~~390~~351		2,~~967~~527		~~9,045~~		~~6,300~~
OTHER EXPENSES:
General and administrative expenses	576		541		1,640		1,662
Base management fees	342		—
Reimbursement of shared services expenses	189		370		752		1,110
Management incentive fees	620		—
Total expenses	765		911		2,392		2,772
General and administrative expenses	669		540
Net income	$	2,625	$	2,056	$	6,653	$	3,528
Reimbursement of shared services expenses	138		321
Weighted average common shares outstanding - basic and diluted	8,190		8,156		8,179		5,583
Total expenses	1,769		861
Net income per common share - basic and diluted	$	0.32	$	0.25	$	0.81	$	0.63
Income before income tax expense	1,582		1,666
Income tax expense	(7)		—
Net income	$	1,575	$	1,666
Weighted average common shares outstanding - basic	8,211		8,169
Weighted average common shares outstanding - diluted	8,239		8,169
Net income per common share - basic and diluted	$	0.19	$	0.20

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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TREMONT MORTGAGE TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(amounts in thousands)

(unaudited)

	Number of			Additional
	Common	Common		Paid In		Cumulative		Cumulative
	Shares	Shares		Capital		Net Income ~~(Loss)~~		Distributions		Total
Balance at December 31, 2020	8,303	$	83	$	89,160	$	10,788	$	(11,128)	$	88,903
Share grants	3	—		51		—		—		51
Net income	—	—		—		1,575		—		1,575
Balance at March 31, 2021	8,306	$	83	$	89,211	$	12,363	$	(11,128)	$	90,529
Balance at December 31, 2019	8,240	$	82	$	88,869	$	1,937	$	(4,667)	$	86,221
Share grants	—	—		42		—		—		42
Share repurchases	(1)	—		(2)		—		—		(2)
Net income	—	—		—		1,666		—		1,666
Distributions	—	—		—		—		(1,895)		(1,895)
Balance at March 31, 2020	8,239	82$	82	~~88,909~~$	88,909	~~3,603~~$	3,603	~~(6,562)~~$	(6,562)	~~86,032~~$	86,032
Share grants	15	1		71		—		—		72
Share repurchases	—	—		(1)		—		—		(1)
Net income	—	—		—		2,362		—		2,362
Balance at June 30, 2020	8,254	83		88,979		5,965		(6,562)		88,465
Share grants	56	—		76		—		—		76
Share repurchases	(7)	—		(20)		—		—		(20)
Net income	—	—		—		2,625		—		2,625
Distributions	—	—		—		—		(83)		(83)
Balance at September 30, 2020	8,303	$	83	$	89,035	$	8,590	$	(6,645)	$	91,063
Balance at December 31, 2018	3,179	$	32	$	62,540	$	(2,904)	$	—	$	59,668
Share grants	—	—		35		—		—		35
Net income	—	—		—		578		—		578
Distributions	—	—		—		—		(350)		(350)
Balance at March 31, 2019	3,179	32		62,575		(2,326)		(350)		59,931
Share grants	15	—		185		—		—		185
Share repurchases	(1)	—		(6)		—		—		(6)
Net income	—	—		—		894		—		894
Distributions	—	—		—		—		(702)		(702)
Issuance of shares, net	5,000	50		26,024		—		—		26,074
Balance at June 30, 2019	8,193	82		88,778		(1,432)		(1,052)		86,376
Share grants	53	—		80		—		—		80
Share repurchases	(6)	—		(31)		—		—		(31)
Net income	—	—		—		2,056		—		2,056
Distributions	—	—		—		—		(1,802)		(1,802)
Balance at September 30, 2019	8,240	$	82	$	88,827	$	624	$	(2,854)	$	86,679

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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TREMONT MORTGAGE TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2020		2019
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	61,~~653~~575	$	31,~~528~~666
Adjustments to reconcile net income to net cash provided by operating activities:
Share based compensation	~~190~~51		~~300~~42
Amortization of deferred financing costs	~~364~~107		~~502~~119
Amortization of loan origination and exit fees	(~~1,441~~296)		(~~1,333~~462)
Changes in operating assets and liabilities:
Accrued interest receivable and interest advances	(~~933~~197)		(~~367~~231)
Prepaid expenses and other assets	~~181~~106		~~136~~28
Accounts payable, accrued liabilities and deposits	~~(353)~~108		(~~176~~185)
Due to related persons	16982		~~(101)~~331
Net cash provided by operating activities	42,~~677~~436		21,~~489~~308
CASH FLOWS FROM INVESTING ACTIVITIES:
Origination of loans held for investment	~~(25,738)~~99		(~~119~~25,~~062~~738)
Additional funding of loans held for investment	(122,~~309~~265)		(43,~~835~~176)
Repayment of loans held for investment	224,~~089~~800		~~53,610~~—
Net cash used in investing activities	(35,958)		(70,287)
Net cash provided by (used in) investing activities	22,634		(28,914)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from master repurchase facility	363,~~873~~612		9230,~~983~~806
Repayments under master repurchase facility	(123,~~358~~912)		~~(34,312)~~—
Proceeds from RMR credit agreement	—		14,220
Payments of deferred financing costs	—		(53)
Repayment of RMR credit agreement	—		(14,220)
Repurchase of common shares	—		(2)
Repayment of note payable	—		(31,690)
Distributions	(4,401)		(1,813)
Payments of deferred financing costs	(72)		(347)
Net cash (used in) provided by financing activities	(24,701)		28,938
Proceeds from issuance of common shares, net	—		26,074
Increase in cash, cash equivalents and restricted cash	369		1,332
Repurchase of common shares	(23)		(37)
Cash, cash equivalents and restricted cash at beginning of period	10,521		8,875
Distributions	(1,978)		(2,854)
Cash, cash equivalents and restricted cash at end of period	$	10,890	$	10,207
Net cash provided by financing activities	33,442		49,817
Increase (decrease) in cash, cash equivalents and restricted cash	2,161		(17,981)
Cash, cash equivalents and restricted cash at beginning of period	8,875		27,335
Cash, cash equivalents and restricted cash at end of period	$	11,036	$	9,354
SUPPLEMENTAL DISCLOSURES:
Interest paid	$	41,~~059~~047	$	41,~~974~~660

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SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

The table below provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows:

	As of September 30,
	As of March 31,
	2020		2019
	2021		2020
Cash and cash equivalents	$	1110,~~036~~890	$	910,~~244~~204
Restricted cash	—		~~110~~3
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	1110,~~036~~890	$	910,~~354~~207

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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TREMONT MORTGAGE 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 of Tremont Mortgage Trust and its consolidated subsidiaries 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, ~~2019~~2020, or our 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 period 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 fair value of financial instruments.

~~Note~~On 2April 26, 2021, we and RMR Mortgage Trust, or RMRM, entered into an Agreement and Plan of Merger, or the Merger Agreement, pursuant to which, on the terms and subject to the satisfaction or waiver of the conditions thereof, we have agreed to merge with and into RMRM, with RMRM continuing as the surviving entity in the merger, or the Merger. ~~Summary~~Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of ~~Significant~~the ~~Accounting~~Merger, ~~Policies~~or the Effective

~~Consolidation.~~Time, ~~For~~ each ~~investment we make, we evaluate whether consolidation~~ of ~~the~~our ~~borrower's~~common ~~financial~~shares ~~statements is required under GAAP. GAAP addresses the application~~ of ~~consolidation~~beneficial ~~principles to an investor with a controlling financial~~ interest~~. Variable interest entities~~, or$0.01 ~~VIEs,~~par ~~are~~value ~~subject~~per to consolidation under GAAP if their equity investors do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other partiesshare, ~~are not able to direct the entity’s most significant activities~~ or ~~are~~our ~~not~~common ~~exposed to the entity’s losses or entitled to its residual returns. VIEs are required to be consolidated by their primary beneficiaries~~shares, ~~which~~issued ~~are the entities with the power to direct the activities which are most significant to the economic performance of the VIE. These determinations often involve complex~~ and ~~subjective analyses. As of September 30, 2020, we concluded that our investments were not VIEs.~~

~~Cash~~outstanding immediately prior to the Effective Time will be converted into the right to receive 0.52, ~~Cash~~or ~~Equivalents~~the ~~and~~Exchange ~~Restricted~~Ratio, ~~Cash~~of one newly issued common share of beneficial interest, $0. We001 ~~consider~~par ~~highly~~value ~~liquid~~per ~~investments~~share, of RMRM, or the RMRM Common Shares, subject to adjustment as described in the Merger Agreement, with ~~original~~cash ~~maturities~~paid in lieu of ~~three~~fractional ~~months~~shares. Under the Merger Agreement, the Exchange Ratio is fixed and will not be adjusted to reflect changes in the market price of our common shares or ~~less~~the RMRM Common Shares prior to the Effective Time. Pursuant to the Merger Agreement, at the ~~date~~Effective Time, any unvested common share awards outstanding under our equity compensation plan generally will be converted into an unvested RMRM Common Share award under RMRM’s equity compensation plan, subject to substantially similar vesting requirements and other terms and conditions, determined by multiplying the number of ~~purchase~~our unvested common shares subject to besuch ~~cash~~award ~~equivalents~~by the Exchange Ratio (rounded down to the nearest whole number). The Merger and the other transactions contemplated by the Merger Agreement are collectively referred to herein as the Transactions.

~~Restricted~~Following ~~cash~~the ~~primarily~~consummation ~~consists~~of the Merger, the combined company will continue to be managed by our and RMRM’s current manager, Tremont Realty Advisors LLC, or TRA or our Manager, pursuant to the terms of ~~deposit~~RMRM’s ~~proceeds~~existing ~~from~~management ~~potential~~agreement ~~borrowers~~with ~~when~~TRA. ~~originating~~Contemporaneously ~~loans~~with the execution of the Merger Agreement, ~~which~~we, ~~may~~RMRM beand ~~returned~~TRA entered into a letter agreement, or the TRA Letter Agreement, pursuant to which, on the ~~applicable~~terms ~~borrower~~and subject to conditions contained therein, we, RMRM and TRA have acknowledged and agreed that, effective upon consummation of the ~~closing~~Merger, we shall have terminated our management agreement with TRA, and TRA shall have waived its right to receive payment of the ~~loan~~termination fee pursuant to such agreement. In consideration of this waiver, ~~after~~RMRM ~~deducting~~has ~~any~~agreed ~~transaction~~that, ~~costs~~effective upon consummation of the Merger and the termination of our management agreement with TRA, certain of the expenses TRA had paid on our behalf pursuant to such management agreement will be included in the “Termination Fee” under and as defined in RMRM’s existing management agreement with TRA. The TRA Letter Agreement further provides that such termination by us ~~for~~and waiver by TRA shall apply only in respect of the ~~benefit~~Merger and will not apply in respect of ~~such~~any ~~borrower~~competing proposal or superior proposal (as those terms are defined in the Merger Agreement) or to any other transaction or arrangement.

~~Repurchase~~Contemporaneously ~~Agreements.~~with ~~Loans~~the ~~financed~~execution ~~through~~of ~~repurchase~~the ~~agreements~~Merger ~~are~~Agreement, ~~treated~~we asentered ~~collateralized~~into ~~financing~~a ~~transactions~~voting agreement, ~~unless~~or ~~they~~the ~~meet~~Voting ~~sales~~Agreement, ~~treatment~~with ~~under~~Diane ~~GAAP.~~Portnoy, ~~Pursuant~~in toher ~~GAAP~~capacity ~~treatment~~as a greater than 5% holder of ~~collateralized~~RMRM ~~financing~~Common ~~transactions~~Shares, ~~loans~~pursuant ~~financed~~to ~~through~~which ~~repurchase~~she ~~agreements~~has ~~remain~~agreed onto ~~our~~vote ~~consolidated~~all ~~balance~~of ~~sheet~~the asRMRM ~~assets,~~Common ~~and~~Shares ~~cash~~which ~~received~~she ~~from~~is ~~the~~entitled ~~purchasers~~to isvote ~~recorded~~in onfavor ~~our~~of ~~consolidated~~approval ~~balance~~of ~~sheet~~the asMerger ~~liabilities.~~Share ~~Interest~~Issuance ~~paid~~at inthe ~~accordance~~special ~~with~~meeting ~~repurchase~~of ~~agreements~~RMRM’s isshareholders ~~recorded~~held asfor ~~interest~~that ~~expense~~purpose and against any competing acquisition proposal.

~~Loans~~Also ~~Held~~contemporaneously ~~for~~with ~~Investment.~~the ~~Generally,~~execution ~~our~~of ~~loans~~the ~~are~~Merger ~~classified~~Agreement, asRMRM ~~held~~entered ~~for~~into ~~investment~~a ~~based~~voting ~~upon~~agreement ~~our~~with ~~intent~~TRA ~~and~~pursuant ~~ability~~ to ~~hold~~which ~~them~~TRA ~~until~~has ~~maturity.~~agreed ~~Loans~~to ~~that~~vote ~~are~~all ~~held for investment are carried at cost, net~~ of ~~unamortized~~our ~~loan~~common ~~origination~~shares ~~and~~which ~~accreted~~it ~~exit~~is ~~fees~~entitled ~~that are required~~ to bevote ~~recognized~~ in ~~the~~favor ~~carrying~~of ~~value~~approval of the ~~loans in accordance with GAAP, unless the loans are deemed to be impaired. Loans that we have a plan to sell or liquidate are held at the lower of cost or fair value less cost to sell.~~

We evaluate each of our loans for impairment 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. Factors considered in these evaluations include, but are not limited to, property type, geographic and local market dynamics, physical condition, leasing and tenant profile, projected cash flow, risk of loss, current loan to value ratio, or LTV, debt yield, collateral performance, structure, exit plan and sponsorship. Loans are rated “1” (lower risk) through “5” (impaired/loss likely) as defined below:

"1" lower risk—Criteria reflects a sponsor having a strong financial condition and low credit risk and our evaluation of management's experience; collateral performance exceeding performance metrics included in the business plan or

TREMONT MORTGAGE TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

~~credit~~Merger ~~underwriting;~~ and the ~~property~~other ~~demonstrating~~Transactions ~~stabilized~~to ~~occupancy~~which ~~and/or~~we ~~market~~are ~~rates,~~a ~~resulting~~party inat ~~strong~~the ~~current~~special ~~cash~~meeting ~~flow~~of ~~and~~our ~~net~~shareholders ~~operating~~held ~~income~~for that purpose and~~/or~~ ~~having~~against aany ~~very~~competing ~~low~~acquisition ~~LTV~~proposal.

"Note 2". ~~average~~Recent ~~risk—Criteria~~Accounting reflects a sponsor having a stable financial condition and our evaluation of management's experience; collateral performance meeting or exceeding substantially all performance metrics included in the business plan or credit underwriting; and the property demonstrating improved occupancy at market rents, resulting in sufficient current cash flow and/or having a low LTV.Pronouncements

~~"3"~~In ~~acceptable~~June ~~risk—Criteria~~2016, ~~reflects~~the aFinancial ~~sponsor~~Accounting ~~having~~Standards aBoard, ~~history~~or ofFASB, ~~repaying~~issued ~~loans~~Accounting Standards Update, or ASU, No. at2016-13, ~~maturity~~Financial ~~and~~Instruments ~~meeting~~- ~~its~~Credit ~~credit~~Losses ~~obligations~~(Topic ~~and~~326): ~~our~~Measurement ~~evaluation~~ of ~~management's~~Credit ~~experience;~~Losses ~~collateral~~on ~~performance~~Financial Instruments, which requires that entities use a new forward-looking “expected toloss” ~~meet~~model ~~performance~~that ~~metrics~~generally ~~included~~will result in the ~~business~~earlier ~~plan~~recognition orof allowance for credit ~~underwriting;~~losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the ~~property~~collectability ~~having~~of athe ~~moderate~~reported ~~LTV~~amount. ~~New~~ASU ~~loans~~No. ~~and~~2016-13 ~~loans~~is ~~with~~effective afor ~~limited~~fiscal ~~history~~years ~~will~~beginning ~~typically~~after beDecember ~~assigned~~15, ~~this~~2019, ~~rating~~including ~~and~~interim ~~will~~periods bewithin ~~adjusted~~those fiscal years. As an emerging growth company that has opted to ~~other~~take ~~levels~~advantage ~~from~~of ~~time~~the extended transition period, we expect to ~~time~~adopt asASU ~~appropriate~~No. 2016-13 on January 1, 2023. We are currently assessing the potential impact the adoption of ASU No. 2016-13 will have on our condensed consolidated financial statements.

~~"4"~~Note ~~higher~~3. ~~risk—Criteria~~Loans ~~reflects~~Held afor ~~sponsor~~Investment having a history of unresolved missed or late payments, maturity extensions and difficulty timely fulfilling its credit obligations and our evaluation of management's experience; collateral performance failing to meet the business plan or credit underwriting; the existence of a risk of default possibly leading to a loss and/or potential weaknesses that deserve management’s attention; and/or the property having a high LTV.

~~"5"~~We ~~impaired/loss~~originate ~~likely—Criteria~~first ~~reflects~~mortgage awhole ~~very~~loans ~~high~~secured ~~risk~~by ofmiddle ~~realizing~~market aand ~~principal~~transitional ~~loss~~CRE, orwhich ~~having~~we ~~incurred~~generally ahold ~~principal~~until ~~loss;~~maturity ~~a sponsor having a history of default payments~~or, ~~trouble~~if ~~fulfilling its credit obligations~~earlier, ~~deeds~~repayment. inWe ~~lieu~~funded ofour ~~foreclosures,~~existing ~~and/or~~loan ~~bankruptcies;~~portfolio ~~collateral~~using ~~performance~~cash ison ~~significantly~~hand ~~worse~~and ~~than~~advancements ~~performance~~under ~~metrics~~our ~~included~~master inrepurchase ~~the~~facility ~~business~~with ~~plan;~~Citibank, ~~loan~~N.A., ~~covenants~~ or ~~performance~~Citibank, ~~milestones having been breached~~ or ~~not~~our ~~attained;~~Master ~~timely~~Repurchase ~~exit~~Facility, ~~via~~and ~~sale~~other ordebt ~~refinancing~~financing. ~~being~~See ~~uncertain;~~Note ~~and/or~~4 ~~the~~for ~~property~~further ~~having~~information aregarding ~~very~~our ~~high~~Master ~~LTV~~Repurchase Facility.

~~See~~The ~~Note~~table 4below ~~for~~provides ~~further~~overall ~~information~~statistics ~~regarding~~for our ~~current~~ loan portfolio’s ~~assessment~~as ~~under~~of ~~our~~March 31, ~~internal~~2021 ~~risk~~and ~~rating~~December 31, ~~policy.~~2020:

Impairment occurs when it is deemed probable that we will not be able to collect all amounts due under a loan according to its contractual terms. Impairment will then be measured based on the estimated fair value of the underlying collateral, net of any costs we expect to incur to realize that value. The determination of this estimated fair value involves judgments and assumptions based on objective and subjective factors. Consideration will be given to various factors, such as business plans, property occupancies, tenant profiles, rental rates, operating expenses and borrowers’ repayment plans, among others, and will require significant judgments regarding certain circumstances, such as guarantees, if any. Upon measurement of an impairment, we will record an allowance to reduce the carrying value of the loan accordingly, and record a corresponding charge to net income in our condensed consolidated statements of operations.


	As of March 31, 2021			As of December 31, 2020
Number of loans	13			14
Total loan commitments	$	268,379		$	293,890
Unfunded loan commitments (1)	$	8,989		$	12,236
Principal balance	$	259,390		$	281,654
Unamortized net deferred origination and exit fees	$	789		$	592
Carrying value	$	260,179		$	282,246
Weighted average coupon rate	5.73		%	5.70		%
Weighted average all in yield (2)	6.43		%	6.39		%
Weighted average maximum maturity (years) (3)	2.4			2.6
Weighted average risk rating	2.9			3.2
Weighted average LTV (4)	67		%	67		%

Fair Value of Financial Instruments. Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 820-10, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands the required disclosure regarding fair value measurements. ASC Topic 820-10 defines fair value as the price that would be received for a financial instrument in a current sale, which assumes an orderly transaction between market participants on the measurement date. We determine the estimated fair value of financial assets and liabilities using the three-tier fair value hierarchy established by GAAP, which prioritizes the inputs used in measuring fair value. GAAP establishes market based or observable inputs as the preferred source of values followed by valuation models using management assumptions in the absence of market inputs. The three levels of inputs that may be used to measure fair value are as follows:

Level I—Inputs include quoted prices in active markets for identical assets or liabilities that we have the ability to access.

Level II—Inputs include quoted prices in markets that are less active or inactive or for which all significant inputs are observable, either directly or indirectly.

Level III—Inputs include unobservable prices and are supported by little or no market activity and are significant to the overall fair value measurement.

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(dollars in thousands, except per share data)

Loan Deferred Fees. Loan origination and exit fees are reflected in loans held for investment, net, in our condensed consolidated balance sheets and include fees charged to borrowers. These fees are amortized and accreted, respectively, into interest income over the life of the related loans held for investment.

Deferred Financing Costs. Costs incurred in connection with financings are capitalized and recorded as an offset to the related liability and amortized over the respective financing terms and are recorded in our consolidated statements of operations as a component of interest and related expenses. At September 30, 2020, we had approximately $550 of capitalized financing costs, net of amortization.

Net Earnings Per Common Share. We calculate basic earnings per common share, or EPS, by dividing net income by the weighted average number of common shares outstanding during the period. We calculate diluted net EPS using the more dilutive of the two-class method or the treasury stock method.

Revenue Recognition. Interest income related to our first mortgage whole loans secured by commercial real estate, or CRE, will generally be accrued based on the coupon rates applied to the outstanding principal balance of such loans. Fees, premiums and discounts, if any, will be amortized or accreted into interest income over the remaining lives of the loans using the effective interest method, as adjusted for any prepayments.

If a loan's interest or principal payments are not paid when due and there is uncertainty that such payments will be collected, the loan may be categorized as non-accrual and no interest will be recorded unless it is collected. When all overdue payments are collected and, in our judgment, a loan is likely to remain current, it may be re-categorized as accrual.

For loans purchased at a discount, GAAP limits the yield that may be accreted (accretable yield) to the excess of the investor’s estimate of undiscounted expected principal, interest and other cash flows (cash flows expected at acquisition to be collected) over the investor’s initial investment in the loan. GAAP also requires that the excess of contractual cash flows over cash flows expected to be collected (non-accretable difference) not be recognized as an adjustment of yield, loss accrual or valuation allowance. Subsequent increases in cash flows expected to be collected from such loans generally will be recognized prospectively through adjustment of the loan’s yield over its remaining life. Decreases in cash flows expected to be collected will be recorded as an impairment.

Note 3. Recent Accounting Pronouncements

In June 2016, FASB issued Accounting Standards Update, or ASU, No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. As an emerging growth company that has opted to take advantage of the extended transition period, we expect to adopt ASU No. 2016-13 on January 1, 2023. We are currently assessing the potential impact the adoption of ASU No. 2016-13 will have on our condensed consolidated financial statements.

Note 4. Loans Held for Investment

We originate first mortgage whole loans secured by middle market and transitional CRE, which are generally to be held as long term investments. We funded our existing loan portfolio using cash on hand and advancements under our master repurchase facility with Citibank, N.A., or Citibank, or our Master Repurchase Facility, and other debt financing. See Note 5 for further information regarding our Master Repurchase Facility.

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(dollars in thousands, except per share data)

The table below details overall statistics for our loan portfolio as of September 30, 2020 and December 31, 2019:

	Balance at September 30, 2020			Balance at December 31, 2019
Number of loans	14			12
Total loan commitments	$	293,961		$	260,167
Unfunded loan commitments (1)	$	13,974		$	17,268
Principal balance	$	279,987		$	242,899
Unamortized net deferred origination and exit fees	$	232		$	(821)
Carrying value	$	280,219		$	242,078
Weighted average coupon rate	5.70		%	5.76		%
Weighted average all in yield (2)	6.38		%	6.41		%
Weighted average maximum maturity (years) (3)	2.9			3.6
Weighted average LTV (4)	67		%	70		%

(1) Unfunded loan commitments are primarily used to finance property and building improvements and leasing capital and are generally funded over the term of the loan.

(2) All in yield represents the yield on a loan, excluding any repurchase debt funding applicable to the loan and including amortization of deferred fees over the initial term of the loan.

(3) Maximum maturity assumes all borrower loan extension options have been exercised, which options are subject to the borrower meeting certain conditions.

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

The table below ~~details~~represents our loan activities during the three months ended ~~September 30~~March 31, ~~2020~~2021:

	Principal Balance		Deferred Fees		Carrying Value
Balance at June 30, 2020	$	278,484	$	(259)	$	278,225
Balance at December 31, 2020	$	281,654	$	592	$	282,246
Additional funding	32,~~592~~536		—		32,~~592~~536
Repayments	(2,089)		—		(2,089)
Originations	—		(99)		(99)
Net amortization of deferred fees	—		491		491
Repayments	(24,800)		—		(24,800)
Balance at September 30, 2020	$	279,987	$	232	$	280,219
Net amortization of deferred fees	—		296		296
Balance at March 31, 2021	$	259,390	$	789	$	260,179

~~The table below details our loan activities during the nine months ended September 30, 2020:~~7

	Principal Balance		Deferred Fees		Carrying Value
Balance at December 31, 2019	$	242,899	$	(821)	$	242,078
Additional funding	13,051		—		13,051
Originations	26,126		(388)		25,738
Repayments	(2,089)		—		(2,089)
Net amortization of deferred fees	—		1,441		1,441
Balance at September 30, 2020	$	279,987	$	232	$	280,219

In July 2020, the borrower under our loan related to a retail property located in Coppell, TX sold a parcel of land that was a part of the property securing the loan. The borrower used $2,089 of the sale proceeds to repay part of the outstanding principal balance under the loan which also reduced the committed principal by the same amount and we allowed the borrower to use the remaining $100 of sale proceeds to increase the reserve for its future debt service obligation payments owed to us under the loan. We used $1,358 of these repayment proceeds to repay a part of the outstanding balance under our Master Repurchase Facility.

In October 2020, the borrower under our loan related to a retail property located in Paradise Valley, AZ exercised its right and satisfied the applicable conditions to extend the maturity date of the loan by one year to November 30, 2021 pursuant to the terms of the loan agreement.

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(dollars in thousands, except per share data)

~~The~~In ~~tables~~February ~~below~~2021, ~~detail~~we amended the agreement governing our loan secured by a retail property ~~type~~located ~~and~~in ~~geographic~~Coppell, ~~location~~TX ofto extend the ~~properties~~maturity ~~securing~~date of the ~~loans~~loan inby ~~our~~six ~~portfolio~~months asto August 12, 2021. As part of ~~September 30~~this amendment, ~~2020~~the borrower funded an interest reserve of $500 and ~~December~~repaid 31$250 of the principal balance of the loan, ~~2019:~~thereby reducing the total loan commitment to $19,865. This amendment also includes a six month extension option contingent upon the borrower repaying an additional $250 of the principal balance and meeting certain other conditions. We collected a fee from the borrower of $99 in connection with this amendment.

	September 30, 2020					December 31, 2019
Property Type	Number of Loans	Carrying Value		Percentage of Value		Number of Loans	Carrying Value		Percentage of Value
Office	5	$	93,480	33	%	4	$	71,446	30	%
Multifamily	3	70,107		25	%	3	68,911		28	%
Industrial	2	48,951		17	%	1	34,838		14	%
Retail	3	43,802		16	%	3	43,782		18	%
Hotel	1	23,879		9	%	1	23,101		10	%
	14	$	280,219	100	%	12	$	242,078	100	%

In February 2021, we received $24,830 of repayment proceeds from the borrower on our loan that was used to finance the acquisition of a 432 unit apartment community located in Rochester, NY, which included the $24,550 principal amount outstanding under the loan, as well as accrued interest, an exit fee and our associated legal expenses.

	September 30, 2020					December 31, 2019
Geographic Location	Number of Loans	Carrying Value		Percentage of Value		Number of Loans	Carrying Value		Percentage of Value
East	5	$	105,099	37	%	4	$	90,047	37	%
South	5	103,958		37	%	5	103,295		43	%
Midwest	3	60,496		22	%	2	39,722		16	%
West	1	10,666		4	%	1	9,014		4	%
	14	$	280,219	100	%	12	$	242,078	100	%

In February 2021, the borrower under our loan secured by an industrial facility located in Barrington, NJ notified us that the facility is expected to be sold in the second quarter of 2021. Upon sale, we expect to be repaid the principal amount outstanding under the loan, as well as accrued interest, an exit fee and our associated legal costs, and we will be required to repay the outstanding balance and accrued interest associated with this loan under our Master Repurchase Facility. As of March 31, 2021, the principal amount outstanding under the loan was $36,162.

In April 2021, we amended the agreement governing our loan secured by an office property located in Metairie, LA to extend the maturity date of the loan by six months to October 11, 2021 and to eliminate any further borrower extension rights. We collected a fee from the borrower of $45 in connection with this amendment.

The tables below detail the property type and geographic location of the properties securing the loans in our portfolio as of March 31, 2021 and December 31, 2020:


	March 31, 2021					December 31, 2020
Property Type	Number of Loans	Carrying Value		Percentage of Value		Number of Loans	Carrying Value		Percentage of Value
Office	5	$	95,733	37	%	5	$	94,412	34	%
Multifamily	2	46,021		18	%	3	70,417		25	%
Industrial	2	50,279		19	%	2	49,209		17	%
Retail	3	44,206		17	%	3	44,298		16	%
Hotel	1	23,940		9	%	1	23,910		8	%
	13	$	260,179	100	%	14	$	282,246	100	%


	March 31, 2021					December 31, 2020
Geographic Location	Number of Loans	Carrying Value		Percentage of Value		Number of Loans	Carrying Value		Percentage of Value
East	4	$	82,378	32	%	5	$	105,695	37	%
South	5	104,122		40	%	5	104,256		37	%
Midwest	3	62,373		24	%	3	61,185		22	%
West	1	11,306		4	%	1	11,110		4	%
	13	$	260,179	100	%	14	$	282,246	100	%

Loan Risk Ratings

We evaluate each of our loans for impairment 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 Annual Report for more information regarding our loan risk ratings. The following table allocates the carrying value of our loan portfolio at ~~September~~March 3031, ~~2020~~2021 and December 31, ~~2019~~2020 based on our internal risk rating policy:

	September 30, 2020			December 31, 2019
Risk Rating	Number of Loans	Carrying Value		Number of Loans	Carrying Value
1	—	$	—	—	$	—
2	1	24,589		1	24,462
3	6	128,037		11	217,616
4	7	127,593		—	—
5	—	—		—	—
	14	$	280,219	12	$	242,078

The weighted average risk rating of our loans by carrying value was 3.4 and 2.9 as of September 30, 2020 and December 31, 2019, respectively. The COVID-19 pandemic has negatively impacted some of our borrowers’ business operations or tenants, particularly in the cases of our retail and hospitality collateral, which are the types of properties that have been most negatively impacted by the pandemic. We expect that those negative impacts may continue and may apply to other borrowers and/or their tenants. Therefore, certain of our borrowers’ business plans will likely take longer to execute than initially expected and certain of our borrowers may be unable to pay their debt service obligations owed and due to us as currently scheduled or at all. As of September 30, 2020, we had seven loans representing 46% of the carrying value of our loan portfolio with a loan risk rating of “4” or “higher risk." Six of these loans were downgraded from a risk rating of "3" or "acceptable risk" during the three months ended March 31, 2020, and the seventh loan was downgraded from a risk rating of "3" or "acceptable risk" during the three months ended September 30, 2020. We did not have any impaired loans or nonaccrual loans as of September 30, 2020 or December 31, 2019. See Note 2 for further information regarding our loan risk ratings.

As of November 2, 2020, all of our borrowers had paid all of their debt service obligations owed and due to us and none of the loans included in our investment portfolio were in default.

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(dollars in thousands, except per share data)

Note 5. Debt Agreements


	March 31, 2021			December 31, 2020
Risk Rating	Number of Loans	Carrying Value		Number of Loans	Carrying Value
1	1	$	36,338	—	$	—
2	2	45,663		3	77,553
3	5	92,511		4	76,343
4	5	85,667		7	128,350
5	—	—		—	—
	13	$	260,179	14	$	282,246

The ~~table~~weighted ~~below~~average isrisk anrating ~~overview~~of our loans by carrying value was 2.9 and 3.2 as of March 31, 2021 and December 31, 2020, respectively. The COVID-19 pandemic has negatively impacted some of our ~~debt~~borrowers’ ~~agreements~~business operations or tenants, particularly in the cases of our retail and hospitality collateral, some of which are the types of properties that ~~provided~~have ~~financing~~been ~~for~~most negatively impacted by the pandemic. We expect that those negative impacts may continue and may apply to other borrowers and/or their tenants. Therefore, certain of our borrowers’ business plans will likely take longer to execute than initially expected and certain of our borrowers may be unable to pay their debt service obligations owed and due to us as currently scheduled or at all. As of March 31, 2021, we had five loans ~~held~~representing ~~for~~33% ~~investment:~~of the carrying value of our loan portfolio with a loan risk rating of “4” or “higher risk", compared to seven loans representing 45% of the carrying value of our loan portfolio as of December 31, 2020. We did not have any impaired loans or nonaccrual loans as of March 31, 2021 or December 31, 2020.

	Debt Obligation
							Weighted Average		Collateral
	Maximum Facility Size		Principal Balance		Carrying Value		Coupon Rate	RemainingMaturity (1)(2) (years)	Principal Balance		FairValue (3)
September 30, 2020:
Master repurchase facility	$	213,482	$	201,051	$	200,501	L + 2.00%	0.9	$	279,987	$	277,457
December 31, 2019:
Master repurchase facility	$	213,482	$	165,536	$	164,694	L + 1.99%	1.6	$	242,899	$	242,763

As of April 23, 2021, all of our borrowers had paid all of their debt service obligations owed and due to us and none of the loans included in our investment portfolio were in default.

~~(1)The~~Note ~~weighted~~4. ~~average~~Debt ~~remaining maturity is determined using the current maturity date of the corresponding loans, assuming no borrower loan extension options have been exercised.~~Agreements

~~(2)On~~The ~~October~~table ~~30,~~below ~~2020,~~summarizes weour ~~amended~~debt ~~the~~ agreements ~~that govern our Master Repurchase Facility, or collectively,~~ as ~~amended,~~of ~~our Master Repurchase Agreement to~~March 31, ~~among~~2021 ~~other~~and ~~things~~December 31, ~~extend the expiration date by one year to November 6, 2022, subject to early termination as provided for in our Master Repurchase Agreement.~~2020:

(3)See Note 6 for further discussion of our financial assets and liabilities not carried at fair value.


	Debt Obligation
							Weighted Average		Collateral
	Maximum Facility Size		Principal Balance		Carrying Value		Coupon Rate	Remaining Maturity (1) (years)	Principal Balance		Fair Value (2)
March 31, 2021:
Master Repurchase Facility	$	213,482	$	180,751	$	180,040	L + 2.00%	0.9	$	260,179	$	257,689

December 31, 2020:
Master Repurchase Facility	$	213,482	$	201,051	$	200,233	L + 2.00%	1.1	$	281,654	$	279,381

Under our Master Repurchase Agreement, the initial purchase price paid by Citibank for 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. Upon the repurchase of a purchased asset, we are required to pay Citibank the outstanding purchase price of the purchased asset, accrued interest and all accrued and unpaid expenses of Citibank relating to such purchased asset. The price differential (~~or interest rate~~1)The ~~relating~~weighted toaverage aremaining ~~purchased~~maturity ~~asset~~ is ~~equal to LIBOR plus a premium of 200 to 250 basis points,~~ determined byusing the ~~yield~~current ofmaturity ~~the~~date ~~purchased asset and the property type~~ of the ~~purchased~~corresponding ~~asset’s~~loans, ~~real~~assuming ~~estate~~no ~~collateral.~~borrower ~~Citibank~~loan ~~has~~extension ~~the~~options ~~discretion~~have ~~under~~been ~~our Master Repurchase Agreement to make advancements at margins higher than 75% and at premiums of less than 200 basis points~~exercised. ~~The~~Our ~~weighted average interest rate for advancements under our~~ Master Repurchase Facility ~~was~~matures ~~2.17%~~on ~~and~~November ~~4.18% for the three months ended September 30~~6, ~~2020 and 2019, respectively, and 2~~2022.70% and 4.38% for the nine months ended September 30, 2020 and 2019, respectively. For the three months ended September 30, 2020 and 2019, we recorded interest expense of $1,120 and $1,563, respectively, and $4,003 and $4,126 for the nine months ended September 30, 2020 and 2019, respectively, in connection with our Master Repurchase Facility.

In(2)See ~~connection~~Note ~~with~~5 ~~our~~for ~~Master~~further ~~Repurchase~~discussion ~~Agreement, we entered into a guaranty, or, as amended, the Guaranty, which requires us to guarantee 25%~~ of our subsidiary's prompt and complete payment of the purchase price, purchase price differential and any costs and expenses of Citibank related to our Master Repurchase Agreement. The Guaranty also requires us to comply with customary financial covenants, which include the maintenance of a minimum tangible net worth, minimum cash liquidity, a total indebtedness to tangible net worth ratio and a minimum interest coverage ratio. These maintenance provisions provide Citibank with the right, in certain circumstances related to a credit event, as defined in our Master Repurchase Agreement, to re-determine the value of purchased assets. ~~Where a decline in the value of purchased assets has resulted in a margin deficit, Citibank may require us to eliminate such margin deficit through a combination of purchased asset repurchases~~ and ~~cash~~liabilities ~~transfers to Citibank, subject to Citibank's approval. As of September 30, 2020, we have~~ not ~~received~~carried aat ~~margin~~fair ~~call under our Master Repurchase Agreement~~value.

~~Our~~ Master Repurchase Agreement also provides for acceleration of the date of repurchase of the purchased assets and Citibank’s liquidation of the purchased assets upon the occurrence and continuation of certain events of default, including a change of control of us, which includes our Tremont Realty Advisors LLC, or our Manager, ceasing to act as our sole manager or to be a wholly owned subsidiary of The RMR Group LLC, or RMR LLC. As of September 30, 2020, we were in compliance with all of the covenants and other terms under our Master Repurchase Agreement and the Guaranty.Facility

~~From~~Under ~~July~~our ~~2018~~Master ~~until~~Repurchase ~~August 2019~~Agreement, wethe ~~were~~initial apurchase ~~party~~price topaid aby ~~term~~Citibank ~~loan~~for ~~facility,~~each inpurchased ~~the~~asset ~~form~~is up to 75% of athe ~~note~~lesser ~~payable,~~of ~~with~~the ~~Texas~~market ~~Capital~~value ~~Bank,~~of ~~National~~the ~~Association,~~purchased asset or the ~~TCB~~unpaid ~~note~~principal ~~payable~~balance of such purchased asset, subject to Citibank’s approval. ~~Following~~Upon ~~our~~the ~~repayment~~repurchase of ~~the~~a ~~$31~~purchased asset,~~790~~ ~~then~~we are required to pay Citibank the outstanding ~~principal~~purchase price of the purchased asset, accrued interest and all accrued and unpaid expenses of Citibank relating to such purchased asset. The price differential (or interest ~~under~~rate) ~~the~~relating ~~TCB~~to ~~note~~a ~~payable~~purchased asset is equal to LIBOR plus a premium of 200 to 250 basis points, determined by the ~~TCB~~yield ~~note~~of ~~payable~~the ~~terminated~~purchased inasset ~~accordance~~and ~~with~~the ~~its~~property ~~terms~~type of the purchased asset’s real estate collateral. WeCitibank ~~recorded~~has ~~$155~~the discretion under our Master Repurchase Agreement to make advancements at margins higher than 75% and ~~$891~~at premiums of less than 200 basis points. The weighted average interest ~~expense~~rate for ~~the~~advancements ~~three~~under our Master Repurchase Facility was 2.12% and ~~nine~~3.50% for the three months ended ~~September 30~~March 31, ~~2019~~2021, and 2020, respectively. At March 31, in2021, ~~connection~~we ~~with~~had ~~the~~approximately ~~TCB~~$711 ~~note~~of ~~payable.~~capitalized financing costs, net of amortization.

119

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

~~From~~In ~~February~~connection ~~2019~~with ~~until~~our ~~May~~Master ~~2019~~Repurchase Agreement, we ~~were~~entered into a ~~party~~guaranty, toor, aas ~~credit~~amended, ~~agreement~~the ~~with~~Guaranty, which requires us to guarantee 25% of our ~~Manager~~subsidiary's asprompt ~~lender,~~and orcomplete payment of the ~~RMR~~purchase ~~Credit~~price, purchase price differential and any costs and expenses of Citibank related to our Master Repurchase Agreement. ~~Following~~The ~~our~~Guaranty ~~repayment~~also ofrequires us to comply with customary financial covenants, which include the ~~$14~~maintenance of a minimum tangible net worth,~~220~~ ~~balance~~minimum ~~then~~cash ~~outstanding~~liquidity, ~~under~~a total indebtedness to tangible net worth ratio and a minimum interest coverage ratio. These maintenance provisions provide Citibank with the ~~RMR~~right, ~~Credit~~in ~~Agreement~~certain circumstances related to a credit event, ~~the~~as ~~RMR~~defined ~~Credit~~in our Master Repurchase Agreement, ~~was~~to ~~terminated~~re-determine the value of purchased assets. WeWhere ~~recorded~~a ~~$39~~decline in the value of ~~interest~~purchased ~~expense~~assets ~~for~~has ~~the~~resulted ~~nine~~in ~~months~~a ~~ended~~margin ~~September~~deficit, Citibank may require us to eliminate such margin deficit through a combination of purchased asset repurchases and cash transfers to Citibank, subject to Citibank's approval. As of March 3031, ~~2019~~2021, inwe ~~connection~~have ~~with~~not ~~the~~received ~~RMR~~a ~~Credit~~margin call under our Master Repurchase Agreement.

AtOur ~~September 30~~Master Repurchase Agreement also provides for acceleration of the date of repurchase of the purchased assets and Citibank’s liquidation of the purchased assets upon the occurrence and continuation of certain events of default, ~~2020~~including a change of control of us, which includes our ~~outstanding~~Manager, ~~advancements~~ceasing to act as our sole manager or to be a wholly owned subsidiary of The RMR Group LLC, or RMR LLC. As of March 31, 2021, we were in compliance with all of the covenants and other terms under our Master Repurchase ~~Facility~~Agreement ~~had~~and the ~~following remaining maturities:~~Guaranty.

Year	Principal Payments (1)
2020	$	29,680
2021	171,371
2022	—
2023	—
2024	—
	$	201,051

Note 5. Fair Value of Financial Instruments

ASC Topic 820, Fair Value Measurements, establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (1Level I)~~The~~, ~~allocation~~and ofthe ~~our~~lowest ~~outstanding~~priority ~~advancements~~to ~~under~~unobservable ~~our~~inputs ~~Master~~(Level ~~Repurchase~~III). ~~Facility~~A financial asset’s or financial liability’s fair value measurement level within the fair value hierarchy is based on the ~~current~~lowest ~~maturity~~level ~~date~~ of ~~each~~any ~~loan~~input ~~investment~~that ~~with~~is ~~respect~~significant to ~~which~~ the ~~individual~~fair ~~borrowing~~value ~~relates~~measurement. ~~assuming~~Valuation notechniques ~~borrower~~used ~~loan~~need ~~extension~~to ~~options~~maximize ~~have~~the ~~been~~use ~~exercised~~of observable inputs and minimize the use of unobservable inputs.

~~Note~~The 6.carrying ~~Fair~~values ~~Value~~of cash and cash equivalents, restricted cash and accounts payable approximate their fair values due to the short term nature of ~~Financial~~these ~~Instruments~~financial instruments. The outstanding principal balances under our Master Repurchase Facility approximate their fair values, as interest is based on floating rates based on LIBOR plus a spread, and the spread is consistent with those demanded by the market.

ASC 820, Fair Value Measurements, establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level I), and the lowest priority to unobservable inputs (Level III). A financial asset’s or financial liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

As of September 30, 2020 and December 31, 2019, the carrying values of cash and cash equivalents, restricted cash and accounts payable approximated their fair values due to the short term nature of these financial instruments. As of December 31, 2019, the outstanding principal balances under our Master Repurchase Facility approximated their fair values, as interest was based on floating rates based on LIBOR plus a spread, and the spread was consistent with those demanded by the market.

We estimate the fair values of our loans held for investment and outstanding principal balances under our Master Repurchase Facility by using Level III inputs, including discounted cash flow analyses and currently prevailing market terms as of the measurement date, determined by significant unobservable market inputs, which include holding periods, discount rates based on LTV, property types and loan pricing expectations which are corroborated by a comparison with other market participants to determine the appropriate market spread to add to the one month LIBOR (Level III inputs as defined in the fair value hierarchy under GAAP).

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

September 30, 2020

December 31, 2019

March 31, 2021

December 31, 2020

Carrying Value

Fair Value

Carrying Value

Fair Value

Financial assets

Loans held for investment

~~280~~260,~~219~~179

~~277~~257,~~457~~689

~~242~~282,~~078~~246

~~242~~279,~~763~~381

Financial liabilities

Master Repurchase Facility

~~200~~180,~~501~~040

~~200~~179,~~184~~878

~~164~~200,~~694~~233

~~165~~199,~~536~~936

There were no transfers of financial assets or liabilities within the fair value hierarchy during the three ~~or nine~~ months ended ~~September 30~~March 31, ~~2020~~2021.

1210

TREMONT MORTGAGE TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 76. Shareholders' Equity

Common Share Awards:

OnWe ~~May~~have ~~13,~~common ~~2020,~~shares inavailable ~~accordance~~for ~~with~~issuance under the terms of our ~~Trustee~~2017 ~~compensation~~Equity ~~arrangements~~Compensation Plan, weor ~~awarded~~the to2017 ~~each~~Plan. The values of the share awards are based upon the closing price of our ~~five~~common shares on The Nasdaq Stock Market LLC, or Nasdaq, on the date of award. We awarded one of our Trustees 3,000 of our common shares, ~~valued~~with atan aggregate market value of $~~1.92~~14 ~~per~~during ~~common~~the ~~share~~three months ended March 31, ~~the~~2021. ~~closing~~The ~~price~~common ofshares awarded to our Trustees vest immediately. The common shares awarded to our officers and other employees of our Manager and of RMR LLC vest in five equal annual installments beginning on ~~Nasdaq~~the ~~that~~date ~~day~~of award. We recognize the value of awarded shares in general and administrative expenses ratably over the vesting period. We recognize share forfeitures as they occur.

On September 17, 2020, we awarded under our equity compensation plan an aggregate of 56,600 of our common shares, valued at $2.92 per share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other employees of our Manager and of RMR LLC.Distributions

~~Common~~For ~~Share~~the ~~Purchases~~three months ended March 31, 2021, we declared and paid a distribution to common shareholders as follows:

During the nine months ended September 30, 2020, we purchased our common shares from certain of our officers and certain former and current officers and employees of our Manager and of RMR LLC 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 purchase dates, as follows:


Record Date	Payment Date	Distribution Per Share		Total Distribution
December 17, 2020	January 15, 2021	$	0.53	$	4,401

Date Purchased	Number of Shares	Price per Share
January 9, 2020	384	$	5.33
June 30, 2020	390	$	3.08
September 21, 2020	7,182	$	2.77

Our distribution paid on January 15, 2021 is treated for federal income tax purposes as having been paid and received on December 31, 2020.

~~Distributions:~~On April 15, 2021, we declared a quarterly distribution of $0.10 per common share, or approximately $831, to shareholders of record on April 26, 2021. We expect to pay this distribution on or about May 20, 2021.

~~During~~Note ~~the~~7. ~~nine~~Management ~~months~~Agreement ~~ended~~with ~~September 30,~~our ~~2020, we declared and paid a quarterly distribution to common shareholders as follows:~~Manager

Record Date	Payment Date	Distribution Per Share		Total Distribution
January 27, 2020	February 20, 2020	$	0.22	$	1,813
April 10, 2020	May 21, 2020	0.01		82
July 27, 2020	August 20, 2020	0.01		83
		$	0.24	$	1,978

On October 15, 2020, we declared a quarterly distribution of $0.01 per common share for the third quarter of 2020, or approximately $83, to shareholders of record on October 26, 2020. We expect to pay this distribution on or about November 19, 2020.

Note 8. Management Agreement with our Manager

We have no employees. The personnel and various services we require to operate our business are provided to us by our Manager pursuant to a management agreement, which provides for the day to day management of our operations by our Manager, subject to the oversight and direction of our Board of Trustees.

We ~~did~~recognized ~~not~~base ~~recognize~~management ~~any~~fees ~~base~~of ~~management~~$342 orand management incentive fees of $620 for the three ~~or nine~~ months ended ~~September 30~~March 31, ~~2020 or 2019~~2021. Our Manager ~~has~~previously waived any base management or management incentive fees otherwise due and payable by us under our management agreement for ~~and~~the ~~through~~period ~~the~~beginning ~~periods~~July ~~ending~~1, 2018 until December 31, 2020. IfAs ~~our~~a ~~Manager~~result, ~~had~~we did not ~~waived~~recognize ~~these~~any base management ~~and~~or management incentive fees, ~~we would have recognized $332 and $322 of base management fees~~ for the three months ended ~~September 30~~March 31, 2020. ~~and~~If ~~2019,~~our ~~respectively,~~Manager ~~$975~~had ~~and~~not ~~$812~~waived ofthese base management ~~fees~~and ~~for~~management ~~the~~incentive ~~nine months ended September 30~~fees, ~~2020~~we ~~and~~would ~~2019,~~have ~~respectively,~~recognized ~~and~~ $~~129~~320 ~~and $164~~ of ~~incentive~~base management fees for the three ~~and nine~~ months ended ~~September 30~~March 31, 2020~~. No~~ and no management incentive fees would have been paid or payable for ~~either of~~ the three ~~or nine~~ months ended ~~September 30~~March 31, ~~2019~~2020.

Our Manager, and not us, is responsible for the costs of its employees who provide services to us, including the cost of our Manager’s personnel who originate our loans, 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 our Manager and its affiliates for all other costs and expenses of our operations. Some of these overhead, professional and other services are provided by RMR LLC pursuant to a shared services agreement between our Manager and RMR LLC. We reimburse our Manager for shared services costs our Manager pays to RMR LLC. These reimbursements include an allocation of the cost of personnel employed by RMR LLC and our share of RMR LLC’s costs for providing our internal audit function. These shared services costs are subject to approval by a majority of our Independent Trustees at least annually. We incurred shared services costs of $176 and $359 payable to our Manager for the three months ended March 31, 2021 and 2020, respectively. We include these amounts in reimbursement of shared services expenses or general and administrative expenses, as applicable, in our condensed consolidated statements of operations.

13Pursuant to the TRA Letter Agreement, on the terms and subject to conditions contained therein, we and our Manager agreed that, effective upon consummation of the Merger, we shall have terminated our management agreement, and our Manager shall have waived its right to receive payment of the termination fee due on account thereof. Following termination of the management agreement in accordance with the TRA Letter Agreement, pro rata base management and management incentive fees will continue to be payable under the terms of the management agreement. See Note 1 for further information regarding the TRA Letter Agreement and the Merger.

TREMONT MORTGAGE TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

~~operations.~~Note ~~Some of these overhead, professional and other services are provided by RMR LLC pursuant to a shared services agreement between our Manager and RMR LLC~~8. WeRelated ~~reimburse~~Person our Manager for shared services costs our Manager pays to RMR LLC and its affiliates. These reimbursements include an allocation of the cost of personnel employed by RMR LLC and our share of RMR LLC’s costs for providing our internal audit function. These shared services costs are subject to approval by a majority of our Independent Trustees at least annually. We incurred shared services costs of $218 and $406 payable to our Manager for the three months ended September 30, 2020 and 2019, respectively, and $856 and $1,217 for the nine months ended September 30, 2020 and 2019, respectively. We include these amounts in reimbursement of shared services expenses or general and administrative expenses, as applicable, in our condensed consolidated statements of operations.Transactions

~~Note~~We 9have relationships and historical and continuing transactions with our Manager, RMR LLC, The RMR Group Inc., ~~Related~~or ~~Person~~RMR ~~Transactions~~Inc., and others related to them, including other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. Our Manager is a subsidiary of RMR LLC, which is a majority owned subsidiary of RMR Inc., and RMR Inc. is the managing member of RMR LLC. RMR LLC provides certain shared services to our Manager that are applicable to us, and we reimburse our Manager for the amounts it pays for those services. One of our Managing Trustees, Adam 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 our Manager, a managing director and the president and chief executive officer of RMR Inc., and an officer and employee of RMR LLC. David M. Blackman served as our other Managing Trustee and our President and Chief Executive Officer, and as a director and the president, and chief executive officer of our Manager until his resignation from those positions on December 31, 2020 in connection with his retirement. Following Mr. Blackman’s resignation, Matthew P. Jordan was appointed as our other Managing Trustee and Thomas J. Lorenzini was appointed as our President, each effective January 1, 2021. Also effective January 1, 2021, Mr. Jordan was appointed as a director and the president and chief executive officer of our Manager. Mr. Jordan is an officer of RMR Inc., he and Mr. Lorenzini are both officers of RMR LLC and Mr. Lorenzini is also an officer of our Manager. In addition, each of our other officers is also an officer and/or employee of our Manager or RMR LLC.

We have relationships and historical and continuing transactions with our Manager, RMR LLC, The RMR Group Inc., or RMR Inc., and others related to them, including other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. Our Manager is a subsidiary of RMR LLC, which is a majority owned subsidiary of RMR Inc., and RMR Inc. is the managing member of RMR LLC. RMR LLC provides certain shared services to our Manager that are applicable to us, and we reimburse our Manager for the amounts it pays for those services. One of our Managing Trustees, Adam 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 our Manager, a managing director and the president and chief executive officer of RMR Inc., and an officer and employee of RMR LLC. David M. Blackman, our other Managing Trustee and our President and Chief Executive Officer, also serves as a director and the president, and chief executive officer of our Manager and is an officer and employee of RMR LLC. Mr. Blackman has announced his decision to retire and, therefore, resign as our Managing Trustee, President and Chief Executive Officer and as a director, the president and chief executive officer of our Manager, effective December 31, 2020. In replacement of Mr. Blackman, Matthew P. Jordan has been elected as our Managing Trustee and Thomas L. Lorenzini has been appointed our President, each effective January 1, 2021. Also effective January 1, 2021, Mr. Jordan has been elected as a director and the president and chief executive officer of our Manager in replacement of Mr. Blackman. Mr. Jordan is an officer of RMR Inc. and he and Mr. Lorenzini are both officers of RMR LLC and our Manager. In addition, each of our other officers is also an officer and/or employee of our Manager or RMR LLC. Our Independent Trustees also serve as independent directors or independent trustees of other public companies to which RMR LLC or its subsidiaries provide management services. Adam Portnoy serves as the chair of the boards of trustees and boards of directors of several of these public companies and as a managing director or managing trustee of all of these companies and other officers of RMR LLC, including Mr. ~~Blackman~~Jordan and certain of our other officers and officers of our Manager, serve as managing trustees, managing directors or officers of certain of these companies. ~~In addition, officers of our Manager, RMR LLC and RMR Inc. serve as our officers and officers of other companies to which RMR LLC or its subsidiaries provide management services.~~

~~See~~Our ~~Note 7 for information relating to the annual share awards we made in September 2020 to our officers and certain other employees of our~~ Manager, ~~and~~Tremont ~~RMR~~Realty Advisors LLC. ~~and~~We ~~common~~have ~~shares~~a wemanagement ~~purchased~~agreement ~~from~~with ~~certain of~~ our ~~officers and employees of our~~ Manager ~~and~~to ~~RMR~~provide ~~LLC~~management inservices ~~satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares~~ to ~~them~~us. WeSee ~~include~~Note ~~amounts~~7 ~~recognized as expense~~ for ~~share~~further ~~awards~~information toregarding ~~employees of~~ our ~~Manager~~management oragreement ~~RMR~~with ~~LLC, as applicable, in general and administrative expenses in~~ our ~~condensed consolidated statements of operations~~Manager.

Our Manager, ~~Tremont~~is ~~Realty~~our ~~Advisors~~largest ~~LLC.~~shareholder Weand, ~~have~~as aof ~~management~~March 31, ~~agreement~~2021, ~~with~~owned ~~our~~1,600,100 ~~Manager~~of toour ~~provide~~common ~~management~~shares, ~~services~~or toapproximately us19.3% ~~See~~of ~~Note 8 for further information regarding~~ our ~~management~~outstanding ~~agreement~~common ~~with our Manager~~shares.

~~Our~~RMR ~~Manager~~Mortgage isTrust. ~~our~~As ~~largest~~described ~~shareholder~~further ~~and,~~in asNote ~~of September 30~~1, ~~2020,~~on ~~owned~~April 126,~~600~~ 2021,~~100~~ ofwe ~~our~~and ~~common~~RMRM ~~shares~~entered orinto ~~approximately~~the ~~19.3% of our outstanding common shares.~~ Merger

~~Until~~Agreement. ~~May~~Adam ~~23,~~D. ~~2019,~~Portnoy weand ~~were~~Matthew aP. ~~party~~Jordan, toour ~~the~~Managing ~~RMR~~Trustees, ~~Credit~~are ~~Agreement~~also RMRM’s managing trustees. Thomas J.

~~For~~Lorenzini, ~~further~~our ~~information~~President, ~~about~~also ~~these~~serves ~~and~~as ~~other~~president ~~such~~of ~~relationships~~RMRM, and ~~certain~~G. ~~other~~Douglas ~~related person transactions~~Lanois, ~~refer~~our toChief ~~our~~Financial ~~Annual~~Officer ~~Report.~~and Treasurer,

14also serves as chief financial officer and treasurer of RMRM. John L. Harrington serves as one of our Independent Trustees and

is also an independent trustee of RMRM, and Joseph L. Morea, one of our independent trustees, previously served as an

independent trustee of RMRM; Jeffrey P. Somers previously served as one of our independent trustees and is currently an

independent trustee of RMRM. See Note 1 for further information regarding the Merger Agreement.

For further information about these and other such relationships and certain other related person transactions, refer to our Annual Report and to our Current Report on Form 8-K dated April 26, 2021.

Note 9. Income Taxes

We have elected to be taxed as 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 10. Weighted Average Common Shares

Unvested share awards and other potentially dilutive common share issuances, and the related impact on earnings, are considered when calculating diluted net income per share. The table below provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted net income per share (amounts in thousands):

TREMONT MORTGAGE TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 10. Income Taxes


	For the Three Months Ended March 31,
	2021	2020
Weighted average common shares for basic net income per share	8,211	8,169
Effect of dilutive securities: unvested share awards (1)	28	—
Weighted average common shares for diluted net income per share	8,239	8,169

We(1) For ~~have elected to be taxed as a real estate investment trust, or REIT, under~~ the ~~Internal~~three ~~Revenue~~months ~~Code~~ended ofMarch ~~1986~~31, ~~as amended~~2020, or22 ~~the~~unvested ~~IRC.~~common ~~Accordingly,~~shares wewere ~~generally are~~ not, ~~and~~included ~~will~~in ~~not~~the ~~be,~~calculation ~~subject~~of todiluted ~~U.S.~~earnings ~~federal~~per ~~income~~share ~~tax,~~because ~~provided that we meet certain distribution and other requirements. We are subject~~ to ~~certain~~do ~~state~~so ~~and~~would ~~local~~have ~~taxes,~~been ~~certain of which amounts are or will be reported as income taxes in our condensed consolidated statements of operations~~antidilutive.

Note 11. ~~Weighted~~Commitments ~~Average~~and ~~Common~~Contingencies ~~Shares~~

We calculate basic EPS by dividing net income by the weighted average number of common shares outstanding during the relevant period. We calculate diluted EPS using the more dilutive of the two class method or the treasury stock method. Unvested share awards and other potentially dilutive common share issuances, and the related impact on earnings, are considered when calculating diluted earnings per share. For the three months ended September 30, 2020 and 2019, 63,429 and 39,024 unvested common shares, respectively, and for the nine months ended September 30, 2020 and 2019, 63,630 and 15,037 unvested common shares, respectively, were excluded from the calculation of diluted earnings per share because to do so would have been antidilutive.

Note 12. Commitments and Contingencies

Unfunded Loan Commitments

As of ~~September~~March 3031, ~~2020~~2021, we had unfunded loan commitments of $138,~~974~~989 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 10.29 years as of ~~September~~March 3031, ~~2020~~2021. See Note 43 for further information related to our loans held for investment.

Secured Borrowings

As of ~~September~~March 3031, ~~2020~~2021, we had an aggregate of $~~201~~180,~~051~~751 in principal amount outstanding under our Master Repurchase Facility with a weighted average life to maturity of 0.9 years. See Note 54 for further information regarding our secured debt agreements.

1513

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report.

OVERVIEW (dollars in thousands, except share data)

We are a REIT that was organized under Maryland law in 2017. Our business strategy is focused on originating and investing in first mortgage whole loans secured by middle market and transitional CRE. We define middle market CRE as commercial properties that have values up to $75100,000 and transitional CRE as commercial properties subject to redevelopment or repositioning activities that are expected to increase the value of the properties. ~~These~~We ~~assets~~classify ~~are~~our ~~classified~~assets as loans held for investment in our condensed consolidated balance sheets. Loans held for investment are reported at cost, net of any unamortized loan fees and origination costs as applicable, unless the assets are deemed impaired.

Our Manager is registered with the Securities and Exchange Commission, or the SEC, as an investment adviser under the Investment Advisers Act of 1940, as amended. We believe that our Manager provides us with significant experience and expertise in investing in middle market and transitional CRE.

We operate our business in a manner consistent with our qualification for taxation as a REIT under the IRC. As such, we generally are not subject to U.S. federal income tax, provided that we meet certain distribution and other requirements. We also operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act of 1940, as amended, or the Investment Company Act.

As noted earlier in this Quarterly Report on Form 10-Q, on April 26, 2021, we entered into the Merger Agreement with RMRM pursuant to which we have agreed, on the terms and subject to the conditions set forth therein, to consummate the Merger and the other Transactions, subject to the satisfaction or waiver of certain conditions. Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the Effective Time, each of our common shares issued and outstanding immediately prior to the Effective Time will be converted into the right to receive the Exchange Ratio of one newly issued RMRM Common Share, subject to adjustment as described in the Merger Agreement, with cash paid in lieu of fractional shares. Under the Merger Agreement, the Exchange Ratio is fixed and will not be adjusted to reflect changes in the market price of our common shares or the RMRM Common Shares prior to the Effective Time. Pursuant to the Merger Agreement, at the Effective Time, any unvested common share awards outstanding under our equity compensation plan generally will be converted into an unvested RMRM Common Share award under RMRM’s equity compensation plan, subject to substantially similar vesting requirements and other terms and conditions, determined by multiplying the number of our unvested common shares subject to such award by the Exchange Ratio (rounded down to the nearest whole number). Pursuant to the Merger Agreement, effective upon consummation of the Merger, RMRM’s Declaration of Trust will be amended to, among other things, change its name to "Seven Hills Realty Capital” and provide its board of trustees authority to effect the conversion of RMRM into a Maryland real estate investment trust without shareholder approval. Following the consummation of the Merger, the RMRM Common Shares will continue to trade on Nasdaq under the new ticker symbol “SHRC”.

The completion of the Merger is subject to the satisfaction or waiver of various conditions, including, among other things: (1) approval of the Merger and the other Transactions to which we are a party by at least a majority of all the votes entitled to be cast by holders of our outstanding common shares at the special meeting of our shareholders held for that purpose; (2) approval of the issuance of RMRM Common Shares to be issued in the Merger, or the Merger Share Issuance, by at least a majority of all the votes cast by the holders of outstanding RMRM Common Shares entitled to vote at the special meeting of RMRM’s shareholders at which a quorum is present and held for that purpose; (3) the absence of any law or order by any governmental authority prohibiting, making illegal, enjoining or otherwise restricting, preventing or prohibiting the consummation of the Merger and the other Transactions; (4) the effectiveness of the registration statement on Form S-4, or the Form S-4, to be filed by RMRM with the SEC to register the RMRM Common Shares to be issued in the Merger; (5) Nasdaq’s approval of the listing of the RMRM Common Shares to be issued in the Merger, subject to official notice of issuance; and (6) the receipt of certain tax opinions from each party’s tax counsel. The Merger is expected to close in the third quarter of 2021, and the Merger Agreement provides that either party may terminate the agreement if the Merger is not consummated by December 31, 2021. The Merger is intended to qualify as a tax-free reorganization under the Internal Revenue Code of 1986, as amended, and to provide a tax-free exchange for our shareholders for the RMRM Common Share consideration they receive in the Merger, except that our shareholders generally may recognize gain or loss with respect to cash received in lieu of fractional shares of RMRM Common Shares.

Table of Contents

The Merger Agreement contains certain customary representations, warranties and covenants, including, among others, covenants with respect to the conduct of our and RMRM’s respective businesses prior to closing, subject to certain consent rights by us and RMRM, respectively, and covenants prohibiting us and RMRM from soliciting, providing information or entering into discussions concerning competing proposals (generally defined as proposals for 20% or more of the assets, revenues or earnings or equity of the applicable party), subject to certain exceptions.

The Merger Agreement contains certain termination rights for both us and RMRM, including that under specified circumstances, either party is entitled to terminate the Merger Agreement to accept a superior proposal (generally defined as proposals for 75% or more of the assets, revenues or earnings or equity of such party, which proposal such party’s board of trustees (or an authorized committee thereof) has determined in good faith, after consultation with outside financial advisors and outside legal counsel, (1) would, if consummated, result in a transaction that is more favorable to the shareholders of such party from a financial point of view than the Merger and the other Transactions, (2) for which the third party has demonstrated that the financing for such superior proposal is fully committed or is reasonably likely to be obtained, and (3) which is reasonably likely to receive all required approvals from any governmental authority and otherwise reasonably likely to be consummated on the terms proposed); provided that we may only terminate the Merger Agreement after we have held a special meeting of our shareholders for the purpose of approving the Merger. Each party is required to pay the other party a termination fee of $2,156 plus the other party’s reasonable fees and expenses under certain circumstances related to such party’s change in recommendation, breach or termination in connection with a superior proposal. Except with respect to the foregoing, all fees and expenses incurred in connection with the Merger and the other Transactions will be paid by the party incurring those expenses, except that we and RMRM will share equally any filing fees incurred in connection with the filing of the Form S-4 and the related joint proxy statement/prospectus.

The Merger, the Merger Share Issuance and the other Transactions and the terms thereof were evaluated, negotiated and recommended, as applicable, to each of our and RMRM’s board of trustees by special committees of our and RMRM’s board of trustees, respectively, each comprised solely of our and RMRM’s disinterested, independent trustees, respectively, and were separately unanimously approved and adopted by our and RMRM’s independent trustees and by our and RMRM’s board of trustees, with independent trustees unanimously approving the Merger, the Merger Share Issuance and the other Transactions, as applicable. Citigroup Global Markets Inc. acted as financial advisor to the special committee of our Board of Trustees and UBS Securities LLC acted as financial advisor to the special committee of RMRM’s board of trustees.

For further information regarding the Merger and the other Transactions, see Notes 1, 7 and 8 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investment and Financing Liquidity and Resources” of this Quarterly Report on Form 10-Q.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, the United States declared a national emergency concerning this pandemic, and several states and municipalities have declared public health emergencies. The COVID-19 pandemic and various governmental and market responses intended to contain and mitigate the spread of the virus and its detrimental public health impact have negatively impacted, and continue to negatively impact, the global economy, including the U.S. economy. As a result, most market observers believe the global economy and the U.S. economy are currently in a recession. States and municipalities across the United States have been allowing most businesses to re-open and have generally eased certain restrictions they had previously implemented in response to the COVID-19 pandemic, often in stages that are phased in over time, although some states and municipalities have imposed or re-imposed certain restrictions in response to recent increases in COVID-19 infections. Recently, economic data have indicated that the U.S. economy has improved since the lowest periods experienced in March and April 2020, although the U.S. gross domestic product remains below pre-pandemic levels. It is unclear whether the increases in the number of COVID-19 infections will continue and/or amplify in the United States or elsewhere and, if so, what the impact of that would be on human health and safety, the economy or our business.

~~The~~We ~~current~~and ~~economic~~our ~~conditions~~Manager are ~~adversely~~closely ~~impacting~~monitoring ~~some~~the impact of ~~our~~the ~~borrowers’~~COVID-19 ~~tenants,~~pandemic ~~which~~on inall ~~turn~~aspects of our business, ~~has~~including ~~negatively~~the ~~impacted~~ability of our borrowers’ ~~businesses~~to ~~and~~withstand ~~liquidity~~the ~~and~~current ~~their~~economic ~~ability~~conditions toand ~~pay~~continue ~~interest~~to ~~owed~~fund ~~under~~their ~~our~~debt ~~loans.~~service ~~See~~obligations ~~elsewhere~~owed inand ~~this~~due ~~Management’s~~to ~~Discussion~~us and ~~Analysis~~the status of ~~Financial~~our ~~Condition~~operations, liquidity and ~~Results~~capital ofneeds ~~Operations~~and ~~for~~resources. ~~further~~We ~~information~~are ~~about~~also ~~the~~conducting ~~impact~~financial ~~these~~modeling ~~conditions~~and ~~have~~sensitivity ~~had~~analyses onregularly, actively communicating with our borrowers, our ~~loans~~lender and ~~Master~~other ~~Repurchase~~key ~~Agreement,~~constituents asand ~~well~~stakeholders asin onorder ~~the~~to ~~broader~~help assess market conditions, ~~including~~opportunities, ~~for~~best practices and mitigate risks and potential adverse impacts, and continuously monitoring, with the ~~CRE~~assistance ~~lending~~of ~~industry~~counsel and other specialists, possible government relief funding sources and ~~certain~~other ~~actions~~programs wethat ~~have~~may ~~taken~~be inavailable ~~response~~to us or our borrowers to enable us and them to operate through the current economic conditions and enhance their ability to fund their debt service obligations owed and due to us.

WeThe ~~and~~U.S. ~~our~~economy ~~Manager~~has been growing as COVID-19 vaccinations are ~~closely~~increasingly ~~monitoring~~administered, ~~the~~commercial ~~impact~~activities increasingly return to pre-pandemic practices and operations, and as a result of recent and expected future government spending on COVID-19 pandemic relief, infrastructure and other matters. However, there remains uncertainty as to the ultimate duration and severity of COVID-19 pandemic on ~~all~~commercial ~~aspects~~activities, including risks that may arise from mutations or related strains of ~~our~~the ~~business~~virus, ~~including:~~the ability to successfully administer vaccinations to a sufficient number of persons or attain immunity to the virus

~~•our borrowers and their ability to withstand the current economic conditions and continue to fund their debt service obligations owed and due to us,~~ 15

•our operations, liquidity and capital needs and resources,

•conducting financial modeling and sensitivity analysis,

•actively communicating with our borrowers, Citibank and other key constituents and stakeholders in order to help assess market conditions, opportunities, best practices and mitigate risks and potential adverse impacts, and

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~~•monitoring,~~by ~~with~~natural ~~the~~or ~~assistance~~other ofmeans ~~counsel~~to ~~and~~achieve ~~other~~herd ~~specialists~~immunity, ~~possible~~and ~~government~~the ~~relief~~impact ~~funding~~on ~~sources~~the ~~and~~U.S. ~~other~~economy ~~programs~~ that may beresult ~~available~~from tothe usinability orof ~~our~~other ~~borrowers~~countries to ~~enable~~administer usvaccinations ~~and them~~ to ~~operate~~their ~~through~~citizens ~~the~~or ~~current economic conditions and enhance~~ their citizens’ ability to ~~fund~~otherwise ~~their~~achieve ~~debt~~immunity ~~service obligations owed and due~~ to ~~us.~~the virus.

InThere ~~order~~are toextensive ~~preserve~~uncertainties ~~our~~surrounding ~~near~~the ~~term~~COVID-19 ~~capital~~pandemic ~~due~~and toits ~~the~~aftermath, ~~economic downturn~~ and ~~uncertainty~~ as toa ~~future~~result, ~~economic~~we ~~conditions~~are asunable ato ~~result~~determine ofwhat the ~~COVID-19~~ultimate ~~pandemic,~~impact ~~beginning~~will ~~with~~be ~~the~~on ~~first~~our ~~quarter~~borrowers’ ofand ~~2020~~other stakeholders’ businesses, weoperations, ~~reduced~~financial ~~our~~results ~~quarterly~~and ~~distribution~~financial ~~rate~~position. ~~payable~~For tofurther ~~our~~information ~~common~~and ~~shareholders~~risks relating to ~~$0.01~~the ~~per~~COVID-19 ~~share.~~pandemic Inon ~~addition,~~us and our ~~Manager~~business, ~~extended~~and ~~its~~the ~~waiver~~related ofactions ~~the~~our ~~management~~Manager ~~and~~has ~~incentive~~taken ~~fees~~in ~~under~~response ~~our~~to ~~management~~the ~~agreement~~pandemic, ~~for~~see ~~and~~"COVID-19 ~~through~~Pandemic" ~~the~~in ~~periods~~Part ~~ending~~I, ~~December~~Item ~~31,~~1 ~~2020.~~and ~~This~~"Risk ~~waiver~~Factors" ~~had~~in ~~been~~Part ~~scheduled~~I, toItem ~~expire~~1A onof ~~June~~our ~~30,~~Annual ~~2020~~Report.

We believe that some of our impacted borrowers or their tenants have benefited from provisions of the Coronavirus Aid, Relief, and Economic Security Act, passed by Congress in March 2020, or other Federal or state assistance allowing them to continue or resume business activity.

We do not have any employees and the personnel and various services we require to operate our business are provided to us by our Manager or by RMR LLC, pursuant to our management agreement with our Manager and our Manager’s shared services agreement with RMR LLC. RMR LLC has implemented enhanced cleaning protocols and social distancing guidelines at its corporate headquarters and its regional offices, as well as business continuity plans to ensure that employees of our Manager and of RMR LLC remain safe and able to support us and RMR LLC’s other managed companies, including providing appropriate information technology such as notebook computers, smart phones, computer applications, information technology security applications and technology support. RMR LLC has also taken measures to reduce the possibility of persons gathering in groups and in close proximity to each other, for the purpose of mitigating the potential for spreading of COVID-19 infections.

There are extensive uncertainties surrounding the COVID-19 pandemic and its aftermath. These uncertainties include among others:

•the duration and severity of the negative economic impact;

•the strength and sustainability of any economic recovery;

•the timing and process for how the federal, state and local governments and other market participants may oversee and conduct the return of economic activity when the COVID-19 pandemic ends, such as what continuing restrictions and protective measures may remain in place, be re-imposed or be added and what restrictions and protective measures may be lifted or reduced in order to foster a return of increased economic activity in the United States; and

•the responses of governments, businesses and the general public to any increased levels or rates of COVID-19 infections.

As a result of these uncertainties, we are unable to determine what the ultimate impact will be on our borrowers’ and other stakeholders’ businesses, operations, financial results and financial position. For further information and risks relating to the COVID-19 pandemic and its aftermath on us and our business, see elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and Part II, Item 1A Risk Factors, in this Quarterly Report on Form 10-Q.

Book Value per Common Share

The table below calculates our book value per common share ~~(amounts in thousands, except per share data)~~:

	September 30, 2020		December 31, 2019
	March 31, 2021		December 31, 2020
Shareholders' equity	$	9190,~~063~~529	$	8688,~~221~~903
Total outstanding common shares	8,~~303~~306		8,~~240~~303
Book value per common share	$	10.9790	$	10.4671

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Our Loan Portfolio

The table below ~~details~~provides overall statistics for our loan portfolio as of ~~September~~March 3031, ~~2020~~2021 and December 31, ~~2019~~2020:

	Balance at September 30, 2020			Balance at December 31, 2019
	As of March 31, 2021			As of December 31, 2020
Number of loans	1413			1214
Total loan commitments	$	~~293~~268,~~961~~379		$	~~260~~293,~~167~~890
Unfunded loan commitments (1)	$	138,~~974~~989		$	1712,~~268~~236
Principal balance	$	~~279~~259,~~987~~390		$	~~242~~281,~~899~~654
Unamortized net deferred origination and exit fees	$	~~232~~789		$	~~(821)~~592
Carrying value	$	~~280~~260,~~219~~179		$	~~242~~282,~~078~~246
Weighted average coupon rate	5.7073		%	5.7670		%
Weighted average all in yield (2)	6.3843		%	6.4139		%
Weighted average maximum maturity (years) (3)	2.94			32.6
Weighted average LTV (4)	67		%	70		%
Weighted average loan rating	2.9			3.2
Weighted average LTV (4)	67		%	67		%

(1) Unfunded loan commitments are primarily used to finance property and building improvements and leasing capital and are generally funded over the term of the loan.

(2) All in yield represents the yield on a loan, excluding any repurchase debt funding applicable to the loan and including amortization of deferred fees over the initial term of the loan.

(3) Maximum maturity assumes all borrower loan extension options have been exercised, which options are subject to the borrower meeting certain conditions.

(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 provides details of our loan ~~portfolio~~investments as of ~~September~~March 3031, ~~2020~~2021:

Location	Property Type	Origination Date	Committed Principal Amount		PrincipalBalance		Coupon Rate	All in Yield (1)	~~Maximum~~ Maturity(~~2)(~~date)	~~LTV~~Maximum Maturity (32)(date)	~~Risk~~LTV ~~Rating~~(3)		Risk Rating
First mortgage whole loans
Coppell, TX (4)	Retail	02/05/2019	$	20,826	$	20,115	L + 3.50%	L + 4.24%	02/05/2021	73%	4
Metairie, LA	Office	04/11/2018	$	18,102	$	17,351	L + 5.00%	L + 5.65%	4/11/2021	04/11/2023	79	%	3
Houston, TX	~~Multifamily~~Office	0506/1026/~~2019~~2018	2815,~~000~~200		2714,~~897~~489		L + 34.5000%	L + 4.3659%	116/1026/~~2022~~2021	~~56%~~06/26/2023	469	%	4
Paradise Valley, AZ	Retail	11/30/2018	11,853		10,564		L + 4.25%	L + 5.72%	11/30/2022	48%	4
Coppell, TX	Retail	02/05/2019	19,865		19,865		L + 3.50%	L + 4.24%	8/12/2021	02/12/2022	73	%	4
Dublin, OH	Office	02/18/2020	22,820		20,049		L + 3.75%	L + 4.91%	02/18/2023	33%	3
Houston, TX	Multifamily	05/10/2019	27,929		27,929		L + 3.50%	L + 4.52%	11/10/2021	11/10/2022	56	%	3
Metairie, LA	Office	04/11/2018	18,102		17,173		L + 5.00%	L + 5.65%	04/11/2023	79%	4
Paradise Valley, AZ	Retail	11/30/2018	11,853		11,197		L + 4.25%	L + 5.71%	11/30/2021	11/30/2022	48	%	3
Barrington, NJ	Industrial	05/06/2019	37,600		34,962		L + 3.50%	L + 4.05%	05/06/2023	79%	3
St. Louis, MO	Office	12/19/2018	29,500		27,763		L + 3.25%	L + 3.74%	12/19/2021	12/19/2023	72	%	2
Houston, TX	Office	06/26/2018	15,200		14,421		L + 4.00%	L + 4.59%	06/26/2023	69%	4
Atlanta, GA	Hotel	12/21/2018	24,000		23,904		L + 3.25%	L + 3.72%	12/21/2021	12/21/2023	62	%	4
St. Louis, MO	Office	12/19/2018	29,500		27,611		L + 3.25%	L + 3.75%	12/19/2023	72%	3
Dublin, OH	Office	02/18/2020	22,820		21,556		L + 3.75%	L + 4.83%	2/18/2022	02/18/2023	33	%	3
Atlanta, GA	Hotel	12/21/2018	24,000		23,904		L + 3.25%	L + 3.72%	12/21/2023	62%	4
Barrington, NJ	Industrial	05/06/2019	37,600		36,162		L + 3.50%	L + 4.03%	5/6/2022	05/06/2023	79	%	1
Rochester, NY	Multifamily	01/22/2019	24,550		24,550		L + 3.25%	L + 3.86%	01/22/2024	74%	2
Omaha, NE	Retail	06/14/2019	14,500		13,054		L + 3.65%	L + 4.05%	6/14/2022	06/14/2024	77	%	4
Omaha, NE	Retail	06/14/2019	14,500		13,054		L + 3.65%	L + 4.05%	06/14/2024	77%	4
Yardley, PA	Office	12/19/2019	14,900		14,264		L + 3.75%	L + 4.47%	12/19/2022	12/19/2024	75	%	4
Yardley, PA	Office	12/19/2019	14,900		14,264		L + 3.75%	L + 4.47%	12/19/2024	75%	3
Orono, ME	Multifamily	12/20/2019	18,110		17,856		L + 3.25%	L + 3.86%	12/20/2022	12/20/2024	72	%	2
Orono, ME	Multifamily	12/20/2019	18,110		17,423		L + 3.25%	L + 3.88%	12/20/2024	72%	3
Allentown, PA	Industrial	01/24/2020	14,000		14,000		L + 3.50%	L + 4.02%	1/24/2023	01/24/2025	67	%	3
Allentown, PA	Industrial	01/24/2020	14,000		14,000		L + 3.50%	L + 4.02%	01/24/2025	67%	3
Total/weighted average			$	268,379	$	259,390	L + 3.64%	L + 4.33%			67%		2.9
Total/weighted average			$	293,961	$	279,987	L + 3.60%	L + 4.28%		67%	3.4

(1)All in yield represents the yield on a loan, excluding any repurchase debt funding applicable to the loan and including amortization of deferred fees over the initial term of the loan.

(2)Maximum maturity assumes all borrower loan extension options have been exercised, which options are subject to the borrower meeting certain conditions.

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

~~(4) In~~As ~~July~~of ~~2020~~March 31, ~~the~~2021, ~~borrower~~we ~~under~~had ~~our~~$268,379 ~~loan~~in ~~related~~aggregate toloan acommitments, ~~retail~~consisting ~~property~~of ~~located~~a indiverse ~~Coppell~~portfolio, TXgeographically ~~sold~~and aby ~~parcel~~property type, of ~~land~~13 ~~that~~first ~~was~~mortgage awhole ~~part~~loans. The ofimpact from the ~~property~~COVID-19 ~~securing~~pandemic ~~the~~has ~~loan.~~negatively ~~The~~impacted ~~borrower~~some ~~used~~of $2our borrowers’ business operations or tenants,~~089~~ ofparticularly in the ~~sale~~cases ~~proceeds~~of toour ~~repay~~retail ~~part~~and ofhospitality ~~the~~collateral, ~~outstanding~~which ~~balance~~are ~~under~~some of the ~~loan~~types ~~which~~of ~~also~~properties ~~reduced~~that ~~the~~have ~~committed~~been ~~principal~~most negatively impacted by the ~~same~~pandemic. ~~amount~~We ~~and~~expect wethat ~~allowed~~those ~~the~~negative ~~borrower~~impacts may continue and may apply to ~~use~~other ~~the~~borrowers ~~remaining~~and/or ~~$100~~their tenants. Therefore, certain of ~~sale~~our ~~proceeds~~borrowers’ business plans will likely take longer to ~~increase~~execute ~~the~~than ~~reserve~~initially ~~for~~expected ~~its~~and ~~future~~certain of our borrowers may be unable to pay their debt service obligation ~~payments~~ owed and due to us ~~under~~as ~~the~~currently ~~loan~~scheduled. WeAs ~~used~~of $1March 31,~~358~~ 2021, we had five loans representing 33% of the carrying value of our loan portfolio with a loan risk rating of “4” or “higher risk”. One of these ~~repayment~~loans ~~proceeds~~was todowngraded ~~repay~~from a ~~part~~risk rating of ~~the~~"3" ~~outstanding~~or ~~balance~~"acceptable ~~under~~risk" ~~our~~during ~~Master~~the ~~Repurchase~~three ~~Facility~~months ended March 31, 2021. Three loans with a loan risk rating of "4" or "higher risk" as of December 31, 2020 were upgraded to a risk rating of "3" or "acceptable risk" during the three months ended March 31, 2021

18All 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 continue to actively engage with our borrowers regarding their execution of the business plans for the underlying collateral, among other things.

As of April 23, 2021, all of our borrowers had paid all of their debt service obligations owed and due to us and none of the loans included in our investment portfolio were in default.

We did not have any impaired loans, non-accrual loans or loans in default as of March 31, 2021; thus, we did not record a reserve for loan loss as of that date. However, depending on the duration and severity of the COVID-19 pandemic and the current economic downturn, our borrowers' businesses, operations and liquidity may be materially adversely impacted. As a result, they may become unable to pay their debt service obligations owed and due to us, which may result in the impairment of those loans, and our recording loan loss reserves with respect to those loans and recording of any income with respect to those loans on a nonaccrual basis. For further information regarding our risk rating policy and the risks associated with our loan portfolio, see our Annual Report.

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As of September 30, 2020, we had $293,961 in aggregate loan commitments, consisting of a diverse portfolio, geographically and by property type, of 14 first mortgage whole loans. The impact from the COVID-19 pandemic has negatively impacted some of our borrowers’ business operations or tenants, particularly in the cases of our retail and hospitality collateral, which are the types of properties that have been most negatively impacted by the pandemic. We expect that those negative impacts may continue and may apply to other borrowers and/or their tenants. Therefore, certain of our borrowers’ business plans will likely take longer to execute than initially expected and certain of our borrowers may be unable to pay their debt service obligation owed and due to us as currently scheduled. As of September 30, 2020, we had seven loans representing 46% of the carrying value of our loan portfolio with a loan risk rating of “4” or “higher risk”. Six of these loans were downgraded from a risk rating of "3" or "acceptable risk" during the three months ended March 31, 2020 and the seventh loan was downgraded from a risk rating of "3" or "acceptable risk" during the three months ended September 30, 2020.

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 continue to actively engage with our borrowers regarding their execution of the business plan for the underlying collateral, among other things.

As of November 2, 2020, all of our borrowers had paid all of their debt service obligations owed and due to us and none of the loans included in our investment portfolio were in default.

In November 2020, we expect to execute an amendment to the loan agreement with the borrower under our loan related to a multifamily property located in Houston, TX which will extend the maturity date of the loan by one year to November 10, 2021, subject to the borrower funding an interest reserve of $500 and definitive documentation.

We did not have any impaired loans, non-accrual loans or loans in default as of September 30, 2020; thus, we did not record a reserve for loan loss as of that date. For further information regarding our risk rating policy, see Notes 2 and 4 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. However, depending on the duration and severity of the COVID-19 pandemic and the current economic downturn, our borrowers' businesses, operations and liquidity may be materially adversely impacted. As a result, they may become unable to pay their debt service obligations owed and due to us, which may result in the impairment of those loans, and our recording loan loss reserves with respect to those loans and recording of any income with respect to those loans on a nonaccrual basis. For further information regarding the risks associated with our loan portfolio, see the risk factors identified in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q and the risk factors identified in Part I, Item IA, "Risk Factors" of our Annual Report.

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Financing Activities

The table below is an overview of our Master Repurchase Facility, which provided financing for our loans held for investment, as of ~~September~~March 3031, ~~2020~~2021 and December 31, ~~2019~~2020:

	Initial Maturity Date (1)	Principal Balance		Unused Capacity		Maximum Facility Size		Collateral Principal Balance
	Maturity Date	Principal Balance		Unused Capacity		Maximum Facility Size		Collateral Principal Balance
September 30, 2020:
March 31, 2021:
Master repurchase facility	11/06/2021	$	201,051	$	12,431	$	213,482	$	279,987
Master Repurchase Facility	11/06/2022	$	180,751	$	32,731	$	213,482	$	259,390
December 31, 2019:
December 31, 2020:
Master repurchase facility	11/06/2021	$	165,536	$	47,946	$	213,482	$	242,899
Master Repurchase Facility	11/06/2022	$	201,051	$	12,431	$	213,482	$	281,654

~~(1)On~~The ~~October~~table ~~30,~~below ~~2020,~~details ~~we amended~~ our Master Repurchase ~~Agreement~~Facility ~~to,~~activities ~~among~~during ~~other things, extend~~ the ~~expiration~~three ~~date~~months ofended ~~our Master Repurchase Facility by one year to November 6~~March 31, ~~2022, subject to early termination as provided for in our Master Repurchase Agreement.~~2021:

The table below details our Master Repurchase Facility activities during the three months ended September 30, 2020:


	Total
Balance at December 31, 2020	$	200,233
Advancements	3,612
Repayments	(23,912)

Amortization of deferred fees	107
Balance at March 31, 2021	$	180,040

	Total
Balance at June 30, 2020	$	200,465
Advancements	1,271
Repayments	(1,358)
Amortization of Deferred Fees	123
Balance at September 30, 2020	$	200,501

As of March 31, 2021, outstanding advancements under our Master Repurchase Facility had a weighted average interest rate of LIBOR plus 200 basis points per annum, excluding associated fees and expenses. For further information regarding our Master Repurchase Agreement, see Note 4 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

~~The~~As ~~table~~of ~~below~~March 31, ~~details~~2021, we had a $180,751 aggregate outstanding principal balance under our Master Repurchase Agreement. In light of the impact of the COVID-19 pandemic, we continue to actively engage with Citibank regarding our liquidity position and the status of the loans in our portfolio that are financed under our Master Repurchase Facility. Our ~~activities~~Master ~~during~~Repurchase Agreement is structured with risk mitigation mechanisms, including a cash flow sweep, which would allow Citibank to control interest payments from our borrowers under our loans that are financed under our Master Repurchase Facility, and the ~~nine~~ability ~~months~~to ~~ended~~accelerate ~~September~~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 Facility. As of April 3023, ~~2020:~~2021, we believe we were in compliance with all the covenants and other terms under our Master Repurchase Agreement and, to date, Citibank has not utilized any such risk mitigation mechanisms under our Master Repurchase Agreement.

	Total
Balance at December 31, 2019	$	164,694
Advancements	36,873
Repayments	(1,358)
Deferred Fees	(72)
Amortization of Deferred Fees	364
Balance at September 30, 2020	$	200,501

We could experience a loss on repurchase transactions under our Master Repurchase Agreement if a counterparty to these transactions defaults on its obligation to resell the underlying collateral back to us at the end of the transaction term, or if the value of the underlying assets has declined as of the end of that term, or if we default on our obligations under the applicable agreement governing any such arrangement.

AsOur ofability ~~September 30,~~to ~~2020,~~obtain ~~outstanding~~additional financing advancements under our Master Repurchase Facility ~~had~~is acontingent ~~weighted~~upon ~~average~~our ~~interest~~making ~~rate~~additional ofadvancements ~~LIBOR~~to ~~plus~~our ~~200~~existing ~~basis~~borrowers ~~points~~or ~~per~~our ~~annum~~ability to effectively reinvest any additional capital, ~~excluding~~including ~~associated~~any ~~fees~~loan ~~and~~repayment ~~expenses~~proceeds, that we may obtain or receive. ~~For~~However, ~~further~~we ~~information~~cannot ~~regarding~~be sure that we will be able to obtain additional cost-effective capital or additional financing advancements under our Master Repurchase ~~Agreement,~~Facility. ~~see~~It ~~Note~~may 5take an extended period for us to ~~the~~reinvest ~~Notes~~any additional capital we may receive, and any reinvestments we may be able to ~~Unaudited~~make ~~Condensed~~may ~~Consolidated~~not ~~Financial~~provide ~~Statements~~us ~~included~~with insimilar ~~Part~~returns I,or ~~Item~~comparable 1risks as those of ~~this~~our ~~Quarterly~~current ~~Report~~investments. See “—Factors Affecting Operating Results—Market Conditions” below for information regarding the impact of the current market conditions on ~~Form~~the ~~10-Q~~access of capital for CRE lenders such as us.

As of September 30, 2020, we had a $201,051 aggregate outstanding principal balance under our Master Repurchase Agreement. In light of the impact of the COVID-19 pandemic, we continue to actively engage with Citibank regarding our liquidity position and the status of the loans in our portfolio that are financed under our Master Repurchase Facility. Our Master Repurchase Agreement is structured with risk mitigation mechanisms, including a cash flow sweep, which would allow Citibank to control interest payments from our borrowers under our loans that are financed under our Master Repurchase Facility, 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 Facility. As of November 2, 2020, we believe we were in compliance with all the covenants and other terms under our Master Repurchase Agreement and, to date, Citibank has not utilized any such risk mitigation mechanisms under our Master Repurchase Agreement.18

We could experience a loss on repurchase transactions under our Master Repurchase Agreement if a counterparty to these transactions defaults on its obligation to resell the underlying collateral back to us at the end of the transaction term, or if the value of the underlying collateral has declined as of the end of that term, or if we default on our obligations under the applicable agreement governing any such arrangement.

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We have fully committed the capital available to us. Our ability to obtain additional financing advancements under our Master Repurchase Facility is contingent upon our making additional advancements to our existing borrowers or our ability to effectively reinvest any additional capital, including any loan repayment proceeds, that we may obtain or receive. However, we cannot be sure that we will be able to obtain additional capital or additional financing advancements under our Master Repurchase Facility. It may take an extended period for us to reinvest any additional capital we may receive, and any reinvestments we may be able to make may not provide us with similar returns or comparable risks as those of our current investments. See “—Factors Affecting Operating Results—Market Conditions” below for information regarding the impact of the current market conditions on the access of capital for CRE lenders such as us.

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RESULTS OF OPERATIONS (dollars in thousands, except share data)

Three Months Ended ~~September~~March 3031, ~~2020~~2021 Compared to Three Months Ended ~~September~~March 3031, ~~2019~~2020:

	Three Months Ended September 30,
	Three Months Ended March 31,
	2020		2019		Change		% Change
	2021		2020		Change		% Change
INCOME FROM INVESTMENTS:
Interest income from investments	$	4,~~632~~486	$	4,~~959~~284	$	~~(327)~~202	(4.7	%)
Less: interest and related expenses	(1,~~242~~135)		(1,~~992~~757)		~~750~~622		(3835.4	%)
Income from investments, net	3,~~390~~351		2,~~967~~527		~~423~~824		1432.6	%
OTHER EXPENSES:
General and administrative expenses	576		541		35		6	%
Base management fees	342		—		342		n/m
Reimbursement of shared services expenses	189		370		(181)		(49	%)
Management incentive fees	620		—		620		n/m
Total expenses (1)	765		911		(146)		(16	%)
General and administrative expenses	669		540		129		23.9	%
Net income	$	2,625	$	2,056	$	569	28	%
Reimbursement of shared services expenses	138		321		(183)		(57.0	%)
Weighted average common shares outstanding - basic and diluted	8,190		8,156		34		—	%
Total expenses	1,769		861		908		105.5	%
Net income per common share - basic and diluted	$	0.32	$	0.25	$	0.07	28	%
Income before income tax expense	1,582		1,666		(84)		(5.0	%)
Income tax expense	(7)		—		(7)		n/m
Net income	$	1,575	$	1,666	$	(91)	(5.4	%)
Weighted average common shares outstanding - basic	8,211		8,169		42		0.5	%
Weighted average common shares outstanding - diluted	8,239		8,169		70		0.9	%
Net income per common share - basic and diluted	$	0.19	$	0.20	$	(0.01)	(5.0	%)

~~(1)Our~~n/m ~~Manager~~- ~~has waived any base management or incentive fees otherwise due and payable by us under our management agreement for and through the periods ending December 31, 2020. If our Manager had~~ not waived these base management and incentive fees, we would have recognized $332 and $322 of base management fees for the three months ended September 30, 2020 and 2019, respectively, and $129 of incentive fees for the three months ended September 30, 2020. No incentive fees would have been paid or payable for the three months ended September 30, 2019. meaningful

Interest income from investments. The ~~decrease~~increase in interest income from investments was primarily the result of ~~$428~~additional ofinterest ~~deferred~~income ~~fees~~ recognized induring ~~2019~~the ~~for~~three ~~two~~months ~~loans~~ended ~~that~~March ~~were~~31, ~~repaid~~2021 bycompared ~~borrowers~~to ~~and~~March a31, 2020 related ~~prepayment~~to ~~premium~~two ofloan ~~$449~~investments that ~~was~~were ~~earned~~originated onin ~~one~~January ofand ~~these~~February ~~repaid loans~~2020. This ~~decrease~~increase was partially offset by ana ~~increase~~decrease in interest income ofdue ~~$587 which was earned on the 14 loans included in our portfolio at September 30, 2020, as compared~~ to 10an ~~loans~~early ~~included~~payoff inof ~~our~~a ~~portfolio~~loan atinvestment ~~September 30,~~during ~~2019~~February 2021.

Interest and related expenses. The decrease in interest and related expenses was primarily athe result of a decline in ~~average~~ LIBOR ~~rates~~since ofMarch ~~approximately~~31, ~~200~~2020 ~~basis points or $642. Also contributing to this decrease was $154 of interest expense recognized in the 2019 period for loans that were repaid during the 2019 period~~ and ~~$157 of deferred fees that we recognized in 2019 with respect to~~ the ~~prepayment and termination of the TCB note payable as a result of the early~~ repayment of aoutstanding ~~loan~~balances we funded to finance the borrower’s acquisition of a hotel located adjacent to the John F. Kennedy International Airport in Queens, NY, or the JFK loan. These decreases were partially offset by an increase of $263 in interest expense related to advancements under our Master Repurchase Facility ~~for~~during ~~four~~February ~~loans originated after September 30, 2019~~2021.

~~General~~Base management fees. Our Manager waived any base management fees that would otherwise have been due and ~~administrative~~payable ~~expenses~~by us under our management agreement for the period beginning July 1, 2018 until December 31, 2020. ~~General~~If ~~and~~our ~~administrative~~Manager ~~expenses~~had ~~increased~~not ~~due~~waived tothese ~~increases~~base inmanagement ~~subscription~~fees, ~~costs~~we ~~and~~would ~~professional~~have recognized $320 of base management fees for the three months ended March 31, 2020.

~~Reimbursement~~Management ofincentive ~~shared~~fees. ~~services~~Our ~~expenses.~~Manager ~~Reimbursement~~waived ofany ~~shared~~management ~~services~~incentive ~~expenses~~fees ~~represents~~that ~~reimbursement~~would ofotherwise ~~the~~have ~~costs~~been ~~for~~due ~~the~~and ~~services~~payable ~~that~~by us under our ~~Manager~~management ~~arranges~~agreement onfor ~~our~~the ~~behalf~~period ~~from~~beginning ~~RMR~~July ~~LLC~~1, 2018 until December 31, 2020. ~~The~~If ~~decrease~~our inManager ~~reimbursement~~had ofnot ~~shared~~waived ~~services~~these ~~expenses~~management ~~was~~incentive ~~primarily~~fees, ~~the~~no ~~result~~management ofincentive ~~our~~fees ~~reduced~~would ~~usage~~have ofbeen ~~shared~~paid ~~services~~or ~~due~~payable toby ~~our~~us ~~loan~~for ~~portfolio~~the ~~being~~three ~~fully~~months ~~invested~~ended March 31, 2020.

~~Net~~General ~~income~~and administrative expenses. The increase in ~~net~~general ~~income~~and administrative expenses was primarily due to ~~the~~increases ~~changes~~in ~~noted~~professional ~~above~~fees and insurance costs.

22Reimbursement of shared services expenses. Reimbursement of shared services expenses represents reimbursement of the costs for the services that our Manager arranges on our behalf from RMR LLC. The decrease in reimbursement of shared services expenses was primarily the result of our reduced usage of shared services due to our loan portfolio being fully invested through February 2021.

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~~Nine~~Income ~~Months~~tax ~~Ended~~expense. ~~September 30,~~Income ~~2020~~tax ~~Compared~~expense torepresents ~~Nine~~income ~~Months~~taxes ~~Ended~~paid ~~September 30,~~or ~~2019:~~payable by us in certain jurisdictions where we are subject to state income taxes.

	Nine Months Ended September 30,
	2020		2019		Change		% Change
INCOME FROM INVESTMENTS:
Interest income from investments	$	13,412	$	11,872	$	1,540	13	%
Less: interest and related expenses	(4,367)		(5,572)		1,205		(22	%)
Income from investments, net	9,045		6,300		2,745		44	%
OTHER EXPENSES:
General and administrative expenses	1,640		1,662		(22)		(1	%)
Reimbursement of shared services expenses	752		1,110		(358)		(32	%)
Total expenses (1)	2,392		2,772		(380)		(14	%)
Net income	$	6,653	$	3,528	$	3,125	89	%
Weighted average common shares outstanding - basic and diluted	8,179		5,583		2,596		46	%
Net income per common share - basic and diluted	$	0.81	$	0.63	$	0.18	29	%

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

(1)Our Manager has waived any base management or incentive fees otherwise due and payable by us under our management agreement for and through the periods ending December 31, 2020. If our Manager had not waived these base management and incentive fees, we would have recognized $975 and $812 of base management fees for the nine months ended September 30, 2020 and 2019, respectively, and $164 of incentive fees for the nine months ended September 30, 2020. No incentive fees would have been paid or payable for the nine months ended September 30, 2019.

Interest income from investments. The increase in interest income from investments was primarily the result of an increase in interest income of $2,347 earned on the 14 loans included in our portfolio at September 30, 2020, as compared to 10 loans included in our portfolio at September 30, 2019. This increase is partially offset by $428 of deferred fees that we recognized in 2019 period for two loans that were repaid by borrowers and a related prepayment premium of $449 earned on one of these repaid loans.

Interest and related expenses. The decrease in interest and related expenses was a result of a decline in average LIBOR rates of approximately 175 basis points or $870. Also contributing to this decrease was $1,208 of interest expense that we recognized in the 2019 period for two loans that were repaid during the 2019 period and $191 of deferred fees that we recognized in the 2019 period with respect to the prepayment and termination of the TCB note payable as a result of the early repayment of the JFK loan, as well as the repayment and termination of the RMR Credit Agreement. These decreases were partially offset by an increase of $848 in interest expense related to advancements under our Master Repurchase Facility for four loans originated after September 30, 2019, and $216 of interest expense in the 2020 period related to three loans originated during the nine months ended September 30, 2019.

General and administrative expenses. The decrease in general and administrative expenses was primarily the result of a decrease in share based compensation expense and audit fees, partially offset by an increase in insurance expense.

Reimbursement of shared services expenses. The decrease in reimbursement of shared services expenses was primarily the result of our reduced usage of shared services due to our loan portfolio being fully invested.

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

Non-GAAP Financial Measures

We present ~~Core~~Distributable Earnings, which is considered a “non-GAAP financial measure” within the meaning of the applicable SEC rules. ~~Core~~Distributable Earnings does not represent net income or cash generated from operating activities and should not be considered as an alternative to net income determined in accordance with GAAP or 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 methodology for calculating ~~Core~~Distributable Earnings may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures; therefore, our reported ~~Core~~Distributable Earnings may not be comparable to the ~~core~~distributable earnings as reported by other companies.

23In 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 has been a useful indicator of distributions to our shareholders and is a measure that is considered by our Board of Trustees when determining the amount of such distributions. We believe that Distributable Earnings provides meaningful information to consider in addition to net income and cash flows from operating activities determined in accordance with GAAP. This measure helps us to evaluate our performance excluding the effects of certain transactions, the variability of any management incentive fees that may be paid or payable and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations. In addition, Distributable Earnings is used in determining the amount of base management and management incentive fees payable by us to our Manager under our management agreement.

Distributable Earnings

We calculate Distributable Earnings as net income, computed in accordance with GAAP, including realized losses not otherwise included in net income determined in accordance with GAAP, and excluding: (a) the management incentive fees earned by our Manager, if any; (b) depreciation and amortization, if any; (c) non-cash equity compensation expense; (d) 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 (e) 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.


	Three Months Ended March 31,
	2021		2020
Reconciliation of net income to Distributable Earnings:
Net income	$	1,575	$	1,666

Management incentive fees	620		—

Non-cash equity compensation expense	51		42


Distributable Earnings	$	2,246	$	1,708

Weighted average common shares outstanding - basic	8,211		8,169
Weighted average common shares outstanding - diluted	8,239		8,169

Distributable Earnings per common share - basic and diluted	$	0.27	$	0.21

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We believe that Core Earnings provides meaningful information to consider in addition to net income and cash flows from operating activities determined in accordance with GAAP. This measure helps 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, Core Earnings is used in determining the amount of base management and incentive fees payable by us to our Manager under our management agreement.

Core Earnings

We calculate Core Earnings as net income, computed in accordance with GAAP, including realized losses not otherwise included in net income determined in accordance with GAAP, and excluding: (a) the incentive fees earned by our Manager (if any); (b) depreciation and amortization (if any); (c) non-cash equity compensation expense; (d) 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 (e) one-time events pursuant to changes in GAAP and certain non-cash items (if any).

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Reconciliation of Net Income to Core Earnings:
Net income	$	2,625	$	2,056	$	6,653	$	3,528
Non-cash equity compensation expense	76		80		189		300
Core earnings	$	2,701	$	2,136	$	6,842	$	3,828
Weighted average common shares outstanding - basic and diluted	8,190		8,156		8,179		5,583
Core earnings per common share - basic and diluted	$	0.33	$	0.26	$	0.84	$	0.69

Factors Affecting Operating Results

Our results of our operations are impacted by a number of factors and primarily depend on the interest income from our investments and the financing and other costs associated with our business. Our operating results are also impacted by general CRE market conditions and unanticipated defaults by our borrowers. For further information regarding the risks associated with our loan portfolio, see the risk factors identified in Part I, Item IA, "Risk Factors" of our Annual Report.

Credit Risk. We are subject to the credit risk of our borrowers in connection with our investments. We seek to mitigate this risk by utilizing a comprehensive underwriting, diligence and investment selection process and by ongoing monitoring of our investments. Nevertheless, unanticipated credit losses could occur that could adversely impact our operating results. For further information regarding the risks associated with our loan portfolio, see the risk factors identified in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q and the risk factors identified in Part I, Item IA, "Risk Factors" of our Annual Report.

Changes in Fair Value of our Assets. We generally hold our investments for their contractual terms, unless repaid earlier by the borrower. We evaluate our investments for impairment quarterly. Impairments occur when it is probable that we will not be able to collect all amounts due according to the applicable contractual terms. If we determine that a loan is impaired, we will record an allowance to reduce the carrying value of the loan to an amount that takes into account both the present value of expected future cash flows discounted at the loan's contractual effective interest rate and the fair value of any available collateral, net of any costs we expect to incur to realize that value.

Although we generally hold our investments for their contractual terms or until repaid earlier by the borrower, we may occasionally classify some of our investments as held for sale. Investments held for sale will be carried at the lower of their amortized cost or fair value within loans held for sale on our condensed consolidated balance sheets, with changes in fair value recorded through earnings. Fees received from our borrowers on any loans held for sale will be recognized as part of the gain or loss on sale. We do not currently expect to hold any of our investments for trading purposes.

~~For~~Availability ~~further~~of ~~information~~Leverage ~~regarding~~and Equity. We use leverage to make additional investments that may increase our returns. We may not be able to obtain the ~~risks~~expected ~~associated~~amount ~~with~~of leverage we desire, or its cost may exceed our ~~loan~~expectation ~~portfolio~~and, ~~see~~consequently, the ~~risk~~returns ~~factors~~generated ~~identified~~from inour ~~Part~~investments IImay be reduced. In order to grow our loan portfolio, ~~Item~~we 1Awill need to obtain additional cost-effective capital. However, ~~“Risk~~our ~~Factors”~~access ofto ~~this~~additional ~~Quarterly~~cost-effective ~~Report~~capital depends on ~~Form~~many ~~10-Q~~factors ~~and~~including the ~~risk~~price ~~factors~~at ~~identified~~which inour ~~Part~~common I,shares ~~Item~~trade ~~IA,~~relative to their book value and market lending conditions. See "~~Risk~~ ~~Factors~~—Market Conditions" ofbelow. ~~our~~We ~~Annual~~have ~~Report~~experienced and may continue to experience challenges raising equity capital in the future.

~~Availability~~Market Conditions. Prior to the COVID-19 pandemic, CRE transaction volumes were increasing, driving demand for CRE loans, and alternative lenders, like us, had gained market share. The outbreak of ~~Leverage~~the COVID-19 pandemic in the first quarter of 2020 led to a sharp decline in economic activity over the first half of 2020. The closing of non-essential businesses, "shelter-in-place" orders, restrictions on travel, cancellations of events and ~~Equity~~gatherings and limitations on building occupancies implemented to stop or slow the spread of the virus had a substantial negative impact on the CRE market. WeMany ~~use~~property ~~leverage~~owners granted lease forbearance to tenants unable or, in some cases, unwilling to make ~~additional~~rent ~~investments~~payments ~~that~~which, ~~may~~in ~~increase~~turn, ~~our~~increased ~~returns~~the number of loan forbearance requests by property owners. WeIn ~~may~~addition, ~~not~~volatility bein ~~able~~the capital markets resulted in a substantial widening of credit spreads of commercial mortgage-backed securities, or CMBS, contributing to ~~obtain~~increased overall borrowing costs for banks and alternative lenders. Further, uncertainty surrounding the ~~expected~~depth ~~amount~~and duration of ~~leverage~~the weeconomic ~~desire~~downturn has resulted in a severe decline in overall CRE transaction volume, orand ~~its~~the ~~cost~~financial ~~may~~burdens ~~exceed~~resulting ~~our~~from ~~expectation~~margin calls imposed on lenders, as a result of increased borrowing costs and declining collateral values, and many lenders’ shift in focus to manage large volumes of forbearance requests from borrowers has caused new loan originations to significantly decline.

24The CRE debt markets began to rebound in the third quarter of 2020. In June 2020, the CMBS loan delinquency rate was near highs experienced in 2010, but has since steadily declined as defaults have been "cured" by borrowers investing additional capital to support their loans or through loan forbearance. With historically low interest rates across much of the world, investors’ appetite for higher returns has resulted in improvement to the CMBS market. CMBS credit spreads have declined such that newly issued AAA rated, investment grade bonds for conservatively underwritten loan pools with high quality collateral are currently expected to trade at credit spreads at or near those seen prior to the COVID-19 pandemic. Lower rated tranches of CMBS bonds continue to trade with wider yields than prior to the COVID-19 pandemic; however, overall volatility has subsided which we expect to positively impact the alternative lending market. In addition, issuance of CRE collateralized loan obligations, or CLOs (financial instruments secured by a pool of loans and used by lenders as a source of funding), has increased while CLO credit spreads have declined, providing additional liquidity to alternative lenders, like us.

The decline in property transaction volume and increased liquidity available to lenders has caused greater competition among lenders to fund new loans. We believe that this increased competition amongst lenders, along with significant declines in the LIBOR and U.S. treasury index rates has benefited borrowers seeking loans to refinance high quality properties, particularly multifamily, industrial, life science or research and development/laboratory properties, that are either stabilized or near

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~~consequently, the returns generated from our investments may be reduced~~stabilization. InAlternative ~~order~~lenders, tolike ~~grow~~us, ~~our~~can ~~loan~~provide ~~portfolio~~flexible, weshorter ~~will~~term ~~need~~financing to ~~obtain~~borrowers ~~additional~~that ~~capital.~~may ~~However,~~not ~~our~~be ~~access~~seeking tolonger ~~additional~~term ~~capital~~financing ~~depends~~options onbecause ~~many~~of ~~factors~~economic ~~including~~uncertainty ~~the~~caused ~~price~~by atthe ~~which~~COVID-19 ~~our~~pandemic. ~~common~~However, ~~shares~~despite ~~trade~~the ~~relative~~improvement toof ~~their~~the ~~book~~securitization ~~value~~markets and ~~market~~the ~~lending~~increase ~~conditions.~~in ~~See~~lending "activity, ~~—Market~~we ~~Conditions"~~believe ~~below. We have experienced and may continue to experience~~ challenges ~~raising equity capital in the future~~remain.

~~Market~~The ~~Conditions.~~hospitality ~~Prior~~and toretail ~~the~~sectors ~~COVID-19~~are ~~pandemic,~~among ~~CRE~~those ~~transaction~~that ~~volumes~~have ~~were~~been ~~increasing,~~most ~~driving~~negatively ~~demand~~impacted ~~for~~by ~~CRE~~the ~~loans~~economic downturn. InIt ~~2019,~~is ~~alternative~~unclear ~~lenders,~~how ~~like~~consumer ~~us,~~and ~~had~~travel ~~gained~~habits ~~considerable~~will ~~market~~be ~~share~~impacted ~~and~~over ~~loan~~the ~~pricing~~long ~~had~~term ~~begun~~during toand ~~stabilize.~~after ~~The outbreak of~~ the COVID-19 pandemic; inif ~~the~~consumer ~~first~~and ~~quarter~~travel ofactivity ~~2020~~do ~~led~~not tosubstantially arebound, ~~sharp~~we ~~decline~~believe inthat ~~economic~~this ~~activity~~uncertainty ~~over~~will ~~the~~continue ~~first~~to ~~half~~burden ofthese ~~the~~sectors ~~year.~~and ~~The~~lenders ~~closing~~with ofsignificant ~~non-essential~~exposure ~~businesses,~~to ~~municipalities'~~these ~~"shelter-in-place"~~property ~~orders,~~types ~~restrictions~~will oncontinue ~~travel,~~to ~~cancellation~~face ofchallenges. ~~events~~It ~~and~~is ~~gatherings,~~still ~~and~~unclear ~~limitations~~how onthe ~~building~~shift ~~occupancies implemented~~ to ~~stop~~flexible ~~the~~work-from-home ~~spread~~schedules ofwill impact the ~~virus~~office ~~had~~sector aand ~~substantial~~demand ~~negative~~for ~~impact~~office onspace ~~the~~going ~~commercial real estate market~~forward. ~~Many~~ ~~property~~As ~~owners~~such, ~~were~~lenders ~~forced~~will continue to ~~structure~~face ~~lease~~underwriting ~~forbearance~~challenges with ~~tenants~~respect ~~unable~~to ~~or,~~assumptions inrelated ~~some cases, unwilling~~ to ~~make~~new ~~rent payments which in turn~~leasing, ~~increased~~tenant ~~the~~renewal ~~number~~probabilities ofand ~~loan~~occupancy ~~forbearance~~rates ~~requests~~for ~~due~~office toproperties, ~~these~~especially ~~borrowers’~~assets ~~acceptance~~located ofin ~~rent~~downtown ~~deferral~~or ~~requests~~central ~~from~~business ~~their~~district ~~tenants~~markets. InMultifamily ~~addition,~~properties ~~volatility~~are inexpected ~~the~~to ~~capital~~continue ~~markets~~to ~~resulted~~be in a ~~substantial~~preferred ~~widening~~asset ofclass ~~CMBS~~by ~~bond~~most ~~credit~~lenders ~~spreads~~ and ~~increased~~investors ~~overall borrowing costs~~ for ~~banks,~~the asnear ~~well~~term asdue ~~alternative~~to ~~lenders~~the ~~that~~stability ~~utilize warehouse lines~~ of ~~credit~~cash flows and ~~repurchase~~the ~~facilities~~liquidity toavailable ~~finance~~from ~~lending~~government ~~activities.~~sponsored ~~Lastly~~enterprises, ~~uncertainty~~such ~~surrounding~~as ~~the~~Fannie ~~depth~~Mae ~~and~~or ~~duration~~Freddie ofMac; ~~the~~however, ~~economic~~it ~~downturn~~is ~~resulted~~unclear inwhat ~~a severe decline in overall CRE transaction volume over~~ the ~~first~~impact ~~half~~ of ~~this~~the ~~year~~U.S. ~~The~~Centers ~~financial~~for ~~burdens~~Disease ~~resulting~~Control ~~from~~and ~~margin~~Prevention ~~calls~~moratorium ~~imposed~~ on ~~lenders~~tenant byevictions ~~providers~~will ofhave ~~repurchase~~on ~~facilities~~the sector and ~~warehouse~~how ~~lines~~rent ofcollections ~~credit~~will asbe aimpacted. ~~result~~Lastly, ofindustrial ~~increased~~properties ~~borrowing~~have ~~costs~~performed ~~and~~well ~~many~~throughout ~~lenders’~~the ~~shift~~downturn inand ~~focus~~continue to ~~active~~benefit ~~portfolio~~from ~~management~~the ~~duties~~shift ~~required~~in toconsumers’ ~~handle~~behavior ~~such large volumes of forbearance requests from borrowers caused lenders~~ to ~~virtually~~increased ~~cease~~levels ~~all~~of ~~new~~e-commerce, ~~loan~~which ~~origination~~has inaccelerated during the ~~second~~COVID-19 ~~quarter of 2020~~pandemic.

The ~~CRE~~longer-term ~~debt~~impact ~~markets have begun to rebound in the latter half~~ of the ~~third~~COVID-19 ~~quarter~~pandemic ofis ~~2020~~still uncertain. ~~In June 2020~~However, ~~the~~we ~~CMBS~~believe ~~loan~~that ~~delinquency rate was near the highs experienced in 2010, but since then has steadily declined,~~ as ~~defaults have been "cured", either by borrowers investing additional capital to support their loans or in~~ the ~~form of a loan forbearance~~U.S. ~~With~~economy ~~interest~~improves ~~rates~~and ~~hovering around zero percent across the globe, investors’ appetite for higher~~ returns ~~has~~to ~~resulted in~~ a ~~rebound~~more ~~for~~stable ~~the CMBS market. CMBS bond spreads have declined such that new issue AAA rated~~state, ~~investment~~there grade bonds for conservatively underwritten loan pools with high quality collateral are expected to trade at credit spreads close to those seen prior to the pandemic. Lower rated tranches of CMBS bonds are still trading with wider yields than prior to the pandemic; however, overall volatility has subsided which we believe will ~~have~~be asignificant ~~positive~~opportunities ~~impact~~for ~~on the~~ alternative ~~lending market. In addition~~lenders, ~~with~~like ~~a more stabilized secondary market for CMBS bonds~~us, weto ~~believe~~provide ~~that CRE-CLO issuance (the securitization of short-term~~creative, ~~floating~~flexible ~~rate~~debt ~~loans) will increase, and begin to restore much needed liquidity to those alternative lenders who need to recycle~~ capital ~~and~~for ~~free~~a upwide ~~warehouse~~array ~~lines~~ of ~~credit~~circumstances toand ~~facilitate~~business ~~new lending activity~~plans.

Although credit spreads offered to borrowers by alternative lenders have increased from those offered prior to the pandemic, the dearth of property sale transaction activity has resulted in fewer transactions to be financed and greater competition amongst lenders seeking to fund new loans. We believe that this increased competition amongst lenders, along with significant declines in the LIBOR and U.S. treasury index rates has benefited borrowers seeking loans to refinance high quality properties, particularly multifamily, industrial, life-science or R&D/lab properties, that are either stabilized or near stabilization.

The CRE debt markets have demonstrated resiliency over the past several months and have started to rebound from the liquidity crisis experienced in the early part of the second quarter of 2020. Most, if not all, bank CMBS aggregators are once again quoting new business, and increased demand from bond purchasers seeking higher yields than what is available in other asset classes is providing an important source of liquidity to the market. However, despite the return of the securitization markets and the uptick in lending activity, we believe challenges remain.

The hospitality and retail sectors have been most negatively impacted by the economic downturn. It is unclear how consumer and travel habits will be impacted over the long term during and after the COVID-19 pandemic; if consumer and travel activity do not substantially rebound, we believe that this uncertainty will continue to burden these sectors and lenders with significant exposure to these property types will continue to face challenges. It is still unclear how the shift to flexible work-from-home schedules will impact the office sector and demand for office space going forward. As such, lenders will continue to face underwriting challenges with respect to assumptions related to new leasing, tenant renewal probabilities and occupancy rates for office properties, especially assets located in downtown or CBD markets. Multifamily properties are expected to continue to be a preferred asset class by most lenders and investors for the near term; however, it is unclear what the impact of the U.S. Centers for Disease Control and Prevention moratorium on tenant evictions will have on the sector and how rent collections will be impacted absent a new federal stimulus bill. Lastly, industrial properties have performed well throughout the downturn and continue to benefit from the shift in consumers’ behavior to increased levels of e-commerce, which has accelerated during the pandemic.

The longer-term impact of the COVID-19 pandemic is still uncertain. Notwithstanding a surge in new COVID-19 cases or another large-scale economic shut-down, we believe there will be a modest increase in CRE sales transaction volume

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in the fourth quarter of 2020. We believe that as the U.S. economy improves and returns to a more stable state, there will be significant opportunities for alternative lenders, like us, to provide creative, flexible debt capital for a wide array of circumstances and business plans.

Changes in Market Interest Rates. With respect to our business operations, increases in interest rates, in general, may cause: (a) the interest expense associated with our variable rate borrowings, if any, to increase; (b) the value of our fixed rate investments, if any, to decline; (c) the coupon rates on our variable rate investments, if any, to reset, perhaps on a delayed basis, to higher rates; and (d) it to become more difficult and costly for our borrowers, which may negatively impact their ability to repay our investments. See " —Market Conditions" above for a discussion of the current market including interest rates.

Conversely, decreases in interest rates, in general, may cause: (a) the interest expense associated with our variable rate borrowings, if any, to decrease; (b) the value of our fixed rate investments, if any, to increase; (c) the coupon rates on our variable rate investments, if any, to reset, perhaps on a delayed basis, to lower rates; and (d) it to become easier and more affordable for our borrowers to refinance, and as a result repay, our loans, but may negatively impact our future returns if any such repayment proceeds were to be reinvested in lower yielding investments.

The interest income on our loans and interest expense on our borrowings float with one month LIBOR. Because we generally leverage approximately 75% of our investments, as LIBOR increases, our income from investments, net of interest and related expenses, will increase. LIBOR decreases are mitigated by interest rate floor provisions in our loan agreements with borrowers; therefore, changes to income from investments, net, may not move proportionately with the decrease in LIBOR. Based on our loan portfolio at ~~September~~March 3031, ~~2020~~2021, ~~the~~ LIBOR ~~rate~~ was 0.1611% and would have to exceed the floor established by any of our loans, ~~ranging~~which currently range from 1.50% to 2.50%, to realize an increase in interest income.

LIBOR is currently expected to be phased out infor new contracts by December 31, 2021 and onfor pre-existing contracts by June 30, 2023. On October 30, 2020, we amended our Master Repurchase Agreement to, among other things, provide that at such time as LIBOR is no longer available as a base rate to calculate interest payable on amounts outstanding under our Master Repurchase Facility, the replacement base rate shall be the secured overnight financing rate, or SOFR, or if SOFR is not available, such other rate as may be determined by Citibank in accordance with the terms of ~~the~~our ~~amended~~ Master Repurchase Agreement. We also currently expect that, as a result of any phase out of LIBOR, the interest rates under our loan agreements with borrowers would be revised as provided under the agreements or amended as necessary to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR.

Size of Portfolio. The size of our loan portfolio, as measured both by the aggregate principal balance and the number of our CRE loans and our other investments, is also an important factor in determining our operating results. Generally, if the size of our loan portfolio grows, the amount of interest income we receive would increase and we may achieve certain economies of scale and diversify risk within our loan portfolio. A larger portfolio, however, may result in increased expenses; for example, we may incur additional interest expense or other costs to finance our investments. 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. At this time, we are focused on managing our current loan portfolio. We believe our growth is limited by our ability to ~~access~~obtain additional cost-effective capital.

~~LIQUIDITY AND CAPITAL RESOURCES (dollars in thousands, except per share amounts)~~22

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to fund our lending commitments, repay or meet margin calls resulting from our borrowings, fund and maintain our assets and operations, make distributions to our shareholders and fund other business operating requirements. We require a significant amount of cash to originate, purchase and invest in our target investments, make additional unfunded loan commitment payments, repay principal and interest on our borrowings, make distributions to our shareholders and fund other business operating requirements. We have been limited in our ability to access capital and, as a result, we have limited capital to invest. The long-term impact of the COVID-19 pandemic and its aftermath on financial markets is uncertain. To the extent that impact is sustained for an extended period, we expect that we will be further challenged in accessing capital. Our sources of cash flows include payments of principal, interest and fees we receive on our investments, other cash we may generate from our business and operations and any unused borrowing capacity, including under our Master Repurchase Facility or other repurchase agreements or financing arrangements, and may also include bank loans or public or private issuances of debt or equity securities. We believe that these sources of funds will be sufficient to meet our operating and capital expenses and pay our debt service obligations owed and make any distributions to our shareholders for the next 12 months and for the foreseeable future, subject to the duration and severity of the COVID-19 pandemic and economic impact on our borrowers and their ability to fund their debt service obligations owed to us. For further information regarding the risks associated with our loan portfolio, see the risk factors identified in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q and the risk factors identified in Part I, Item IA, "Risk Factors" of our Annual Report.

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~~Pursuant~~LIQUIDITY toAND ~~our~~CAPITAL ~~Master~~RESOURCES Repurchase Agreement, we may sell to, and later repurchase from, Citibank floating rate mortgage loans and other related assets, or purchased assets. The initial purchase price paid by Citibank for 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. Upon the repurchase of a purchased asset, we are required to pay Citibank the outstanding purchase price of the purchased asset, accrued interest and all accrued and unpaid expenses of Citibank relating to such purchased asset. The price differential (ordollars interest rate) relating to a purchased asset is equal to one month LIBOR plus a premium of 200 to 250 basis points, determined by the yield of the purchased asset and the property type of the purchased asset's real estate collateral. As of September 30, 2020, the maximum amount available for advancement under our Master Repurchase Facility was $213,482, of which we had a $201,051 aggregate outstanding principal balance, and the weighted average interest rate of advancements under our Master Repurchase Facility was 2.70% for the nine months ended September 30, 2020. On October 30, 2020, we amended our Master Repurchase Agreement to, among other things, extend the expiration date of our Master Repurchase Facility by one year to November 6, 2022, subject to early termination as provided for in ~~our Master Repurchase Agreement. For further information regarding our Master Repurchase Facility~~thousands, ~~see~~except ~~Note~~per 5share ~~to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I Item 1 of this Quarterly Report on Form 10-Q and "—Overview-Financing Activities" above.~~data)

Under the Merger Agreement, we have agreed to conduct our business in all material respects in the ordinary course of business consistent with past practice. The Merger Agreement contains certain operating covenants that could affect our liquidity and capital resources, but we do not expect any material changes to our liquidity and capital resources prior to consummation of the Merger or, if applicable, the termination of the Merger Agreement, other than those which may occur in the ordinary course of our business. See Note 1 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding the Merger Agreement.

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to fund our lending commitments, repay or meet margin calls resulting from our borrowings, fund and maintain our assets and operations, make distributions to our shareholders and fund other business operating requirements. We require a significant amount of cash to originate, purchase and invest in our target investments, make additional unfunded loan commitment payments, repay principal and interest on our borrowings, make distributions to our shareholders and fund other business operating requirements. We have been limited in our ability to access cost-effective capital and, as a result, we have limited capital to invest. The long-term impact of the COVID-19 pandemic and its aftermath on financial markets is uncertain. To the extent that impact is significant, negative and sustained for an extended period, we expect that we may continue to be challenged in accessing capital. Our sources of cash flows include payments of principal, interest and fees we receive on our investments, other cash we may generate from our business and operations and any unused borrowing capacity, including under our Master Repurchase Facility or other repurchase agreements or financing arrangements, and may also include bank loans or public or private issuances of debt or equity securities. We believe that these sources of funds will be sufficient to meet our operating and capital expenses and pay our debt service obligations owed and make any distributions to our shareholders for the next 12 months and for the foreseeable future, subject to the duration and severity of the COVID-19 pandemic and economic impact on our borrowers and their ability to fund their debt service obligations owed to us. For further information regarding the risks associated with our loan portfolio, see the risk factors identified in Part I, Item IA, "Risk Factors" of our Annual Report.

Pursuant to our Master Repurchase Agreement, we may sell to, and later repurchase from, Citibank floating rate mortgage loans and other related assets, or purchased assets. The initial purchase price paid by Citibank for 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. Upon the repurchase of a purchased asset, we are required to pay Citibank the outstanding purchase price of the purchased asset, accrued interest and all accrued and unpaid expenses of Citibank relating to such purchased asset. The price differential (or interest rate) relating to a purchased asset is equal to one month LIBOR plus a premium of 200 to 250 basis points, determined by the yield of the purchased asset and the property type of the purchased asset's real estate collateral. Citibank has the discretion under our Master Repurchase Agreement to make advancements at margins higher than 75% and at premiums of less than 200 basis points. If LIBOR is no longer available as a base rate, the replacement base rate shall be SOFR plus a premium of basis points that approximates the existing interest rate as calculated in accordance with LIBOR. As of March 31, 2021, the maximum amount available for advancement under our Master Repurchase Facility was $213,482, of which we had a $180,751 aggregate outstanding principal balance, and the weighted average interest rate of advancements under our Master Repurchase Facility was 2.12% for the three months ended March 31, 2021. Our Master Repurchase Facility is scheduled to expire on November 6, 2022. For further information regarding our Master Repurchase Facility, see Note 4 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I Item 1 of this Quarterly Report on Form 10-Q and "—Overview-Financing Activities" above.

The following is a summary of our sources and uses of cash flows for the periods presented (dollars in thousands):

Nine Months Ended September 30,

Three Months Ended March 31,

2020

2019

2021

2020

Cash, cash equivalents and restricted cash at beginning of period

810,~~875~~521

278,~~335~~875

Net cash provided by (used in):

Operating activities

42,~~677~~436

21,~~489~~308

Investing activities

~~(35~~22,~~958)~~634

(7028,~~287~~914)

Financing activities

33(24,~~442~~701)

4928,~~817~~938

Cash, cash equivalents and restricted cash at end of period

1110,~~036~~890

910,~~354~~207

The increase in cash provided by operating activities was primarily the result of anfavorable ~~increase in net income, partially offset by unfavorable~~ changes in working capital. ~~The~~for ~~decrease~~the inthree ~~cash~~months ~~used~~ended inMarch ~~investing~~31, ~~activities was primarily due to a decrease in our loan origination activity in the 2020 period~~2021, partially offset by ~~loan~~a ~~principal~~decrease ~~repayments~~ in ~~the~~net ~~2019~~income ~~period~~compared ~~related~~ to the ~~prepayment~~three ofmonths ~~two~~ended ofMarch ~~our~~31, ~~loans held for investment~~2020. The ~~decrease~~increase in cash provided by ~~financing~~investing activities was primarily due to athe ~~decrease~~early inpayoff ~~advancements~~of ~~under our Master Repurchase Facility due to~~ a ~~decrease in~~ loan origination activity in the 2020 period, partially offset by repayment activity in the 2019 period. During the 2019 period, we used the net proceeds from our September 2019 issuance and sale of common shares in an underwritten public offering to repay the outstanding balance under the RMR Credit Agreement and to reduce borrowings under our Master Repurchase Facility. Also during the 2019 period, we used proceeds from the prepayment of two of our loans held for investment ~~to repay borrowings outstanding under the TCB note payable~~ and ~~outstanding~~a ~~balances under our Master Repurchase Facility.~~

We have fully committed the capital available to us. Our ability to obtain additional financing advancements under our Master Repurchase Facility is contingent upon our making additional fundings to our existing borrowers or our ability to effectively reinvest any additional capital, including any loan repayment proceeds, that we may obtain or receive. However, we cannot be sure that we will be able to obtain additional capital or additional financing advancements under our Master Repurchase Facility. It may take an extended period for us to reinvest any additional capital we may receive, and any reinvestments we may be able to make may not provide us with similar returns or comparable risks as those of our current investments.23

Distributions

During the nine months ended September 30, 2020, we paid quarterly distributions to our shareholders aggregating $1,978, or $0.24 per common share, using cash on hand. For further information regarding distributions, see Note 7 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In order to preserve our near term capital due to the economic downturn and uncertainty as to future economic conditions as a result of the COVID-19 pandemic, beginning with the first quarter of 2020, we reduced our quarterly distribution rate payable to our common shareholders to $0.01 per share and on October 15, 2020, declared a quarterly distribution payable to our common shareholders of $0.01 per share.

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~~Our~~decrease ~~Board~~in ofour ~~Trustees~~loan ~~will~~origination ~~continue~~activity toduring ~~monitor~~the ~~our~~three ~~financial~~months ~~performance~~ended ~~and~~March ~~economic~~31, ~~outlook~~2021, topartially ~~determine~~offset aby ~~prudent~~additional ~~level~~fundings ~~for~~on ~~any~~loans ~~subsequent~~in ~~quarterly~~our ~~distribution~~portfolio. InThe ~~addition,~~increase wein ~~expect~~cash toused ~~declare~~ in ~~December~~financing ~~2020~~activities ~~and~~was ~~pay~~primarily indue ~~January~~to ~~2021~~the arepayment ~~one-time~~of ~~cash~~outstanding ~~distribution~~balances asunder ~~required~~our toMaster ~~maintain~~Repurchase ~~our~~Facility ~~qualification~~and ~~for~~the ~~taxation~~payment asof a ~~REIT. The year~~one-~~end~~time cash distribution ~~will~~to beour ancommon ~~amount~~shareholders ~~that allows us~~ to ~~meet~~satisfy ~~the~~our ~~requirement~~2020 toREIT ~~pay~~distribution ~~out~~requirements atduring ~~least~~the ~~90%~~three ofmonths ~~our~~ended ~~REIT~~March ~~taxable~~31, ~~income for 2020~~2021.

Our ability to obtain additional financing advancements under our Master Repurchase Facility is contingent upon our making additional fundings to our existing borrowers or our ability to effectively reinvest any additional capital, including any loan repayment proceeds, that we may obtain or receive. However, we cannot be sure that we will be able to obtain additional cost-effective capital or additional financing advancements under our Master Repurchase Facility. It may take an extended period for us to reinvest any additional capital we may receive, and any reinvestments we may be able to make may not provide us with similar returns or comparable risks as those of our current investments.

Distributions

During the three months ended March 31, 2021, we declared and paid a distribution to our common shareholders aggregating $4,401, or $0.53 per common share, using cash on hand. For further information regarding distributions, see Note 6 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

On April 15, 2021 we declared a quarterly distribution of $0.10 per common share, or approximately $831, to shareholders of record as of April 26, 2021. We expect to pay this distribution on or about May 20, 2021.

Contractual Obligations and Commitments

Our contractual obligations and commitments as of ~~September~~March 3031, ~~2020~~2021 were as follows:

	Payment Due by Period
	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 years
Unfunded loan commitments (1)	$	138,~~974~~989	$	35,~~812~~214	$	103,~~162~~775	$	—	$	—
Principal payments on master repurchase facility (2)	201,051		29,680		171,371		—		—
Principal payments on Master Repurchase Facility (2)	180,751		110,122		70,629		—		—
Interest payments (3)	3,~~958~~552		32,~~534~~963		~~424~~589		—		—
	$	~~218~~193,~~983~~292	$	37118,~~026~~299	$	~~181~~74,~~957~~993	$	—	$	—

(1)The allocation of our unfunded loan commitments is based on the current loan maturity date to which the individual commitments relate.

(2)The allocation of outstanding advancements under our Master Repurchase ~~Agreement~~Facility is based on the current maturity date of each loan investment with respect to which the individual borrowing relates.

(3)Projected interest ~~expense~~payments isare attributable to only to our debt service obligations at existing rates as of ~~September~~March 3031, ~~2020~~2021 and isare not intended to estimate future interest costs which may result from debt prepayments, additional borrowings, new debt issuances or changes in interest rates.

Off-Balance Sheet Arrangements

As of ~~September~~March 3031, ~~2020~~2021, we had no off-balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Debt Covenants

Our principal debt obligations at ~~September~~March 3031, ~~2020~~2021 were the outstanding balances under our Master Repurchase Facility. Our Master Repurchase Agreement provides for acceleration of the date of repurchase of any then purchased assets and Citibank’s liquidation of the purchased assets upon the occurrence and continuation of certain events of default, including a change of control of us, which includes our Manager ceasing to act as our sole manager or to be a wholly owned subsidiary of RMR LLC. Our Master Repurchase Agreement also provides that upon the repurchase of any then purchased asset, we are required to pay Citibank the outstanding purchase price of such purchased asset and accrued interest and any and all accrued and unpaid expenses of Citibank relating to such purchased asset.

In connection with our Master Repurchase Agreement, we entered into the Guaranty, which requires us to guarantee 25% of our subsidiary's prompt and complete payment of the purchase price, purchase price differential and any costs and expenses of Citibank related to our Master Repurchase Agreement. The Guaranty also requires us to comply with customary financial covenants, which include the maintenance of a minimum tangible net worth, minimum cash liquidity, a total indebtedness to tangible net worth ratio and a minimum interest coverage ratio.

As of September 30, 2020, we had a $201,051 aggregate outstanding principal balance under our Master Repurchase Facility. In light of the impact of the COVID-19 pandemic, we continue to actively engage with Citibank regarding our liquidity position and the status of the loans in our portfolio that are financed under our Master Repurchase Facility. Our Master Repurchase Agreement is structured with risk mitigation mechanisms, including a cash flow sweep, which would allow Citibank to control interest payments from our borrowers under our loans that are financed under our Master Repurchase Facility, 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 Facility. As of September 30, 2020, we believe we were in compliance with all the covenants and other terms under our Master Repurchase Agreement and, to date, Citibank has not utilized any such risk mitigation mechanisms under our Master Repurchase Agreement.24

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As of March 31, 2021, we had a $180,751 aggregate outstanding principal balance under our Master Repurchase Facility. In light of the impact of the COVID-19 pandemic, we continue to actively engage with Citibank regarding our liquidity position and the status of the loans in our portfolio that are financed under our Master Repurchase Facility. Our Master Repurchase Agreement is structured with risk mitigation mechanisms, including a cash flow sweep, which would allow Citibank to control interest payments from our borrowers under our loans that are financed under our Master Repurchase Facility, 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 Facility. As of March 31, 2021, we believe we were in compliance with all the covenants and other terms under our Master Repurchase Agreement and, to date, Citibank has not utilized any such risk mitigation mechanisms under our Master Repurchase Agreement.

Related Person Transactions

We have relationships and historical and continuing transactions with our Manager, RMR LLC, RMR Inc. and others related to them. For example:, as noted earlier in this Quarterly Report on Form 10-Q, we entered into the Merger Agreement with RMRM pursuant to which we have noagreed, ~~employees~~on the terms and subject to the ~~personnel~~conditions set forth therein, to consummate the Merger and ~~various~~the ~~services~~Other weTransactions, ~~require~~subject to ~~operate~~the ~~our~~satisfaction ~~business~~or ~~are~~waiver ~~provided~~of tocertain usconditions. byFor ~~our~~further ~~Manager~~information ~~pursuant~~about these and other such relationships and related person transactions, see Notes 1, 7 and 8 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our ~~management~~Current ~~agreement~~Report ~~with~~on Form 8-K dated April 26, 2021, our ~~Manager;~~Annual Report, our ~~Manager~~Proxy isStatement afor ~~subsidiary~~our of2021 ~~RMR~~Annual ~~LLC~~Meeting of Shareholders and ~~certain~~our ofother filings with the ~~services~~SEC. ~~provided~~In toaddition, ussee bythe section captioned “Risk Factors” of this Quarterly Report on Form 10-Q or our ~~Manager~~Annual ~~are~~Report ~~provided~~for bya ~~RMR~~description ~~LLC~~of ~~pursuant~~risks tothat may arise as a ~~shared~~result ~~services~~of ~~agreement~~these ~~between~~and ~~our~~other ~~Manager~~related person transactions and ~~RMR~~relationships. ~~LLC;~~We ~~our~~may ~~Manager~~engage isin ~~our~~additional ~~largest~~transactions ~~shareholder~~with ~~and~~related persons, atincluding ~~September 30,~~businesses ~~2020,~~to ~~owned~~which RMR LLC or its subsidiaries provide management services.

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approximately 19.3% of our outstanding common shares; RMR Inc. is the managing member of RMR LLC; Adam Portnoy, one of our Managing Trustees, 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 our Manager, a managing director and the president and chief executive officer of RMR Inc., and an officer and employee of RMR LLC; David M. Blackman, our other Managing Trustee and our President and Chief Executive Officer, also serves as the president, chief executive officer and a director of our Manager and is an officer and employee of RMR LLC; and each of our other officers is also an officer and/or employee of our Manager or RMR LLC. In addition, other companies to which RMR LLC or its subsidiaries provide management services have trustees, directors and officers some of whom are also trustees, directors or officers of us, our Manager, RMR LLC or RMR Inc. and some of our Trustees and officers serve as trustees, directors or officers of these companies.

For further information about these and other such relationships and related person transactions, see Notes 8 and 9 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our Annual Report, our definitive Proxy Statement for our 2020 Annual Meeting of Shareholders and our other filings with the SEC. In addition, see the section captioned “Risk Factors” of our Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships. Our filings with the SEC and copies of certain of our agreements with these related persons, including our management agreement with our Manager, are available as exhibits to our filings with the SEC and accessible at the SEC’s website, www.sec.gov. We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk (dollars in thousands, except per share data)

We believe that our business is exposed to two principal market risks: (a) changes in the level of economic activity in the U.S. economy generally or in geographic areas where the properties that are the subject of our real estate investments are located; and (b) changes in market interest rates.

Changes in the general economy may impact the ability and willingness of our borrowers to pay interest on and repay principal of our loans. A U.S. recession or a slowing of economic activity, including as a result of the COVID-19 pandemic, in the markets where the underlying collateral for our loans are located may cause our borrowers to default or may cause the value of the collateral to decrease and be less than the outstanding amount of the loan. To mitigate these market risks, when evaluating a potential investment, we perform thorough diligence on the value of the proposed collateral, including as compared to comparable collateral in the same market, and the historical business practices and credit worthiness of our borrowers and their affiliates, as well as compare our borrowers' proposed business plans for and projected income from the proposed collateral to our expectations regarding the market conditions of the geographic area where the collateral is located and the potential for future income from the collateral. In addition, with respect to our existing loans, we continuously monitor the credit quality and performance of our borrowers and loan collateral, and we structure our loans with risk mitigation mechanisms, such as cash flow sweeps or interest reserves, to help protect us against investment losses. However, despite these risk mitigation efforts and measures, our borrowers may default on our loans and/or the value of the underlying collateral may decrease significantly if market conditions decline or for other reasons. For further information regarding the risks associated with our loan portfolio, see the risk factors identified in Part ~~II, Item 1A, "Risk Factors" of this Quarterly Report on Form 10-Q and the risk factors identified in Part~~ I, Item IA, "Risk Factors" of our Annual Report.

Floating Rate Investments

As of ~~September~~March 3031, ~~2020~~2021, our loans held for investment had an aggregate principal balance of $~~279~~259,~~987~~390 and the weighted average maximum maturity of our loan portfolio was 2.94 years, assuming all borrower loan extension options have been exercised, which options are subject to the applicable borrower meeting certain conditions. All our loans held for investment were made in U.S. dollars and earn interest at LIBOR plus a premium. Accordingly, we are exposed to interest rate risk for changes in U.S. dollar based short term rates, specifically LIBOR. As LIBOR decreases, our risk is partially mitigated by interest rate floor provisions in our loan agreements with borrowers. In addition, upon repayment from our borrowers we are vulnerable to decreases in interest rate premiums due to market conditions at the time any such repayment proceeds are reinvested.

Floating Rate Debt

At ~~September~~March 3031, ~~2020~~2021, our floating rate debt obligations consisted of $~~201~~180,~~051~~751 in outstanding ~~advancements~~borrowings under our Master Repurchase Facility. Our Master Repurchase Facility matures in November 2022, subject to early termination as provided for in our Master Repurchase Agreement.

All of our floating rate debt was borrowed in U.S. dollars and requires interest to be paid at a rate of LIBOR plus a premium. Accordingly, we are exposed to interest rate risk for changes in U.S. dollar based short term rates, specifically LIBOR. In addition, upon selling additional mortgage loans and other assets under our Master Repurchase Facility, we are vulnerable to increases in interest rate premiums due to market conditions or perceived credit characteristics of our borrowers.

The table below details the impact, based on our current loan portfolio and debt outstanding at September 30, 2020, on our interest income and interest expense of an immediate increase or decrease of 100 basis points in LIBOR, the applicable interest rate benchmark: 26

	Principal Balance as of September 30, 2020		Interest Rate Per Year (1)	100 Basis Point Increase		16 Basis Point Decrease (3)
Assets (Liabilities) Subject to Interest Rate Sensitivity:
Loans held for investment	$	279,987	5.70%	$	—	$	—
Master repurchase facility	(201,051)		2.16%	(2,011)		313
Total change in net income from investments				$	(2,011)	$	313
Annual earnings per share impact (2)				$	(0.25)	$	0.04

(1)Weighted based on interest rates and principal balances as of September 30, 2020.

(2)Based on weighted average number of shares outstanding (diluted) for the three months ended September 30, 2020.

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~~(3)Our~~The ~~loan~~table ~~agreements~~below ~~with~~details ~~borrowers~~the ~~include~~impact, ~~interest~~based ~~rate~~on ~~floor~~our ~~provisions~~assets ~~which set a minimum LIBOR for each loan. These floors range from 1.50% to 2.50%~~ and ~~the~~liabilities ~~portfolio weighted average is 2.10%~~ as of ~~September~~March 3031, ~~2020. As a result~~2021, on our interest income ~~will increase if LIBOR exceeds the floor established by any of our investments,~~ and ~~as LIBOR decreases below the floor established for any of our investments, our~~ interest ~~income~~expense ~~will not be impacted. We do not currently have a LIBOR floor provision relating to any~~ of ~~the~~an ~~outstanding~~immediate ~~balances under our Master Repurchase Facility and as a result our interest expense will~~ increase asor ~~LIBOR increases and will~~ decrease ~~as LIBOR decreases. The above table illustrates the incremental impact on our annual income from investments, net, due to increases and decreases in LIBOR~~ of 100 basis points, ~~taking into consideration our borrowers' interest rate floors as of September 30, 2020. The 100 basis point increase~~ in LIBOR used in the analysis above does not result in any increase in interest we would receive in our loans held for investment because the increased rate would not exceed the current interest rate floor provision. The 100 basis point decrease in LIBOR has been limited in the analysis to 16 basis points to result in a LIBOR rate of 0.00%. The results are based on our current loan portfolio and debt outstanding at September 30, ~~2020. and a LIBOR rate of 0.16%. Any changes to~~ the ~~mix~~applicable ~~of our investments of debt outstanding could impact this~~ interest rate ~~sensitivity analysis and this illustration is not meant to forecast future results.~~benchmark:

To mitigate the impact of future changes in market interest rates on our business, we require borrowers to pay floating interest rates to us rather than fixed interest rates on our loans held for investment and, to the extent that we use leverage to make investments, we will continue to "match index" certain investments with our debt or leverage obligations so that they create similar movements in interest rates based upon similar indexes and other terms. Furthermore, depending upon our beliefs regarding future market conditions affecting interest rates, we may purchase interest rate hedge instruments that allow us to change the character of interest receipts and debt service obligations owed to us from fixed to floating rates or the reverse.


	Principal Balance as of March 31, 2021		Interest Rate Per Year (1)	100 Basis Point Increase		11 Basis Point Decrease (2)
Assets (Liabilities) Subject to Interest Rate Sensitivity:
Loans held for investment	$	259,390	5.73%	$	—	$	—
Master Repurchase Facility	(180,751)		2.11%	(1,808)		192
Total change in net income from investments				$	(1,808)	$	192

Annual earnings per share impact (3)				$	(0.22)	$	0.02

(1)Weighted based on interest rates and principal balances as of March 31, 2021.

(2)Our loan agreements with borrowers include interest rate floor provisions which set a minimum LIBOR for each loan. These floors range from 1.50% to 2.50% and the portfolio weighted average was 2.10% as of March 31, 2021. As a result, our interest income will increase if LIBOR exceeds the floor established by any of our investments, and as LIBOR decreases below the floor established for any of our investments, our interest income will not be impacted. We do not currently have a LIBOR floor provision relating to any of the outstanding balances under our Master Repurchase Facility and as a result our interest expense will increase as LIBOR increases and will decrease as LIBOR decreases. The above table illustrates the incremental impact on our annual income from investments, net, due to hypothetical increases and decreases in LIBOR of 100 basis points, taking into consideration our borrowers' interest rate floors as of March 31, 2021. The hypothetical 100 basis point increase in LIBOR used in the analysis above does not result in any increase in interest we would receive from our loans held for investment because the increased rate would not exceed the current interest rate floor provision. The hypothetical 100 basis point decrease in LIBOR has been limited in the analysis to 11 basis points to result in a LIBOR rate of 0.00%. The results in the table above are based on our current loan portfolio and debt outstanding at March 31, 2021 and a LIBOR rate of 0.11%. Any changes to the mix of our investments of debt outstanding could impact this interest rate sensitivity analysis and this illustration is not meant to forecast future results.

(3)Based on weighted average number of shares outstanding (diluted) for the three months ended March 31, 2021.

To mitigate the impact of future changes in market interest rates on our business, we require borrowers to pay floating interest rates to us rather than fixed interest rates on our loans held for investment and, to the extent that we use leverage to make investments, we will continue to seek to "match index" certain investments with our debt or leverage obligations so that they create similar movements in interest rates based upon similar indexes and other terms. Furthermore, depending upon our beliefs regarding future market conditions affecting interest rates, we may purchase interest rate hedge instruments that allow us to change the character of interest receipts and debt service obligations owed to us from fixed to floating rates or the reverse.

LIBOR Phase Out

LIBOR is currently expected to be phased out infor new contracts by December 31, 2021 and for pre-existing contracts by June 30, 2023. On October 30, 2020, we amended our Master Repurchase Agreement to, among other things, provide that, at such time as LIBOR is no longer available as a base rate to calculate interest payable on amounts outstanding under our Master Repurchase Facility, the replacement base rate shall be SOFR, or if SOFR is not available, such other rate as may be determined by Citibank in accordance with the terms of our amended Master Repurchase Agreement. ~~All~~We ~~the~~also ~~agreements governing our loans held for investment~~ currently ~~require~~expect ~~our~~that, ~~borrowers~~as toa ~~pay~~result ~~interest~~of atany ~~floating~~phase ~~rates~~out ~~based~~of on LIBOR., ~~Future~~the ~~agreements governing loans that we may make and debt that we may incur may also require~~ interest ~~to be paid at floating~~ rates ~~based~~under onour ~~LIBOR.~~loan Weagreements ~~currently~~with ~~expect~~borrowers ~~that the determination of interest under such agreements~~ would be revised as provided under ~~such~~the agreements or amended as necessary to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR. Despite our current expectations, we cannot be sure that, if LIBOR is phased out or transitioned, the changes to the determination of interest under such agreements would approximate the current calculation in accordance with LIBOR.

Item 4. Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management carried out an evaluation, under the supervision and with the participation of our ~~President~~Managing ~~and~~Trustees, ~~Chief~~our ~~Executive~~President ~~Officer~~ and our Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Managing Trustees, President and Chief Executive Officer and our Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting during the quarter ended ~~September~~March 3031, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Warning Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Also, whenever we use words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “will”, “may” and negatives or derivatives of these or similar expressions, we are making forward-looking statements. These forward-looking statements are based upon our present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Forward-looking statements in this Quarterly Report on Form 10-Q relate to various aspects of our business, including:

•The ~~duration~~likelihood ~~and~~that ~~severity~~we ofwill ~~the~~complete ~~economic downturn resulting from~~ the ~~COVID-19 pandemic and its impact on us and our borrowers~~Merger,

•~~The~~Our ~~likelihood~~expectation ~~and~~that ~~extent to which~~ our ~~borrowers~~shareholders will bebenefit ~~negatively~~from ~~impacted by~~ the ~~COVID-19 pandemic and its aftermath and be able and willing to fund their debt service obligations owed to us~~Merger,

•The duration and severity of the economic downturn resulting from the COVID-19 pandemic and its impact on us and our borrowers, and their ability and willingness to fund their debt service obligations owed to us,

•Our expectations about our borrowers’ business plans and their abilities to successfully execute them,

•Our expectations regarding the diversity and other characteristics of our loan ~~investment~~ portfolio,

•Our ability to carry out our business strategy and take advantage of opportunities for our business that we believe exist,

•Our expectations of the volume of transactions and opportunities that will exist in the CRE debt market, including the middle market, when the U.S. economy improves and returns to a more stable state for a sustained period,

•Our ~~ability~~belief tothat ~~obtain~~certain ~~additional~~financing ~~capital~~sources tofor ~~enable~~CRE uslending towill ~~make additional investments or to~~ increase ~~our~~and ~~potential~~provide ~~returns,~~them ~~including~~with byincreased ~~using available leverage~~liquidity,

•Our belief that we are well positioned to lend to private equity sponsors of middle market and transitional CRE assets,

•Our ability to obtain additional cost-effective capital to enable us to make additional investments or to increase our potential returns, including by using available leverage,

•Our ability to pay distributions to our shareholders and to sustain the amount of such distributions,

•Our expectations as to the amount of capital we may be able to preserve as a result of reducing the distribution rate on our common shares,

•Our operating and investment targets, investment and financing strategies and leverage policies,

•Our expected operating results,

•The amount and timing of cash flows we receive from our investments,

•Our expectations regarding the impact of the COVID-19 pandemic on our borrowers and our financial condition,

•The ability of our Manager to locate suitable investments for us, to monitor, service and administer our existing investments and to otherwise implement our investment strategy,

•Our ability to maintain and increase the net interest spread between the interest we earn on our investments and the interest we pay on our borrowings,

•The origination, extension, exit, prepayment or other fees we may earn from our investments,

•Yields that may be available to us from mortgages on middle market and transitional CRE,

•The duration and other terms of our loan agreements with borrowers,

•The credit qualities of our borrowers,

•The ability and willingness of our borrowers to repay our investments in a timely manner or at all,

•Our projected leverage,

•The cost and availability of additional advancements under our Master Repurchase Facility, or other debt financing under additional repurchase or bank facilities we may obtain from time to time, and our ability to obtain such additional debt financing,

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•Our qualification for taxation as a REIT,

~~•Our expectation that we will declare a one-time cash distribution in December 2020 to be paid in January 2021 to maintain our qualification for taxation as a REIT for 2020,~~28

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•Our ability to maintain our exemption from registration under the Investment Company Act,

•Our understanding of the competitive nature of our industry and our ability to successfully compete under such circumstances,

•Market trends in our industry or with respect to interest rates, real estate values, the debt securities markets or the economy generally,

•Regulatory requirements and the effect they may have on us or our competitors, and

•Other matters.

Our actual results may differ materially from those contained in or implied by our forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. Risks, uncertainties and other factors that could have a material adverse effect on our forward-looking statements and upon our business, financial condition, liquidity, results of operations, cash flow, prospects and ability to make distributions include, but are not limited to:

•The impact of conditions in the economy, the CRE, industry and the capital markets on us and our borrowers,

•Competition within the CRE lending industry,

•Changes in the availability, sourcing and structuring of CRE lending,

•Defaults by our borrowers,

•Compliance with, and changes to, federal, state or local laws or regulations, accounting rules, tax laws or similar matters,

•Limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our qualification for taxation as a REIT for U.S. federal income tax purposes,

•Actual and potential conflicts of interest with our related parties, including our Managing Trustees, our Manager, RMR LLC, and others affiliated with them,

•Acts of terrorism, outbreaks of pandemics, including the COVID-19 pandemic, or other manmade or natural disasters beyond our control, and

•Additional factors, including, but not limited to, those set forth in Part III, Item IA, "Risk Factors" of this Quarterly Report on Form 10-Q ~~and~~or ~~the risk factors identified in Part I, Item IA, "Risk Factors" of~~ our Annual Report.

For example:

•We have a limited operating history, and we may not be able to operate our business successfully or generate sufficient revenue to make or sustain distributions to our shareholders,

•To make additional investments and continue to grow our business, we will need to obtain additional cost-effective capital. We cannot be sure that we will be successful in obtaining any such additional capital. If we are unable to obtain such additional capital, we may not be able to further grow our business by making additional investments,

•~~Beginning with the first quarter of 2020, we reduced our quarterly distribution rate on our common shares to $0.01 per share.~~ Our ~~distributions and~~ distribution rate ~~are~~is set from time to time by our Board of Trustees. The timing, amount and form of future distributions will be determined at the discretion of our Board of Trustees and will depend upon various factors that our Board of Trustees deems relevant, including our historical and projected income, our ~~Core~~Distributable Earnings, the then-current and expected needs and availability of cash to pay our obligations and fund our investments, distributions which may be required to be paid by us to maintain our qualification for taxation as a REIT, limitations on distributions contained in our financing arrangements and other factors deemed relevant by our Board of Trustees in its discretion. Therefore, we cannot be sure that we will continue to pay distributions in the future or that the amount of any distributions we do pay will not decrease,

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our Board of Trustees in its discretion. Accordingly future distribution rates may be increased or decreased and there is no assurance as to the rate at which future distributions will be paid or that we will pay a one-time distribution in January 2021 to maintain our qualification for taxation as a REIT for 2020,

•Competition may limit our ability to identify and make desirable investments with any additional capital we may obtain or with any proceeds we may receive from repayments of our investments,

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•Our belief that there will be strong demand for alternative sources of CRE debt capital when the U.S. economy improves and returns to a more stable state for a sustained period may not be correct,

•The value of our loans depends upon our borrowers’ ability to generate cash flows from operating the underlying collateral for our loans. Our borrowers may not have sufficient cash flows to repay our loans according to their terms, which may result in delinquency and foreclosure on our loans,

•Our investments contain certain risk mitigation mechanisms that may help protect us against investment losses by mitigating the impact from our borrowers being unable to pay their debt service obligations owed to us as scheduled for a temporary period. However, these mechanisms may not adequately cover the debt service amount and will likely not be able to fully fund the debt service obligations owed to us if the tenants’ businesses fail or they default on their debt service obligations owed to us,

•The impact of the COVID-19 pandemic is affecting all parts of the economy including our borrowers who are experiencing the negative impact of current economic conditions. As a result, we may not have sufficient capital to meet ~~commitments~~our ~~from~~required ~~actions~~commitments ~~that~~to Citibank ~~takes~~ if our borrowers default on their obligations owed to us or the ~~value~~values of ~~our~~the collateral ~~declines~~underlying our loans decline below required levels or otherwise,

•Our actions to actively manage our investments to minimize the impact of the economic challenges imposed by the COVID-19 pandemic may not succeed or any success they may have may not help us avoid realizing negative impacts resulting from economic challenges imposed by the COVID-19 pandemic, including with respect to our liquidity and financial results,

•Our engagement with Citibank, the lender under our Master Repurchase Facility, and our borrowers may not enable us to maximize our ability to collect interest and principal on our investments and minimize any actions that Citibank may take if our borrowers default or the value of any of the collateral underlying our loans declines below prescribed levels. These actions may not succeed or, any success they may have, may not prevent us from realizing negative impacts from the current business conditions, including with respect to our liquidity and financial results. Further, despite our active engagement with Citibank, Citibank may ultimately determine to utilize one or more of the risk mitigation mechanisms available to it under our Master Repurchase Agreement,

•Prepayment of our loans may adversely affect the value of our loan portfolio and our ability to make or sustain distributions to our shareholders,

•Loans secured by properties in transition involve a greater risk of loss than loans secured by stabilized properties,

•Our Manager's and RMR LLC's ~~only~~have limited historical experience managing or servicing a mortgage ~~REIT is with respect to us~~REITs, ~~and we have a limited operating history,~~

•We may incur significant debt, and our governing documents contain no limit on the amount of debt we may incur,

•Although, asto ~~of November 2~~date, ~~2020,~~ Citibank has not instituted cash sweeps on our accounts and we have not received a margin call under our Master Repurchase Facility, it may do so in the future in accordance with our Master Repurchase Agreement,

•Continued availability of additional advancements under our Master Repurchase Facility is subject to us identifying suitable loans to invest in and our satisfying certain financial covenants and other conditions, as applicable, that we may be unable to satisfy,

•Financing for floating rate mortgages and other related assets that we may seek to sell pursuant to our Master Repurchase Facility is subject to approval by the lender under our Master Repurchase Facility, whose approval we may not obtain,

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•Actual costs under our Master Repurchase Facility will be higher than LIBOR plus a premium because of fees and expenses associated with our debt,

•~~We have fully committed the capital available to us.~~ Our ability to obtain additional financing advancements under our Master Repurchase Facility is contingent upon our making additional advancements to our existing borrowers or our ability to effectively reinvest any additional capital, including any loan repayment proceeds, that we may obtain or receive. However, we cannot be sure that we will be able to obtain additional capital or additional financing advancements under our Master Repurchase Facility. It may take an extended period for us to reinvest any additional capital we may receive, and any reinvestments we may be able to make may not provide us with similar returns or comparable risks as those of our current investments,

•Any phase out of LIBOR may have an impact on our investments and our debt financing arrangements,

•We believe that the market price for our common shares may need to increase to approximately book value for us to practically access additional capital in the public market. We believe this because of expected negative market reactions, among other reasons, if we were to complete an equity offering at a price that is below approximately book value. However, we are not prohibited from selling our common shares at less than book value and could do so if we determined it to be in our interests,30

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•We believe that the market price for our common shares may need to increase to approximately book value for us to practically obtain additional capital in the public market. We believe this because of expected negative market reactions, among other reasons, if we were to complete an equity offering at a price that is below approximately book value. However, we are not prohibited from selling our common shares at less than book value and could do so if we determined it to be in our interests,

•We are dependent upon our Manager, its affiliates and their personnel. We may be unable to find suitable replacements if our management agreement is terminated,

•We believe that our relationships with our related parties, including our Managing Trustees, our Manager, RMR LLC and others affiliated with them may benefit us and provide us with competitive advantages in operating and growing our business. However, the advantages we believe we may realize from these relationships may not materialize,

•Our intention to remain exempt from registration under the Investment Company Act imposes limits on our operations, and we may fail to remain exempt from registration under the Investment Company Act, ~~and~~

•Our failure to remain qualified for taxation as a REIT could have significant adverse consequences.,

•We ~~expect~~have toentered ~~execute~~into ana ~~amendment~~Merger toAgreement ~~the~~with ~~loan~~RMRM ~~agreement~~and ~~with~~that the ~~borrower~~Merger ~~under~~is ~~our~~expected ~~loan~~to ~~related~~close toin athe ~~multifamily~~third ~~property~~quarter ~~located~~of in2021. ~~Houston,~~The TXclosing toof ~~extend~~the Merger is subject to the ~~maturity~~satisfaction ~~date~~or waiver of conditions, including the ~~loan~~receipt byof ~~one~~requisite ~~year~~approvals toby ~~November~~our ~~10,~~and ~~2021~~RMRM’s shareholders. ~~This~~We ~~may~~cannot ~~imply~~be sure that ~~the~~these ~~amendment~~conditions will be ~~executed~~satisfied or waived. ~~However~~Accordingly, ~~this~~the ~~amendment~~Merger ismay ~~subject~~not toclose ~~conditions.~~by ~~These~~the ~~conditions~~end ~~may~~of ~~not~~the bethird ~~satisfied~~quarter ~~and~~of ~~this~~2021 ~~amendment~~or ~~may~~at ~~not occur~~all, ~~may~~or bethe ~~delayed~~terms orof the ~~terms~~Merger and the other Transactions may change. ,

•The Merger will require approval of our shareholders and the Merger Share Issuance will require approval of RMRM’s shareholders. Such approvals will be solicited by a joint proxy statement/prospectus to be included in the Form S-4 which must be filed with and declared effective by the SEC. The process of preparing the Form S-4 and related joint proxy statement/prospectus is time consuming and the time before the SEC declares the registration statement effective is beyond our and RMRM’s control. Accordingly, we cannot be sure that the Merger and the other Transactions will be consummated within a specified time period or at all, and

•This Quarterly Report on Form 10-Q states that the Merger, the Merger Share Issuance and the other Transactions and the terms thereof were evaluated, negotiated and recommended to each of our and RMRM’s board of trustees by special committees of our and RMRM’s board of trustees, respectively, each comprised solely of our and RMRM’s disinterested, independent trustees, respectively, and were separately unanimously approved and adopted by our and RMRM’s independent trustees and by our and RMRM’s board of trustees, and that Citigroup Global Markets Inc. and UBS Securities LLC acted as a financial advisor to each of the special committees of our and RMRM’s board of trustees, respectively. Despite this process, we could be subject to claims challenging the Merger or the other Transactions or our entry into the Merger and related agreements because of the multiple relationships among us, RMRM, TRA, RMR LLC, RMR Inc. and their related persons and entities or other reasons, and defending even meritless claims could be expensive and distracting to management.

Currently unexpected results could occur due to many different circumstances, some of which are beyond our control, such as acts of terrorism, the COVID-19 pandemic, natural disasters or changes in capital markets or the economy generally.

The information contained elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report or in our other filings with the SEC, including inunder the ~~section~~caption ~~captioned~~ “Risk Factors” herein or therein, or incorporated herein or therein, identifies other important factors that could cause differences from our forward-looking statements. Our filings with the SEC are available on the SEC's website at www.sec.gov.

You should not place undue reliance upon our forward-looking statements.

Except as required by law, we do not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.

Statement Concerning Limited Liability

The Articles of Amendment and Restatement of Tremont Mortgage Trust, a copy of which, together with any amendments or supplements thereto, is duly filed with the State Department of Assessments and Taxation of Maryland, provide that the name Tremont Mortgage Trust refers to the trustees collectively as trustees, but not individually or personally. No trustee, officer, shareholder, employee or agent of Tremont Mortgage Trust shall be held to any personal liability, jointly or severally, for any obligation of, or claim against, Tremont Mortgage Trust. All persons or entities dealing with Tremont Mortgage Trust, in any way, shall look only to the assets of Tremont Mortgage Trust for the payment of any sum or the performance of any obligation.

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severally, for any obligation of, or claim against, Tremont Mortgage Trust. All persons or entities dealing with Tremont Mortgage Trust, in any way, shall look only to the assets of Tremont Mortgage Trust for the payment of any sum or the performance of any obligation.

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Part II. Other Information

Item 1A. Risk Factors

Our business ~~faces~~is ~~many~~subject to a number of risks and uncertainties, a number of which are described inunder the ~~section~~caption ~~captioned~~ “Risk Factors” in our Annual Report. The Merger may subject us to additional risks that are described below. The risks described in our Annual Report and below may not be the only risks we face but are risks we believe may be material at this time. Other risks of which we are not yet aware, or that we currently believe are not material, may also materially and adversely impact our business operations or financial results. If any of the events or circumstances described in ~~the risk factors contained in~~ our Annual Report or ~~described~~ below ~~occur~~occurs, our business, financial condition, or results of operations or ability to make distributions to our shareholders could be adversely ~~impacted~~affected and the value of an investment in our securities could decline. Investors and prospective investors should consider the risks described in our Annual Report and below, and the information contained inunder the ~~section~~caption ~~captioned~~ “Warning Concerning Forward-Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q before deciding whether to invest in our securities.

~~Our~~Risks ~~business,~~Relating ~~operations,~~to ~~financial results and liquidity could be materially adversely impacted by~~ the ~~COVID-19 pandemic, and it is not known what the duration of this pandemic will be or what its ultimate adverse impact on us and our business will be.~~Merger

~~COVID-19~~The ~~has~~Exchange ~~been~~Ratio ~~declared~~is afixed ~~pandemic by the World Health Organization~~ and, inwill ~~response~~not tobe ~~the~~adjusted ~~outbreak,~~for ~~the~~any ~~U.S.~~changes ~~Health and Human Services Secretary has declared a public health emergency~~ in the ~~United~~market ~~States.~~price ~~COVID-19~~of ~~has~~our ~~had~~common ashares ~~devastating~~or ~~impact on~~ the ~~global~~RMRM ~~economy,~~Common ~~including the U~~Shares.~~S. economy, and has resulted in a global economic recession.~~

~~These~~At ~~conditions~~the ~~could~~Effective ~~materially and adversely impact our business~~Time, ~~results~~each of ~~operations and liquidity. In addition, some of~~ our ~~borrowers~~common ~~and~~shares ~~their~~outstanding ~~tenants~~immediately ~~have~~prior ~~experienced~~to ~~substantial~~the ~~declines~~Effective inTime ~~their~~will ~~businesses~~be ~~and~~converted ~~some~~into ofthe ~~our~~right ~~borrowers have sought relief from us from their debt service obligations owed~~ to ~~us,~~receive ~~and we expect these declines and requests to continue or increase in the future~~0.52 Asof a ~~result~~newly ofissued ~~the~~RMRM ~~COVID-19~~Common ~~pandemic and restrictions implemented in response~~Share, ~~there~~with ~~have~~cash ~~been~~paid ~~construction moratoriums and decreases~~ in ~~available~~lieu ~~construction~~of ~~workers~~fractional ~~and construction activity~~shares, ~~including~~or ~~required~~the ~~inspectors~~Merger ~~and governmental personnel for permitting and other requirements~~Consideration. ~~These~~The ~~conditions,~~Exchange ifRatio ~~they~~is ~~should~~fixed ~~continue~~in orthe ~~return,~~Merger ~~may~~Agreement ~~prevent our borrowers from completing ongoing~~ and ~~planned~~will ~~construction~~not ~~projects and improving their properties that secure our loans. As a result, borrowers may~~ be ~~unable~~adjusted tofor ~~generate~~changes ~~sufficient~~in ~~cash~~the ~~flow~~market toprice ~~make~~of ~~payments on or refinance~~ our ~~loans,~~common ~~and~~shares ~~we may not recover some~~ or ~~all~~the ofRMRM ~~our~~Common ~~investment~~Shares. WeChanges ~~have,~~in asthe ofmarket ~~November~~price ~~2, 2020, provided relief to one~~ of ~~our~~the ~~borrowers~~RMRM ~~who~~Common ~~was~~Shares inprior ~~default during April 2020 but is no longer in default and we continue~~ to ~~actively~~the ~~engage~~consummation inof ~~discussions~~the ~~with~~Merger ~~our~~will ~~borrowers~~affect tothe ~~maximize~~market ~~our~~value ~~ability~~of tothe ~~collect~~Merger ~~interest and principal payments from them~~Consideration. WeThe ~~cannot~~market beprice ~~sure~~of ~~these~~our ~~efforts~~common ~~will~~shares ~~succeed~~ and, if the ~~current~~RMRM ~~economic~~Common ~~conditions~~Shares ~~continue~~may orchange ~~worsen~~as ~~for~~ a ~~prolonged~~result ~~period,~~of ~~there is~~ a ~~significant~~variety ~~risk~~of ~~that~~factors ~~some~~(many of ~~our~~which ~~other~~are ~~borrowers~~beyond ~~may~~our ~~default~~and onRMRM’s ~~their~~control), ~~debt~~including ~~service~~the ~~obligations owed to us.~~ following:

~~During~~•market ~~economic~~reaction recessions, real estate values typically decline, sometimes significantly. Declining real estate values may increase the likelihood that our borrowers will default on their debt service obligations owed to ~~us and that we will incur losses as a result because~~ the ~~value~~announcement of the ~~collateral~~Merger ~~that~~and ~~secures our loans may then be less than~~ the ~~debt~~prospects ~~owed to us plus our costs~~ of ~~recovery. Further, if borrowers do not repay our loans or we realize amounts that are less than~~ the ~~amount~~combined of the investment plus our costs, our investment portfolio will reduce in size. In addition, if a borrower defaults on our loan and we take actions related to the collateral securing that loan, we may be delayed for an extended period of time on converting that collateral to investable cash, which would impair our ability to redeploy that capital and grow our portfolio. company;

We•changes ~~have been limited~~ in our ~~ability~~or toRMRM’s ~~access~~respective ~~capital~~businesses, ~~and~~operations, asassets, ~~a result~~liabilities, wefinancial ~~have~~position ~~limited capital to invest. The long-term impact of the COVID-19 pandemic~~ and ~~its aftermath on financial markets is uncertain. To the extent that impact is sustained for an extended period~~prospects, weor ~~expect that we will be further challenged~~ in ~~accessing~~the ~~capital.~~market’s Asassessments ~~a result, our ability to grow our business and investment portfolio may be limited for an indefinite period.~~ thereof;

In•changes addition, we believe that the risks associated with our investments will increase during periods of economic slowdown or recession, especially if these periods are accompanied by declining real estate values. Consequently, our investment strategy may be adversely affected by a prolonged economic downturn or recession related to the COVID-19 pandemic where declining real estate values would likely reduce the level of new mortgage and other real estate related loan originations since borrowers often use the appreciation in the ~~value~~operating ofperformance ~~their existing properties to support the purchase or investment in additional properties. Any sustained period~~ of ~~increased~~us ~~payment delinquencies, foreclosures~~ or ~~losses resulting from the impact of the COVID-19 pandemic would adversely affect our ability to originate or acquire loans~~RMRM, ~~which would materially and adversely affect our results of operations, financial condition, liquidity and business and our ability to make~~ or ~~sustain~~similar ~~distributions to our shareholders.~~ companies;

•changes in market valuations of similar companies;

•market assessments of the likelihood that the Merger will be completed;

•the possibility that persons may engage in short sales of our common shares or the RMRM Common Shares;

•interest rates, general market and economic conditions and other factors generally affecting the price of our common shares and the RMRM Common Shares;

•federal, state and local legislation, governmental regulation and legal developments in the businesses in which we and RMRM operate;

•dissident shareholder activity;

•changes that affect the commercial real estate lending market generally;

•changes in the United States or global economy or capital, financial or securities markets generally; and

•other factors beyond our or RMRM’s control, including those described and referred to above under this “Risk Factors” section.

The market price of the RMRM Common Shares at the consummation of the Merger may vary from the price on the date the Merger Agreement was executed, on the date of the Proxy Statement and on the date of our special meeting and the RMRM special meeting. As a result, the market value of the Merger Consideration represented by the Exchange Ratio will also vary.

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Because the Merger will be completed after the date of the special meetings, at the time of the applicable special meeting, the exact market price of the RMRM Common Shares that our shareholders will receive upon consummation of the Merger will not be known. You should therefore consider that:

•if the market price of the RMRM Common Shares increases between the date the Merger Agreement was signed or the date of our special meeting or the RMRM special meeting and the closing of the Merger, our shareholders will receive RMRM Common Shares that have a market value upon consummation of the Merger that is greater than, as applicable, the market value of such shares calculated pursuant to the Exchange Ratio on the date the Merger Agreement was signed or on the date of our special meeting or the RMRM special meeting, respectively; and

•if the market price of the RMRM Common Shares declines between the date the Merger Agreement was signed or the date of our special meeting or the RMRM special meeting and the closing of the Merger, our shareholders will receive RMRM Common Shares that have a market value upon consummation of the Merger that is less than, as applicable, the market value of such shares calculated pursuant to the Exchange Ratio on the date the Merger Agreement was signed or on the date of our special meeting or the RMRM special meeting, respectively.

The Merger is subject to the satisfaction or waiver of conditions which may not be satisfied or completed on a timely basis, if at all. Failure to complete the Merger could have material and adverse effects on us.

The consummation of the Merger is subject to the satisfaction or waiver of conditions, including, among others, the receipt of the approval by our shareholders and the receipt of the approval by RMRM’s shareholders. These conditions make the completion and the timing of the completion of the Merger uncertain. Also, either we or RMRM may terminate the Merger Agreement if the Merger is not completed by December 31, 2021, except that this right to terminate the Merger Agreement will not be available to a party if that party failed to fulfill its obligations under the Merger Agreement and that failure was a principal cause of, or resulted in, the failure of the Merger to be completed on or before such date.

We cannot provide assurance that the Merger will be consummated on the terms or timeline currently contemplated, or at all. If the Merger is not completed on a timely basis, or at all, we may be adversely affected and subject to a number of risks, including the following:

•we will be required to pay our costs relating to the Merger, such as legal, accounting, financial advisory and printing fees, whether or not the Merger is completed;

•if the Merger is terminated under certain circumstances, we may be required to pay a termination fee to RMRM;

•the time and resources committed by our management to matters relating to the Merger could otherwise have been devoted to pursuing other opportunities; and

•the market price of our common shares could decline to the extent that the current market price reflects, and is positively affected by, a market assumption that the Merger will be completed.

We or RMRM may waive one or more of the conditions to the Merger without re-soliciting shareholder approval.

We or RMRM may determine to waive, in whole or in part, one or more of the conditions to our or RMRM’s obligations to consummate the Merger (other than the conditions that we and RMRM each receive opinions of counsel (i) that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the IRC and (ii) that we and RMRM will each be a party to that reorganization within the meaning of Section 368(b) of the IRC). Any determination whether to waive any condition to the Merger and whether to re-solicit shareholder approval or amend the Proxy Statement as a result of a waiver will be made by us or RMRM, as applicable, at the time of such waiver based on the facts and circumstances as they exist at that time.

The Merger Agreement contains provisions that could discourage a potential competing acquirer of either us or RMRM, or could result in any competing proposal being at a lower price than it might otherwise be.

The Merger Agreement contains provisions that, subject to certain exceptions, restrict our ability and the ability of RMRM to initiate, solicit, propose, knowingly encourage or knowingly facilitate competing third-party proposals to effect, among other things, a merger, reorganization, share exchange, consolidation or the sale of 20% or more of the shares or consolidated net revenues, net income or total assets of us or RMRM. In addition, we and RMRM generally each have an opportunity to offer to modify the terms of the Merger Agreement in response to any competing superior proposal (as defined in the Merger Agreement) that may be made to the other party before our or RMRM’s board of trustees, as the case may be, may withdraw or

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modify its recommendation in response to such superior proposal or terminate the Merger Agreement to enter into a definitive agreement with respect to such superior proposal, provided that we may only terminate the Merger Agreement after we have held a special meeting of our shareholders for the purpose of approving the Merger. Upon termination of the Merger Agreement under certain circumstances relating to an acquisition proposal, we may be required to pay to RMRM, or RMRM may be required to pay to us, a termination fee of $2.156 million, plus reasonable fees and expenses.

These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of us or RMRM from considering or proposing such an acquisition, even if it were prepared to pay consideration with a higher per share value or implied premium to our shareholders than the value proposed to be received or realized in the Merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee and expense reimbursement that may become payable in certain circumstances under the Merger Agreement.

Our and RMRM’s management agreement with TRA contain provisions that could discourage a potential competing acquirer of either us or RMRM, or could result in any competing proposal being at a significantly lower price than it might otherwise be.

The termination of our or RMRM’s management agreements with TRA may require us or RMRM, as applicable, to pay a substantial termination fee to TRA. TRA has agreed to waive its right to receive payment of the termination fee otherwise due under its management agreement with us upon the termination of that agreement when the Merger is consummated. This waiver by TRA applies only in respect of the Merger and does not apply in respect of any competing proposal, superior proposal or other transaction or arrangement. The termination provisions of our or RMRM’s management agreements with TRA substantially increase the cost to us and RMRM of terminating these agreements, which may discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of us or RMRM from considering or proposing such an acquisition or could result in any competing proposal being at a significantly lower price than it might otherwise be.

TRA’s ownership of our common shares could discourage a potential competing acquirer of us.

Because TRA owns approximately 19.3% of our common shares outstanding as of the record date established by our Board of Trustees and RMRM’s board of trustees for our shareholder meeting and RMRM’s shareholder meeting, respectively, or the Record Date, it will have significant influence over the outcome of the proposals voted on at our shareholder meeting. TRA’s significant ownership of us as of the Record Date may discourage a potential competing acquirer of us, including transactions in which our shareholders might otherwise receive a premium for their common shares that may reflect a premium or implied value greater than the value our shareholders would receive in the Merger.

The pendency of the Merger could adversely affect our and RMRM’s business and operations.

During the pendency of the Merger, due to operating covenants in the Merger Agreement, we and RMRM may each be unable to undertake or pursue certain strategic transactions or significant capital projects, financing transactions or other actions that are not in the ordinary course of business, even if such actions may be beneficial to us or RMRM. In addition, some borrowers may delay or defer decisions related to their business dealings with us and RMRM during the pendency of the Merger, which could negatively impact the revenues, earnings, cash flows or expenses of us and/or RMRM, regardless of whether the Merger is completed.

Our and RMRM’s shareholders will be diluted by the consummation of the Merger.

The consummation of the Merger will result in our shareholders having an ownership stake in RMRM that is smaller than their current stake in us. Upon consummation of the Merger, based upon the number of our common shares and the RMRM Common Shares outstanding as of the date of the Merger Agreement, we estimate that the RMRM shareholders immediately prior to the Merger (in their capacities as such) will own approximately 70% of the combined company as a result of the Merger and our shareholders immediately prior to the Merger (in their capacities as such) will own approximately 30% of combined company as a result of the Merger, in each case without taking into account whether any of our or RMRM’s shareholders were also shareholders of RMRM or us, respectively, at that time. Consequently, our shareholders may have less influence over the management and policies of the combined company after the Effective Time than they currently exercise over our management and policies.

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Our Trustees and executive officers and RMRM’s trustees and executive officers and our and RMRM’s manager, TRA, have interests in the Merger that are different from, or in addition to, the interests of our and RMRM’s shareholders generally. This may create potential conflicts of interest or the appearance thereof, which may lead to increased dissident shareholder activity, including litigation.

The interests of our Trustees and executive officers and RMRM’s trustees and executive officers and our and RMRM’s manager, TRA, include, among other things, the continued service as a trustee or executive officer of the combined company following the Merger, as applicable, certain rights to continuing indemnification and directors’ and officers’ liability insurance for our Trustees and executive officers, continuation of RMRM’s management agreement with TRA following the Merger and the potential for increased fees payable to TRA in connection with the Merger. There is a risk that these interests may influence the trustees and executive officers and TRA to support the Merger.

These interests of TRA and our Trustees and executive officers and RMRM’s trustees and executive officers in the Merger may increase the risk of litigation intended to enjoin or prevent the Merger and the risk of other dissident shareholder activity related thereto. In the past, and in particular following the announcement of a significant transaction, periods of volatility in the overall market or declines in the market price of a company’s securities, shareholder litigation and dissident shareholder proposals have often been instituted against companies alleging conflicts of interest in business dealings with affiliated or related persons and entities. The relationships described above may precipitate such activities by dissident shareholders and, if instituted against us or RMRM or our Trustees or executive officers or RMRM’s trustees or executive officers, such activities could result in substantial costs, a material delay or prevention of the Merger and a diversion of management’s attention, even if the shareholder action is without merit or unsuccessful.

Lawsuits may be commenced seeking to enjoin or prevent the Merger or seeking other relief which may delay or prevent the completion of the Merger and result in us or RMRM incurring substantial costs.

Public company merger and acquisition transactions are often subject to lawsuits initiated by plaintiff’s counsel seeking to enjoin or prevent the transaction or obtain other relief. We, our Trustees, officers and advisors and RMRM, its trustees, officers and advisors may become subject to similar litigation with respect to the Merger. Any such lawsuit could seek, among other things, injunctive or other equitable relief including a request to rescind parts of the Merger Agreement and to otherwise enjoin the parties from consummating the Merger, as well as require payment of fees and other costs by the defendants. We, RMRM and any other defendant may incur substantial costs defending any such lawsuit, including the distraction of management’s attention, even if such lawsuits are without merit or unsuccessful. No assurance can be made as to the outcome of any such lawsuits. If the plaintiffs were successful in obtaining an injunction prohibiting the parties from completing the Merger or in obtaining other relief, the completion of the Merger may be prevented or delayed or their terms could change.

Risks Relating to Taxation

RMRM may incur adverse tax consequences if we have failed or fail to qualify for taxation as a REIT for United States federal income tax purposes.

If we have failed or fail to qualify for taxation as a REIT for United States federal income tax purposes and the Merger is completed, RMRM may inherit significant tax liabilities and could lose its qualification for taxation as a REIT should our disqualifying activities continue after the Merger. Even if RMRM retains its qualification for taxation as a REIT, if we have not qualified for taxation as a REIT for a taxable year before the Merger or that includes the Merger and if no relief is available, RMRM will face serious tax consequences that could substantially reduce its cash available for distribution to its shareholders because:

•RMRM, as successor by merger to us, inherits any of our corporate income tax liabilities, including penalties and interest;

•RMRM would be subject to tax on the built-in gain on each asset of ours existing at the Effective Time if RMRM were to dispose of an asset of ours during the five year period following the Effective Time; and

•RMRM, as successor by merger to us, inherits any of our earnings and profits and could be required to pay a special distribution and/or employ applicable deficiency dividend procedures (including interest payments to the United States Internal Revenue Service, or the IRS) to eliminate any earnings and profits accumulated by us for taxable periods for which we did not qualify for taxation as a REIT.

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WeAs ~~cannot~~a ~~predict~~result ~~the extent and duration~~ of ~~the~~these ~~COVID-19~~factors, ~~pandemic~~our orfailure before the ~~severity~~Merger ~~and~~to ~~duration~~qualify offor ~~its~~taxation ~~economic~~as ~~impact,~~a ~~but~~REIT wecould ~~expect~~impair itRMRM’s ~~will~~ability beafter ~~substantial. Potential consequences of~~ the ~~current~~Merger ~~unprecedented measures taken in response~~ to ~~the~~expand ~~spread~~its ofbusiness ~~COVID-19~~ and ~~the~~raise ~~current~~capital, ~~market~~and ~~disruptions~~could ~~and~~materially ~~volatility~~adversely ~~affecting~~affect usthe ~~include,~~value ~~but~~of ~~are~~the ~~not~~RMRM ~~limited~~Common ~~to:~~ Shares.

◦Finally, if there is an adjustment to our real estate investment trust taxable income or dividends paid deductions, RMRM could elect to use the ~~current~~deficiency ~~low~~dividend ~~market~~procedure ~~price~~in respect of preserving our ~~common~~REIT ~~shares~~qualification. ~~may~~That ~~continue~~deficiency ~~for~~dividend anprocedure ~~indefinite~~could ~~period~~require RMRM to make significant distributions to its shareholders and ~~could~~to ~~decline~~pay ~~further;~~significant interest to the IRS.

~~◦possible~~REITs ~~significant~~are ~~declines~~subject into ~~the~~a ~~value~~range of ~~our~~complex ~~portfolio;~~organizational and operational requirements.

◦As REITs, we and RMRM must distribute to our ~~inability~~respective shareholders with respect to ~~accurately~~each taxable year at least 90% of our REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), without regard to the deduction for dividends paid and excluding net capital gain. A REIT must also meet certain requirements with respect to the nature of its income and assets and the ownership of its shares. For any taxable year that we or ~~reliably~~RMRM ~~value~~fail to qualify for taxation as a REIT, we or RMRM, as applicable, will not be allowed a deduction for distributions paid to our ~~portfolio;~~or RMRM’s shareholders, as applicable, in computing taxable income, and thus would become subject to United States federal income tax as if we or RMRM were a regular taxable corporation. In such an event, we or RMRM, as the case may be, could be subject to potentially significant tax liabilities. Unless entitled to relief under certain statutory provisions, we or RMRM, as the case may be, would also be disqualified from treatment as a REIT for the four taxable years following the year in which we or RMRM lost our qualification, and dispositions of assets within five years after requalifying as a REIT could give rise to gain that would be subject to corporate income tax. If we or RMRM failed to qualify for taxation as a REIT, the market price of the RMRM Common Shares may decline, and RMRM may need to reduce substantially the amount of distributions to its shareholders because of its potentially increased tax liability.

~~◦our~~Risks ~~inability~~Relating to ~~comply~~an ~~with~~Investment ~~financial covenants that could result~~ in ~~our~~RMRM ~~defaulting~~Common ~~under~~Shares ~~our~~Following ~~Master~~the ~~Repurchase Agreement;~~Merger

~~◦our~~The ~~maintaining~~market ~~the~~price ~~current reduced rate~~ of ~~distributions~~the onRMRM ~~our~~Common ~~common~~Shares ~~shares~~may ~~for~~decline anas ~~extended~~a ~~period~~result of ~~time~~the ~~or suspending our payment of distributions entirely, subject to our paying distributions to comply with applicable REIT tax requirements;~~Merger.

~~◦our~~The ~~failure~~market toprice ~~pay~~of ~~interest~~the ~~and~~RMRM ~~principal~~Common ~~when~~Shares ~~due~~may ondecline ~~our~~as ~~outstanding~~a ~~debt,~~result ~~which~~of ~~would~~the ~~result~~Merger inif ~~events~~RMRM does not achieve the perceived benefits of ~~default~~the ~~under~~Merger ~~our~~or ~~Master~~the ~~Repurchase~~effect ~~Facility~~of ~~and~~the ~~our~~Merger ~~possible~~on ~~loss~~RMRM’s financial results is not consistent with the expectations of ~~our~~financial ~~Master~~or ~~Repurchase~~industry ~~Facility;~~analysts.

◦In addition, upon consummation of the Merger, our ~~inability~~shareholders toand ~~access~~RMRM ~~debt~~shareholders will own RMRM Common Shares, and ~~equity~~RMRM ~~capital~~will onoperate ~~attractive~~an ~~terms~~expanded business with a different mix of assets, risks and liabilities. Our current shareholders and current RMRM shareholders may not wish to continue to invest in RMRM as the combined company, or atfor other reasons may wish to dispose of some or all; of their RMRM Common Shares. If, following the Effective Time, large amounts of RMRM Common Shares are sold, the price of RMRM Common Shares could decline.

◦increased risk of default or bankruptcy of our borrowers;

◦increased risk of our borrowers being unable to weather an extended cessation of normal economic activity and thereby impairing their ability to continue functioning as going concerns and to pay their debt service obligations owed to us;

◦our and our borrowers’ inability to operate our businesses if the health of our respective management personnel and other employees is affected, particularly if a significant number of individuals are impacted; and

◦reduced economic demand resulting from mass employee layoffs or furloughs in response to governmental action taken to slow the spread of COVID-19, which could impact the continued viability of our borrowers.

Further, the extent and strength of any economic recovery after the COVID-19 pandemic ends or otherwise are uncertain and subject to various factors and conditions. Our business, operations and financial position may continue to be negatively impacted after the COVID-19 pandemic ends and may remain at depressed levels compared to prior to the outbreak of the COVID-19 pandemic and those conditions may continue for an extended period.

We reduced our quarterly distribution rate on our common shares to $0.01 per share; future distributions may remain at this level for an indefinite period, subject to applicable REIT tax requirements, or be eliminated and the form of payment could change.

Beginning with the first quarter of 2020, we reduced our quarterly distribution rate on our common shares to $0.01 per share. We currently intend to continue to make quarterly distributions to our shareholders at this rate, subject to applicable REIT tax requirements, and we also expect to declare a one-time distribution in December 2020 to be paid in January 2021. However:

◦our ability to make or sustain the rate of distributions may continue to be adversely affected by the negative impact of the COVID-19 pandemic and its aftermath on our business, results of operations and liquidity;

◦our making of distributions is subject to restrictions contained in our Master Repurchase Agreement and may be subject to restrictions in future debt service obligations we may incur; during the continuance of any event of default under our Master Repurchase Agreement, we may be limited or in some cases prohibited from making distributions to our shareholders; and

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~~◦our~~Item ~~distribution rate is set and reset from time to time by our Board of Trustees~~6. ~~The~~Exhibits timing, amount and form of future distributions will be determined at the discretion of our Board of Trustees and will depend upon various factors that our Board of Trustees deems relevant, including our historical and projected income, our Core Earnings, the then-current and expected needs and availability of cash to pay our obligations and fund our investments, distributions which may be required to be paid to maintain our qualification for taxation as a REIT, limitations on distributions contained in our financing arrangements and other factors deemed relevant by our Board of Trustees in its discretion. Accordingly, future distribution rates may be increased or decreased and there is no assurance as to the rate at which future distributions will be paid.

For these reasons, among others, our distribution rate may not increase for an indefinite period and could be eliminated.

Exhibit
Number

Description

2.1

Agreement and Plan of Merger, dated as of April 26, 2021, between RMR Mortgage Trust and the Company. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 26, 2021.)

3.1

Articles of Amendment and Restatement of the Company effective September 14, 2017. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on September 18, 2017.)

3.2

Amended and Restated Bylaws of the Company dated September 14, 2017. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on September 18, 2017.)

4.1

Form of Common Share Certificate. (Incorporated by reference to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed on August 3, 2017, File No. 333-219205.)

10.1

Letter Agreement, dated as of April 26, 2021, among the Company, RMR Mortgage Trust and Tremont Realty Advisors LLC. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 26, 2021.)

10.2

Voting Agreement, dated as of April 26, 2021, between the Company and Diane Portnoy. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 26, 2021.)

31.1

Rule 13a-14(a) Certification. (Filed herewith.)

31.2

Rule 13a-14(a) Certification. (Filed herewith.)

31.3

Rule 13a-14(a) Certification. (Filed herewith.)

31.4

Rule 13a-14(a) Certification. (Filed herewith.)

32.1

Section 1350 Certification. (Furnished herewith.)

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

XBRL Taxonomy Extension Schema Document. (Filed herewith.)

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.)

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.)

101.LAB

XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.)

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.)

104

Cover Page Interactive Data File. (Formatted as Inline XBRL and contained in Exhibit 101.)

In order to preserve liquidity, we may elect to pay distributions to our shareholders, in part, in a form other than cash, such as issuing additional common shares of ours to our shareholders, as permitted by the applicable tax rules.

Some of our borrowers have requested relief from their debt service obligations owed to us in response to the current economic conditions resulting from the COVID-19 pandemic and we may receive additional similar requests in the future; we may determine to grant relief in response to these requests in the future if we determine it prudent or appropriate to do so.

The current economic conditions resulting from the COVID-19 pandemic have significantly negatively impacted some of our borrowers’ businesses, operations and liquidity. Some of our borrowers have requested relief from their debt service obligations owed to us. As of November 2, 2020, we have provided one borrower with relief in the form of an increase to the interest reserve balance that may be used to make interest payments. We may receive additional similar requests in the future, and we may determine to grant relief in the future if we determine it prudent or appropriate to do so. In addition, if our borrowers are unable to continue as going concerns as a result of the current economic conditions or otherwise, we may incur losses of all or some of our loan investments to them, including if the collateral securing our loans less our costs of recovery are less than the defaulted amounts.

Our Master Repurchase Agreement requires, and the agreements governing any additional repurchase facilities, bank credit facilities or debt arrangements that we may enter into will likely require, us to provide additional collateral or pay down debt.

Our Master Repurchase Facility, or other repurchase or bank credit facilities (including term loans and revolving facilities) or debt arrangements that we may enter into to finance investments, may involve the risk that the value of the investments sold by us or pledged to the provider of such repurchase or other bank credit facilities or debt arrangements may decline, and, in such circumstances, we would likely be required to provide additional collateral or to repay all or a portion of the funds advanced thereunder. With respect to our Master Repurchase Facility, subject to certain conditions, Citibank has sole discretion to determine the market value of the investments that serve as collateral under the facility for purposes of determining whether we are required to pay margin to Citibank. Where a decline in the value of collateral, including as a result of the impact of COVID-19 pandemic, results in a margin deficit, Citibank may require us to eliminate that margin deficit through a combination of purchased asset repurchases and cash transfers to Citibank, subject to Citibank's approval. We may not have funds available to eliminate any such margin deficit and may be unable to raise funds from alternative sources on favorable terms or at all, which would likely result in a default under our Master Repurchase Agreement. In the event of any such default, Citibank could accelerate our outstanding debts and terminate our ability to obtain additional advancements under our Master Repurchase Facility, and our financial condition and prospects would be materially and adversely affected. Any debt arrangements that we may enter into in the future would likely contain similar provisions. In addition, if any of our current or future lenders file for bankruptcy or become insolvent, our investments that serve as collateral under the applicable repurchase or other bank credit facilities or debt arrangement may become subject to bankruptcy or insolvency proceedings, thus depriving us, at least temporarily, of the benefit of those assets. Such an event could restrict our access to additional debt arrangements and therefore increase our cost of capital. Lenders under any future repurchase or other bank credit facilities or debt arrangements may also require us to maintain a certain amount of cash or set aside assets sufficient to maintain a specified liquidity position that would allow us to satisfy our collateral obligations. As a result, we may not be able to leverage our assets to maximum capacity, which could reduce our return on assets. If we are unable to meet any such collateral obligations, our financial condition and prospects could deteriorate rapidly.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer purchases of equity securities. The following table provides information about our purchases of our equity securities during the quarter ended September 30, 2020.

Calendar Month	Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
September 2020	7,182	$	2.77	—	$	—
Total	7,182	$	2.77	—	$	—

(1)These common share withholdings and purchases were made to satisfy the tax withholding and payment obligations of one of our officers and certain other employees of RMR LLC in connection with the vesting of awards of our common shares. We withheld and purchased these shares at their fair market value based upon the trading price of our common shares at the close of trading on Nasdaq on the purchase date.

Item 5. Other Information

On October 30, 2020, we amended our Master Repurchase Agreement with Citibank to, among other things, (1) extend the stated expiration date of our Master Repurchase Facility by one year, from November 6, 2021 to November 6, 2022, subject to early termination as provided for in our Master Repurchase Agreement, and (2) provide that, at such time as LIBOR is no longer available as a base rate to calculate interest payable on amounts outstanding under our Master Repurchase Facility, the replacement base rate shall be SOFR, or if SOFR is not available, such other rate as may be determined by Citibank in accordance with the terms of our amended Master Repurchase Agreement.

The foregoing description of the amendment to our Master Repurchase Agreement is not complete and is qualified in its entirety by reference to the full text of the Second Amendment to Master Repurchase Agreement and Fourth Amendment to Fee Agreement, copies of which are attached hereto as Exhibit 10.2 and 10.3, respectively, and are incorporated herein by reference.

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Item 6. Exhibits

ExhibitNumber

Description

3.1

Articles of Amendment and Restatement of the Company effective September 14, 2017. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on September 18, 2017.)

3.2

Amended and Restated Bylaws of the Company dated September 14, 2017. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on September 18, 2017.)

4.1

Form of Common Share Certificate. (Incorporated by reference to Amendment No. 1 to the Company’s Registration Statement on Form S-11 filed on August 3, 2017, File No. 333-219205.)

10.1

Form of Share Award Agreement. (Filed herewith.)

10.2

Second Amendment to Master Repurchase Agreement, dated October 30, 2020, among Citibank, N.A., TRMT CB Lender LLC and, for certain specified purposes, the Company. (Filed herewith.)

10.3

Fourth Amendment to Fee Agreement, dated October 30, 2020, among Citibank, N.A., TRMT CB Lender LLC and, for certain specified purposes, the Company. (Filed herewith.)

31.1

Rule 13a-14(a) Certification. (Filed herewith.)

31.2

Rule 13a-14(a) Certification. (Filed herewith.)

32.1

Section 1350 Certification. (Furnished herewith.)

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

XBRL Taxonomy Extension Schema Document. (Filed herewith.)

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.)

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.)

101.LAB

XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.)

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.)

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Cover Page Interactive Data File. (Formatted as Inline XBRL and contained in Exhibit 101.)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

			TREMONT MORTGAGE TRUST
			By:			/s/ ~~David~~Thomas MJ. ~~Blackman~~Lorenzini
						David M. BlackmanPresident and Chief Executive Officer
						Thomas J. LorenziniPresident
						Dated: November 3, 2020
						Dated: April 27, 2021
			By:			/s/ G. Douglas Lanois
						G. Douglas LanoisChief Financial Officer and Treasurer(principal financial and accounting officer)
						Dated: November 3, 2020
						Dated: April 27, 2021

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