Seven Hills Realty Trust
For the period ended Mar 31, 2025. Filed Apr 28, 2025.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2025 · Filed Apr 28, 2025
SEVN$6.63-1.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-09-30; filed 2024-10-28.
0001452477-24-000042
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-03-31; filed 2025-04-28.
0001452477-25-000025
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 113 previous paragraphs and 101 current paragraphs.
58 unchanged; 29 reworded; 14 added; 19 removed; 7 previous and 0 current paragraphs rearranged.
Tables are not compared: 11 previous and 9 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (14)
Current report
Market Conditions. CRE investors entered 2025 with cautious optimism. By the end of 2024, citing progress towards attaining its 2% inflation target, the Federal Open Market Committee, or FOMC, lowered the targeted federal funds rate by a combined 100 basis points, providing borrowers relief from a sustained period of elevated borrowing costs. Despite falling short of many borrowers’ expectations, the FOMC’s initial reduction gave borrowers a level of certainty and conviction around buy, sell or refinance decisions, and debt liquidity continued to return to the market.
Current report
Despite increasing delinquency rates within certain segments of the market, in particular for recent vintage multifamily loans, property fundamentals overall have continued to improve. Supply and demand imbalances, specifically for multifamily and industrial properties, have been showing signs of leveling off with property values trending upwards. Strong investor demand for CMBS and CRE collateralized loan obligations, or CLO, bonds and fresh allocations from life insurance companies and agency lenders such as Fannie-Mae and Freddie-Mac helped to drive credit spreads and borrowing costs downward, increasing financing activity for much of the quarter.
Current report
The cautious optimism that was common in the markets earlier in the year has now begun to wane as investors direct their attention to the administration’s new trade policies and recent tariff announcements. Although we believe markets had already priced in a baseline level of tariffs, the ultimate scope and magnitude of the announced rates were unexpected, creating new uncertainty and capital markets volatility.
Current report
The FOMC’s dual mandate to ensure price stability and to maximize employment is again in focus. An increased risk of an economic recession may lead to job losses and the FOMC may need to consider lowering the target federal funds rate, a potentially welcome outcome for leveraged property owners. Alternatively, widespread tariffs, if prolonged, may contribute to greater inflation, which could cause the FOMC to consider maintaining or even increasing rates to slow potential, long-term inflationary pressures.
Current report
With close to $2 trillion in CRE debt scheduled to mature over the next two years, property owners may face difficult decisions if market volatility persists. At the beginning of the year, borrowers believed they had a clear view on the path of short-term rates while 5 and 10-year U.S. Treasury yields remained somewhat elevated. Today, it is much less clear what the FOMC’s intentions are going forward and what the outlook is for short-term interest rates in the current economic climate. As for longer term interest rates, the 5 and 10-year U.S. Treasury yields continue to be elevated and quite volatile, making it difficult for borrowers that must refinance maturing loans to lock in long-term fixed rates in this environment. Despite the fact that many uncertainties exist today, we continue to believe that the CRE debt markets, property owners and lenders are well positioned to handle these uncertain times and conditions as we move deeper into 2025.
Current report
(4)In April 2025, the borrower exercised a 30 day extension option which extended the maturity date of the loan to May 23, 2025.
Current report
(5)In April 2025, the coupon rate was reduced from SOFR + 3.85% to SOFR + 2.85% and the maturity date was extended by three years to April 7, 2028.
Current report
In November 2024, we amended the agreement governing our loan secured by an office property in Carlsbad, CA. As part of this amendment, the borrower was required to contribute $1,100 to cash reserves and the maturity date was extended by two years to October 27, 2026. As of March 31, 2025, this loan had an amortized cost of $24,413 and a risk rating of 4.
Current report
In February 2025, we amended the agreement governing our loan secured by an office property in Downers Grove, IL, which extended the term of the loan by 60 days to April 25, 2025 with an option to extend the loan for an additional 30 days. In April 2025, the borrower exercised its option to extend the loan by 30 days to May 23, 2025. As of March 31, 2025, this loan had an amortized cost of $29,642 and a risk rating of 4.
Current report
In April 2025, we amended the agreement governing our loan secured by an office property in Bellevue, WA. As part of this amendment, the borrower was required to contribute $1,625 to cash reserves, the coupon rate was reduced from SOFR + 3.85% to SOFR + 2.85% and the maturity date was extended by three years to April 7, 2028. As of March 31, 2025, this loan had an amortized cost of $19,999 and a risk rating of 4.
Current report
Reversal of credit losses. The reversal of credit losses represents the decrease in the allowance for credit losses on our loan portfolio and unfunded commitments. The decrease in the allowance for credit losses during the three months ended March 31, 2025 was primarily attributable to certain of our loans nearing maturity and improved performance at certain of the collateral properties underlying our loans, partially offset by higher total loan commitments as of March 31, 2025 as compared to December 31, 2024, including future funding of our unfunded loan commitments.
Current report
Critical Accounting Estimates
Current report
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reporting amounts. Actual results could differ from those estimates. Significant estimates in our condensed consolidated financial statements include revenue recognition, loans held for investment, allowance for credit losses and real estate owned.
Current report
A discussion of our critical accounting estimates is included in our 2024 Annual Report. There have been no significant changes in our critical accounting estimates since the year ended December 31, 2024.
Removed paragraphs (19)
Previous report
Market Conditions. Heading into 2024, CRE investors seemed cautiously optimistic that inflation had peaked, that the U.S. economy was likely headed for a “soft-landing” and that the Federal Open Market Committee of the U.S. Federal Reserve, or the FOMC, was poised to reduce the federal funds rate by 125 to 150 basis points through a series of rate cuts in 2024. With the anticipation of lower interest rates in the future, investors delayed sale or refinancing decisions, which resulted in tepid CRE investment and transaction volume during the third quarter of 2024. In September 2024, citing progress toward its 2% inflation target, the FOMC lowered the targeted federal funds rate by 50 basis points, to a range of 4.75% to 5.00%, the first reduction since March 2020. This first rate cut in over four years by the FOMC provided CRE owners relief from the recent high borrowing costs and uncertainty regarding the timing and magnitude of future rate cuts.
Previous report
The September federal funds rate cut and updated projections by the FOMC for future rate cuts has provided CRE investors a renewed sense of optimism that both financing and investment sale transaction activity will accelerate in the fourth quarter of 2024 and into 2025. With additional clarity on the intentions of the FOMC and the direction of future interest rates, CRE owners are better positioned to make sale or refinance decisions and opt between floating or fixed rate financing options. CRE owners are also now more likely to qualify for new financing, instead of having to sell properties at distressed prices, to repay debt. Borrowers with well performing cash flowing properties will continue to benefit from numerous financing options.
Previous report
The CMBS financing market, a key provider of debt liquidity to the CRE industry, has seen increased activity through the first half of 2024. Strong demand from bond buyers has allowed borrowers to take advantage of tightening credit spreads for 10-year and 5-year loans, the latter of which has become more popular among bond investors and borrowers. Life insurance companies continue to expand their product offerings to borrowers, with low leverage, fixed rate term debt for stabilized assets as well as floating rate capital for more transitional properties, which were once reserved for banks and alternative lenders, like us. The banking sector continues to be impacted by legacy CRE exposure and increased capital charges imposed by regulators but have become more active of late, primary for new loans to strategic, long-term clients. Agency lenders, Fannie-Mae and Freddie-Mac continue to be active lenders in the market; however, they are facing increased competition from CMBS/conduit providers, life-insurance companies and alternative lenders, like us. Overall, the debt capital markets remain liquid, and lenders continue to compete for quality financing opportunities.
Previous report
Although CRE investors feel that the risk of a prolonged period of elevated interest rates is largely over, other challenges remain ahead. Special servicing rates for CMBS and CRE-CLO financed loans continue to increase and lenders have become more willing to foreclose on borrowers unable to support underperforming properties. Furthermore, certain segments of the CRE industry continue to experience a deterioration in operating fundamentals. The U.S. office market continues to suffer from the post pandemic shift in work habits and weak demand for office space. Retail assets, particularly needs based and grocery anchored retail, have benefited from a strong consumer and employment market, but recent reports of declining retail sales and weakening consumer demand may eventually have an impact on the performance of retail assets. The industrial sector remains a preferred asset class among lenders and investors, but oversupply in certain markets and more measured corporate demand have impacted the pace of rent growth. The lack of affordable housing in the United States and the rent versus own dynamic continue to favor the apartment sector. Oversupply in certain markets, however, has caused a slowdown, and in some markets a decline, in rent growth. For most markets, it is expected that the imbalance between supply and demand will be short lived and once they reach equilibrium, rent growth will return.
Previous report
Over $2 trillion in CRE debt is scheduled to mature over the next two years. These maturities, coupled with a lower and more stabilized interest rate environment, are likely to provide investors with greater investment opportunities which will spurn lending activity. Looking forward, geopolitical uncertainty and the impact of the U.S. presidential election may pose additional risks to the CRE industry, however, we believe that the CRE lending market remains well positioned to handle these challenges.
Previous report
(1)Excludes the impact of the unaccreted purchase discount resulting from the excess of the fair value of the loans TRMT then held for investment and that we acquired as a result of the Merger over the consideration we paid in the Merger. The purchase discount of $36,443 was allocated to each acquired loan and was accreted into income over the remaining term of the respective loan. As of September 30, 2024, the purchase discount was fully accreted. As of December 31, 2023, the unaccreted purchase discount was $2,347.
Previous report
(4)In October 2024, the maturity of this loan was extended to January 27, 2025.
Previous report
In September 2024, we amended our amended and restated master repurchase agreement with Citibank, or the Citibank Master Repurchase Agreement. The amendment to the amended and restated Citibank Master Repurchase Agreement made certain changes to the agreement and related fee letter, including extending the stated maturity date to September 27, 2026.
Previous report
In October 2024, we amended our master repurchase and securities contract with Wells Fargo, or the Wells Fargo Master Repurchase Agreement. The amendment to the Wells Fargo Master Repurchase Agreement made certain changes to the agreement and related fee letter, including extending the stated maturity date to March 11, 2026.
Previous report
Interest and related income. The decrease in interest and related income was primarily the result of a lower average outstanding principal balance for our loan investment portfolio as a result of loan repayments and a prepayment premium received during the three months ended June 30, 2024. The weighted average aggregate principal balance of our loan investments was approximately $581,000 for the three months ended September 30, 2024 as compared to approximately $601,000 for the three months ended June 30, 2024.
Previous report
Purchase discount accretion. The decrease in purchase discount accretion was primarily due to the purchase discount recorded as part of the Merger becoming fully accreted during the three months ended September 30, 2024.
Previous report
Interest and related expenses. The decrease in interest and related expenses was primarily the result of lower outstanding principal balances under our Secured Financing Facilities as a result of loan repayments during the three months ended September 30, 2024. The weighted average principal balance was approximately $393,000 for the three months ended September 30, 2024 as compared to approximately $422,000 for the three months ended June 30, 2024.
Previous report
Provision for credit losses. The provision for credit losses represents the increase in the allowance for credit losses on our loan portfolio and unfunded commitments. The increase in the allowance for credit losses during the three months ended September 30, 2024 was primarily attributable to declining values for CRE and unfavorable CRE pricing forecasts used in our CECL model and increased provisions for our office loans.
Previous report
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023:
Previous report
Purchase discount accretion. The decrease in purchase discount accretion was primarily due to the purchase discount recorded as part of the Merger becoming fully accreted during the nine months ended September 30, 2024.
Previous report
General and administrative expenses. The increase in general and administrative expenses was primarily due to an increase in share based compensation, partially offset by decreases in professional fees during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.
Previous report
Provision for (reversal of) credit losses. The provision for (reversal of) credit losses represents the increase in the allowance for credit losses on our loan portfolio and unfunded commitments. The increase in the allowance for credit losses during the nine months ended September 30, 2024 was primarily attributable to declining values for CRE and unfavorable CRE pricing forecasts used in our CECL model and increased provisions for our office loans.
Previous report
Reconciliation of Net Income to Distributable Earnings
Previous report
(1)Exit fees collected on loans acquired in the Merger represent fees collected upon repayment of loans for which no income has previously been recognized in Distributable Earnings. In accordance with GAAP, exit fees payable with respect to loans acquired in the Merger were accreted as a component of the purchase discount and were excluded from Distributable Earnings as a non-cash item. Accordingly, these exit fees have been recognized in Distributable Earnings upon collection.
Reworded paragraphs (29)
Previous wording
We are a Maryland REIT. Our business strategy is focused on originating and investing in floating rate first mortgage loans that range from $15,000 to $75,000, secured by middle market and transitional CRE properties that have values up to $100,000. We define transitional CRE as commercial properties subject to redevelopment or repositioning activities that are expected to increase the value of the properties.
Current wording
We are a Maryland REIT. Our business strategy is focused on originating and investing in floating rate first mortgage loans that range from $15,000 to $75,000, secured by middle market transitional CRE properties that have values up to $100,000. We define transitional CRE as commercial properties subject to redevelopment or repositioning activities that are expected to increase the value of the properties.
Previous wording
Tremont is registered with the Securities and Exchange Commission, or SEC, as an investment adviser under the Investment Advisers Act of 1940, as amended. We believe that Tremont provides us with significant experience and expertise in investing in middle market and transitional CRE.
Current wording
Tremont is registered with the Securities and Exchange Commission, or SEC, as an investment adviser under the Investment Advisers Act of 1940, as amended. We believe that Tremont provides us with significant experience and expertise in investing in middle market transitional CRE.
Previous wording
Changes in Fair Value of our Assets. We generally intend to hold our investments for their contractual terms, unless repaid earlier by the borrowers. We evaluate the credit quality of each of our loans at least quarterly. If a loan is determined to be collateral dependent (because the repayment of the loan is expected to be provided substantially through the operation or sale of the underlying collateral property) and the borrower is experiencing financial difficulties, but foreclosure is not probable, we will record an allowance for credit losses by comparing the collateral's fair value to the amortized cost basis of the loan. For collateral-dependent loans for which foreclosure is probable, the related allowance for credit losses is determined using the fair value of the collateral compared to the loan's amortized cost.
Current wording
Changes in Fair Value of our Assets. We generally intend to hold our investments for their contractual terms, unless repaid earlier by the borrowers. We evaluate the credit quality of each of our loans at least quarterly. If a loan is determined to be collateral dependent (because the repayment of the loan is expected to be provided substantially through the operation or sale of the underlying collateral property) and the borrower is experiencing financial difficulties, but foreclosure is not probable, we may record an allowance for credit losses by comparing the collateral's fair value to the amortized cost basis of the loan. For collateral-dependent loans for which foreclosure is probable, the related allowance for credit losses is determined using the fair value of the collateral compared to the loan's amortized cost.
Previous wording
Conversely, decreases in interest rates, in general, may cause: (a) the coupon rates on our variable rate investments to reset, perhaps on a delayed basis, to lower rates; (b) 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; and (c) the interest expense associated with our variable rate borrowings to decrease. See "—Market Conditions" above for a discussion of the current market including interest rates.
Current wording
Conversely, decreases in interest rates, in general, may cause: (a) the coupon rates on our variable rate investments to reset, perhaps on a delayed basis, to lower rates; (b) 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; and (c) the interest expense associated with our variable rate borrowings to decrease.
Previous wording
The interest income on our loans and interest expense on our borrowings float with benchmark rates, such as SOFR. Because we generally intend to leverage approximately 75% of the amount of our investments, as benchmark rates increase above the floors of our loans, our income from investments, net of interest and related expenses, will increase. Decreases in benchmark rates are mitigated by interest rate floor provisions in all but one of our loan agreements with borrowers, ranging from 0.10% to 5.20%; therefore, changes to income from investments, net, may not move proportionately with the increase or decrease in benchmark rates. As of September 30, 2024, SOFR was 4.85%, and as a result, one of our loan investments currently has an active interest rate floor.
Current wording
The interest income on our loans and interest expense on our borrowings float with benchmark rates, such as SOFR. Because we generally intend to leverage approximately 75% of the amount of our investments, as benchmark rates increase above the floors of our loans, our income from investments, net of interest and related expenses, will increase. Decreases in benchmark rates are mitigated by interest rate floor provisions in all but one of our loan agreements with borrowers, ranging from 0.10% to 5.20%; therefore, changes to income from investments, net, may not move proportionately with the increase or decrease in benchmark rates. As of March 31, 2025, SOFR was 4.32%, and as a result, one of our loan investments had an active interest rate floor.
Previous wording
Prepayment Risk. We are subject to risk that our loan investments will be repaid at an earlier date than anticipated, which may reduce the returns realized on those loans as less interest income may be received over time. Additionally, we may not be able to reinvest the principal repaid at a similar or higher yield of the original loan investment. We seek to limit this risk by structuring our loan agreements with fees required to be paid to us upon prepayment of a loan within a specified period of time before the loan’s maturity; however, unanticipated prepayments could negatively impact our operating results.
Current wording
Prepayment Risk. We are subject to risk that our loan investments will be repaid at an earlier date than anticipated, which may reduce the returns realized on those loans as less interest income may be received over time. Additionally, we may not be able to reinvest the principal repaid timely and/or at a similar or higher yield of the original loan investment. We seek to limit this risk by structuring our loan agreements with fees required to be paid to us upon prepayment of a loan within a specified period of time before the loan’s maturity; however, unanticipated prepayments could negatively impact our operating results.
Previous wording
As of September 30, 2024, we had $594,421 in aggregate loan commitments, consisting of a diverse portfolio, geographically and by property type, of 20 first mortgage loans. As of September 30, 2024, we had five loans representing approximately 26% of the amortized cost of our loan portfolio with a loan risk rating of “4” or “higher risk”.
Current wording
As of March 31, 2025, we had $690,913 in aggregate loan commitments, consisting of a diverse portfolio, geographically and by property type, of 23 first mortgage loans. As of March 31, 2025, we had five loans representing approximately 22% of the amortized cost of our loan portfolio with a loan risk rating of “4” or “higher risk”.
Previous wording
In August 2024, we amended the agreement governing our loan secured by an office property in Plano, TX. As part of this amendment, the coupon rate was reduced from SOFR + 4.75% to SOFR + 3.75% and the maturity date was extended by two years to July 1, 2026. As of September 30, 2024, this loan had an amortized cost of $26,634 and a risk rating of 4.
Current wording
In August 2024, we amended the agreement governing our loan secured by an office property in Plano, TX. As part of this amendment, the coupon rate was reduced from SOFR + 4.75% to SOFR + 3.75% and the maturity date was extended by two years to July 1, 2026. As of March 31, 2025, this loan had an amortized cost of $26,635 and a risk rating of 4.
Previous wording
As of September 30, 2024, outstanding advancements under our Secured Financing Facilities had a weighted average interest rate of 7.25% per annum, excluding associated fees and expenses. As of September 30, 2024 and October 24, 2024, we had a $377,334 aggregate outstanding principal balance under our Secured Financing Facilities.
Current wording
As of March 31, 2025, outstanding advancements under our Secured Financing Facilities had a weighted average interest rate of 6.52% per annum, excluding associated fees and expenses. As of March 31, 2025 and April 24, 2025, we had a $442,026 aggregate outstanding principal balance under our Secured Financing Facilities.
Previous wording
Interest and related income. The decrease in interest and related income was primarily the result of lower outstanding principal balances under our loan investment portfolio. The weighted average principal balance was approximately $598,000 for the nine months ended September 30, 2024 as compared to approximately $646,000 for the nine months ended September 30, 2023.
Current wording
Interest and related income. The increase in interest and related income was primarily the result of greater outstanding principal balances, partially offset by a decrease in the weighted average coupon rates under our loan investment portfolio during the three months ended March 31, 2025. The weighted average principal balance was approximately $641,000 for the three months ended March 31, 2025 compared to approximately $603,000 for the three months ended December 31, 2024. The weighted average coupon rate was 8.07% as of March 31, 2025 compared to 8.24% as of December 31, 2024.
Previous wording
Interest and related expenses. The increase in interest and related expenses was primarily the result of higher benchmark interest rates and higher spreads on advances under our Secured Financing Facilities, partially offset by lower outstanding principal balances under our Secured Financing Facilities during the nine months ended September 30, 2024. The weighted average principal balance was approximately $418,000 for the nine months ended September 30, 2024 as compared to approximately $447,000 for the nine months ended September 30, 2023.
Current wording
Interest and related expenses. The increase in interest and related expenses was primarily the result of greater outstanding principal balances, partially offset by a decrease in the weighted average coupon rates under our Secured Financing Facilities during the three months ended March 31, 2025. The weighted average principal balance was approximately $432,000 for the three months ended March 31, 2025 compared to approximately $411,000 for the three months ended December 31, 2024. The weighted average coupon rate was 6.52% as of March 31, 2025 compared to 6.62% as of December 31, 2024.
Previous wording
Revenue from real estate owned. Revenue from real estate owned represents revenue from the operations of an office property located in Yardley, PA that was transferred to real estate owned through a deed in lieu of foreclosure in June 2023.
Current wording
Revenue from real estate owned. Revenue from real estate owned represents revenue from the operations of an office property located in Yardley, PA that was transferred to real estate owned through a deed in lieu of foreclosure in June 2023. The increase in revenue from real estate owned was primarily due to higher operating expense reimbursement during the three months ended March 31, 2025 as compared to the three months ended December 31, 2024.
Previous wording
Incentive fees. We recognize management incentive fees payable to Tremont in accordance with our management agreement. The increase in management incentive fees was due to higher "core earnings," as defined in our management agreement, for the three months ended September 30, 2024 as compared to the three months ended June 30, 2024.
Current wording
Base management and incentive fees. We recognize base management and incentive fees payable to Tremont in accordance with our management agreement. The decrease in base management and incentive fees was due to lower “core earnings”, as defined in our management agreement, during the three months ended March 31, 2025 as compared to the three months ended December 31, 2024.
Previous wording
General and administrative expenses. The decrease in general and administrative expenses was primarily due to a decrease in share based compensation resulting from shares awarded to our Trustees during the three months ended June 30, 2024.
Current wording
General and administrative expenses. The increase in general and administrative expenses was primarily due to trustee stock grants during the three months ended March 31, 2025.
Previous wording
Reimbursement of shared services expenses. Reimbursement of shared services expenses represents reimbursement of the costs for the services that Tremont arranges on our behalf from RMR. The decrease in reimbursement of shared services expenses was primarily the result of an adjustment to our estimate of costs for the usage of shared services from RMR during the three months ended September 30, 2024.
Current wording
Reimbursement of shared services expenses. Reimbursement of shared services expenses represents reimbursement of the costs for the services that Tremont arranges on our behalf from RMR. The decrease in reimbursement of shared services expenses was primarily the result of lower usage of shared services from RMR during the three months ended March 31, 2025 as compared to the three months ended December 31, 2024.
Previous wording
Expenses from real estate owned. Expenses from real estate owned represent expenses from the operations of an office property located in Yardley, PA that was transferred to real estate owned through a deed in lieu of foreclosure in June 2023. The increase in expenses from real estate owned was primarily due to increases in maintenance expenses.
Current wording
Expenses from real estate owned. Expenses from real estate owned represent expenses from the operations of an office property located in Yardley, PA that was transferred to real estate owned through a deed in lieu of foreclosure in June 2023. The decrease in expenses from real estate owned was primarily due to decreases in maintenance expenses during the three months ended March 31, 2025 as compared to the three months ended December 31, 2024.
Previous wording
We present Distributable Earnings, Distributable Earnings per common share and Adjusted Book Value per common share, which are considered “non-GAAP financial measures” within the meaning of the applicable SEC rules. These non-GAAP financial measures do not represent net income, net income per common share or cash generated from operating activities and should not be considered as alternatives to net income or net income per common share determined in accordance with GAAP or as an indication of our cash flows from operations determined in accordance with GAAP, a measure of our liquidity or operating performance or an indication of funds available for our cash needs. In addition, our methodologies for calculating these non-GAAP financial measures may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures; therefore, our reported Distributable Earnings and Distributable Earnings per common share may not be comparable to distributable earnings and distributable earnings per common share as reported by other companies.
Current wording
We present Adjusted Book Value per common share, Distributable Earnings and Distributable Earnings per common share, which are considered “non-GAAP financial measures” within the meaning of the applicable SEC rules. These non-GAAP financial measures do not represent book value per common share, net income, net income per common share or cash generated from operating activities and should not be considered as alternatives to book value per common share, net income or net income per common share determined in accordance with GAAP or as an indication of our cash flows from operations determined in accordance with GAAP, a measure of our liquidity or operating performance or an indication of funds available for our cash needs. In addition, our methodologies for calculating these non-GAAP financial measures may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures; therefore, our reported Adjusted Book Value per common share, Distributable Earnings and Distributable Earnings per common share may not be comparable to adjusted book value per common share, distributable earnings and distributable earnings per common share as reported by other companies.
Previous wording
We believe that Adjusted Book Value per common share is a meaningful measure of our capital adequacy because it excludes the impact of certain non-cash estimates or adjustments, including the unaccreted purchase discount resulting from the excess of the fair value of the loans Tremont Mortgage Trust, or TRMT, then held for investment and that we acquired as a result of our merger with TRMT on September 30, 2021, or the Merger, over the consideration we paid in the Merger and our allowance for credit losses for our loan portfolio and unfunded loan commitments. Adjusted Book Value per common share does not represent book value per common share or alternative measures determined in accordance with GAAP. Our methodology for calculating Adjusted Book Value per common share may differ from the methodologies employed by other companies to calculate the same or similar supplemental capital adequacy measures; therefore, our Adjusted Book Value per common share may not be comparable to the adjusted book value per common share reported by other companies.
Current wording
We believe that Adjusted Book Value per common share is a meaningful measure of our capital adequacy because it excludes the impact of certain non-cash estimates or adjustments, including our allowance for credit losses for our loan portfolio and unfunded loan commitments. Adjusted Book Value per common share does not represent book value per common share or alternative measures determined in accordance with GAAP. Our methodology for calculating Adjusted Book Value per common share may differ from the methodologies employed by other companies to calculate the same or similar supplemental capital adequacy measures; therefore, our Adjusted Book Value per common share may not be comparable to the adjusted book value per common share reported by other companies.
Previous wording
The table below calculates our book value per common share:
Current wording
The table below calculates our book value per common share and Adjusted Book Value per common share, which is a non-GAAP financial measure:
Previous wording
(2)Excludes the impact of our allowance for credit losses. As of September 30, 2024 and December 31, 2023, our allowance for credit losses for our loan portfolio and unfunded loan commitments was $9,358 and $5,828, respectively.
Current wording
(1)Excludes the impact of our allowance for credit losses. As of March 31, 2025 and December 31, 2024, our allowance for credit losses for our loan portfolio and unfunded loan commitments was $8,755 and $8,908, respectively.
Previous wording
We calculate Distributable Earnings and Distributable Earnings per common share as net income and net income per common share, respectively, computed in accordance with GAAP, including realized losses not otherwise included in net income determined in accordance with GAAP, and excluding: (a) depreciation and amortization of real estate owned and related intangible assets, if any; (b) non-cash equity compensation expense; (c) unrealized gains, losses and other similar non-cash items that are included in net income for the period of the calculation (regardless of whether such items are included in or deducted from net income or in other comprehensive income under GAAP), if any; and (d) one-time events pursuant to changes in GAAP and certain non-cash items, if any. Distributable Earnings are reduced for realized losses on loan investments when amounts are deemed uncollectable. This is generally at the time a loan is repaid, or in the case of foreclosure, when the real estate assets are acquired, but may also be when, in our determination, it is nearly certain that all amounts due will not be collected. The realized loss amount reflected in Distributable Earnings will equal the difference between the cash or fair value of the assets received or expected to be received and the carrying value of the loan.
Current wording
We calculate Distributable Earnings and Distributable Earnings per common share as net income and net income per common share, respectively, computed in accordance with GAAP, including realized losses not otherwise included in net income determined in accordance with GAAP, and excluding: (a) depreciation and amortization of real estate owned and related intangible assets, if any; (b) non-cash equity compensation expense; (c) unrealized gains, losses and other similar non-cash items that are included in net income for the period of the calculation (regardless of whether such items are included in or deducted from net income or in other comprehensive income under GAAP), if any; and (d) one-time events pursuant to changes in GAAP and certain non-cash items, if any. Distributable Earnings are reduced for realized losses on loan investments when amounts are deemed uncollectable. This is generally at the time a loan is repaid, or in the case of foreclosure, when the underlying asset is sold, but may also be when, in our determination, it is nearly certain that all amounts due will not be collected. The realized loss amount reflected in Distributable Earnings will equal the difference between the cash received or expected to be received and the carrying value of the loan.
Previous wording
The table below demonstrates how we calculate Distributable Earnings and Distributable Earnings per common share, which are non-GAAP measures, and provides a reconciliation of these non-GAAP measures to net income:
Current wording
The table below demonstrates how we calculate Distributable Earnings and Distributable Earnings per common share, which are non-GAAP financial measures, and provides a reconciliation of these non-GAAP financial measures to net income:
Previous wording
Pursuant to the terms of our Citibank Master Repurchase Facility, our UBS Master Repurchase Facility and Wells Fargo Master Repurchase Facility, we may sell to, and later repurchase from, UBS, Citibank and Wells Fargo, the purchased assets related to the applicable facility. The initial purchase price paid by UBS of each purchased asset is up to 80% of the lesser of the market value of the purchased asset or the unpaid principal balance of such purchased asset, subject to UBS's approval. The initial purchase price paid by Citibank of each purchased asset is up to 75% of the lesser of the market value of the purchased asset or the unpaid principal balance of such purchased asset, subject to Citibank's approval. The initial purchase price paid by Wells Fargo for each purchased asset is up to 75% or 80%, depending on the property type of the purchased asset’s real estate collateral, of the lesser of the market value of the purchased asset or the unpaid principal balance of such purchased asset, and subject to Wells Fargo’s approval. Upon the repurchase of a purchased asset, we are required to pay UBS, Citibank or Wells Fargo, as applicable, the outstanding purchase price of the purchased asset, accrued interest and all accrued and unpaid expenses of UBS, Citibank or Wells Fargo, as applicable, relating to such purchased asset.
Current wording
Pursuant to the terms of our Citibank Master Repurchase Facility, our UBS Master Repurchase Facility and our Wells Fargo Master Repurchase Facility, we may sell to, and later repurchase from, Citibank, UBS and Wells Fargo, the purchased assets related to the applicable facility. The initial purchase price paid by Citibank of each purchased asset is up to 75% of the lesser of the market value of the purchased asset or the unpaid principal balance of such purchased asset, subject to Citibank's approval. The initial purchase price paid by UBS of each purchased asset is up to 80% of the lesser of the market value of the purchased asset or the unpaid principal balance of such purchased asset, subject to UBS's approval. The initial purchase price paid by Wells Fargo for each purchased asset is up to 75% or 80%, depending on the property type of the purchased asset’s real estate collateral, of the lesser of the market value of the purchased asset or the unpaid principal balance of such purchased asset, and subject to Wells Fargo’s approval. Upon the repurchase of a purchased asset, we are required to pay Citibank, UBS or Wells Fargo, as applicable, the outstanding purchase price of the purchased asset, accrued interest and all accrued and unpaid expenses of Citibank, UBS or Wells Fargo, as applicable, relating to such purchased asset.
Previous wording
The interest rates related to our Citibank, UBS and Wells Fargo purchased assets are calculated at SOFR plus a premium within a fixed range, determined by the debt yield and property type of the purchased asset’s real estate collateral. Citibank has the discretion to make advancements at margins higher than 75%, and UBS and Wells Fargo each have discretion to make advancements higher than 80%.
Current wording
The interest rates related to our Citibank, UBS and Wells Fargo purchased assets are calculated at SOFR plus a premium within a fixed range, determined by the debt yield and property type of the purchased asset’s real estate collateral. Citibank has the discretion to make advancements at margins higher than 75%, and UBS and Wells Fargo each has the discretion to make advancements at margins higher than 80%.
Previous wording
The increase in cash provided by operating activities for the 2024 period compared to the 2023 period was primarily the result of increased interest income earned on cash balances invested and a prepayment premium received in the 2024 period. The increase in cash provided by investing activities was primarily due to increased loan repayments and decreased loan originations in the 2024 period. The decrease in cash used in financing activities was primarily due to increased repayments and lower proceeds from our Secured Financing Facilities in the 2024 period.
Current wording
The decrease in cash provided by operating activities for the 2025 period compared to the 2024 period was primarily due to lower net interest income resulting from lower weighted average interest rates under our loan investment portfolio. The decrease in cash provided by investing activities was primarily due to increased loan originations and decreased loan repayments in the 2025 period. The increase in cash provided by financing activities was primarily due to decreased repayments on our Secured Financing Facilities and increased proceeds from our Secured Financing Facilities in the 2025 period.
Previous wording
During the nine months ended September 30, 2024, we declared and paid regular quarterly distributions to our common shareholders totaling $15,556, or $1.05 per common share, using cash on hand.
Current wording
During the three months ended March 31, 2025, we declared and paid regular quarterly distributions to our common shareholders totaling $5,216, or $0.35 per common share, using cash on hand.
Previous wording
On October 16, 2024, we declared a regular quarterly distribution of $0.35 per common share, or $5,216, to shareholders of record on October 28, 2024. We expect to pay this distribution to our common shareholders on or about November 14, 2024 using cash on hand.
Current wording
On April 10, 2025, we declared a regular quarterly distribution of $0.35 per common share, or $5,217, to shareholders of record on April 22, 2025. We expect to pay this distribution to our common shareholders on or about May 15, 2025 using cash on hand.
Previous wording
(4)Lease related costs include capital expenditures used to improve tenants' spaces pursuant to lease agreements or leasing related costs, such as brokerage commissions, related to the Yardley, PA property.
Current wording
(4)Lease related costs include capital expenditures used to improve tenants' spaces pursuant to lease agreements or leasing related costs, such as brokerage commissions, related to real estate owned.
Previous wording
As of September 30, 2024, we had a $273,479 aggregate outstanding principal balance under our Master Repurchase Facilities. Our Master Repurchase Agreements are structured with risk mitigation mechanisms, including a cash flow sweep, which would allow UBS, Citibank and Wells Fargo, as applicable, to control interest payments from our borrowers under our loans that are financed under our respective Master Repurchase Facilities, and the ability to accelerate dates of repurchase and institute margin calls, which may require us to pay down balances associated with one or more of our loans that are financed under our Master Repurchase Facilities.
Current wording
As of March 31, 2025, we had a $338,171 aggregate outstanding principal balance under our Master Repurchase Facilities. Our Master Repurchase Agreements are structured with risk mitigation mechanisms, including a cash flow sweep, which would allow UBS, Citibank and Wells Fargo, as applicable, to control interest payments from our borrowers under our loans that are financed under our respective Master Repurchase Facilities, and the ability to accelerate dates of repurchase and institute margin calls, which may require us to pay down balances associated with one or more of our loans that are financed under our Master Repurchase Facilities.
Rearranged previous paragraphs (7)
Previous report — wording carried elsewhere
The table below details our Secured Financing Facilities activities during the nine months ended September 30, 2024:
Previous report — wording carried elsewhere
Revenue from real estate owned. Revenue from real estate owned represents revenue from the operations of an office property located in Yardley, PA that was transferred to real estate owned through a deed in lieu of foreclosure in June 2023.
Previous report — wording carried elsewhere
Incentive fees. We recognize management incentive fees payable to Tremont in accordance with our management agreement. The increase in management incentive fees was due to higher "core earnings," as defined in our management agreement, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.
Previous report — wording carried elsewhere
Reimbursement of shared services expenses. Reimbursement of shared services expenses represents reimbursement of the costs for the services that Tremont arranges on our behalf from RMR. The increase in reimbursement of shared services expenses was primarily the result of higher usage of shared services from RMR during the nine months ended September 30, 2024.
Previous report — wording carried elsewhere
Expenses from real estate owned. Expenses from real estate owned represent expenses from the operations of an office property located in Yardley, PA that was transferred to real estate owned through a deed in lieu of foreclosure in June 2023.
Previous report — wording carried elsewhere
Income tax expense. Income tax expense represents income taxes paid or payable by us in certain jurisdictions where we are subject to state income taxes.
Previous report — wording carried elsewhere
Net income. The decrease in net income was due to the changes noted above.