Seven Hills Realty Trust

Previous wording

Our results of 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 Note 3 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 and elsewhere in this Management Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q and Part I, Item 1A, "Risk Factors" of our 2024 Annual Report.

Current wording

Our results of operations are primarily impacted by general CRE market conditions and unanticipated defaults by our borrowers. For further information regarding the risks associated with our loan portfolio, see Note 3 to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 and elsewhere in this Management Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q and Part I, Item 1A, "Risk Factors" of our 2024 Annual Report.

Previous wording

Market Conditions. U.S. trade and fiscal policy, coupled with ongoing geopolitical tensions, has caused uncertainty in financial markets. As a result, we believe many CRE investors continue to remain on the sidelines, waiting until they have greater clarity on the outcomes of negotiations with U.S. trade partners, new tariff announcements, domestic fiscal policy initiatives and the path of interest rates to make buy and sell decisions. However, the Federal Open Market Committee, or FOMC, has indicated that the U.S. economy is on solid footing, allowing it to be patient and wait to measure the impact of tariff driven price increases before determining the future path of interest rates.

Current wording

Market Conditions. U.S. trade and fiscal policy, coupled with ongoing geopolitical tensions, has caused increased volatility in financial markets this year, resulting in further uncertainty for commercial real estate investors. For much of the year, CRE investors were waiting on the outcomes of negotiations with U.S. trade partners, new tariff announcements, domestic fiscal policy initiatives and the path of interest rates before making buy and sell decisions.

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 up to 80% 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 0.25% to 5.20%; therefore, changes to income from investments, net, may not move proportionately with the increase or decrease in benchmark rates. As of June 30, 2025, SOFR was 4.32%, and as a result, one of our loan investments had 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 up to 80% 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 0.25% to 4.00% with a weighted average floor of 2.59%; therefore, changes to income from investments, net, may not move proportionately with the increase or decrease in benchmark rates. As of September 30, 2025, SOFR was 4.13%, and as a result, none of our loan investments had an active interest rate floor.

Previous wording

As of June 30, 2025, we had $665,421 in aggregate loan commitments, consisting of a diverse portfolio, geographically and by property type, of 23 first mortgage loans. As of June 30, 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”. We have no “5” or “loss likely” rated loans.

Current wording

As of September 30, 2025, we had $641,901 in aggregate loan commitments, consisting of a diverse portfolio, geographically and by property type, of 22 first mortgage loans. As of September 30, 2025, we had five loans representing approximately 23% of the amortized cost of our loan portfolio with a loan risk rating of “4” or “higher risk”. We have no “5” or “loss likely” rated loans.

Previous wording

In May 2025, we amended the agreement governing our loan secured by an office property in Downers Grove, IL. As part of this amendment, the borrower repaid $3,000 of the outstanding principal balance and the maturity date was extended by one year to May 22, 2026. As of June 30, 2025, this loan had an amortized cost of $26,620 and a risk rating of 4.

Current wording

In May 2025, we amended the agreement governing our loan secured by an office property in Downers Grove, IL. As part of this amendment, the borrower repaid $3,000 of the outstanding principal balance and the maturity date was extended by one year to May 22, 2026. As of September 30, 2025, this loan had an amortized cost of $26,630 and a risk rating of 4.

Previous wording

The table below details our Secured Financing Facilities activities during the six months ended June 30, 2025:

Current wording

The table below details our Secured Financing Facilities activities during the nine months ended September 30, 2025:

Previous wording

As of June 30, 2025, outstanding advancements under our Secured Financing Facilities had a weighted average interest rate of 6.51% per annum, excluding associated fees and expenses. As of June 30, 2025 and July 24, 2025, we had a $417,215 and $381,853, respectively, aggregate outstanding principal balance under our Secured Financing Facilities.

Current wording

As of September 30, 2025, outstanding advancements under our Secured Financing Facilities had a weighted average interest rate of 6.30% per annum, excluding associated fees and expenses. As of September 30, 2025 and October 23, 2025, we had a $430,423 aggregate outstanding principal balance under our Secured Financing Facilities.

Previous wording

Interest and related income. The increase in interest and related income was primarily due to higher deferred fee amortization, partially offset by a decrease in the weighted average coupon rates during the three months ended June 30, 2025. The weighted average coupon rate was 8.03% as of June 30, 2025 compared to 8.07% as of March 31, 2025.

Current wording

Interest and related income. The decrease in interest and related income was primarily due to higher net loan repayment activity and lower weighted average coupon rates during the three months ended September 30, 2025. The weighted average principal balance of our loan investments was approximately $595,000 for the three months ended September 30, 2025 compared to approximately $641,000 for the three months ended June 30, 2025. The weighted average coupon rate was 7.85% as of September 30, 2025 compared to 8.03% as of June 30, 2025.

Previous wording

Interest and related expenses. The increase in interest and related expenses was primarily the result of a higher average principal balance outstanding under our Secured Financing Facilities and higher deferred fee amortization, partially offset by a decrease in the weighted average coupon rates during the three months ended June 30, 2025. The weighted average principal balance was approximately $433,000 for the three months ended June 30, 2025 compared to approximately $432,000 for the three months ended March 31, 2025. The weighted average coupon rate was 6.51% as of June 30, 2025 compared to 6.52% as of March 31, 2025.

Current wording

Interest and related expenses. The decrease in interest and related expenses was primarily the result of a lower average principal balance outstanding under our Secured Financing Facilities and lower weighted average coupon rates during the three months ended September 30, 2025. The weighted average principal balance was approximately $399,000 for the three months ended September 30, 2025 compared to approximately $433,000 for the three months ended June 30, 2025. The weighted average coupon rate was 6.30% as of September 30, 2025 compared to 6.51% as of June 30, 2025.

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. The decrease in revenue from real estate owned was primarily due to lower operating expense reimbursements during the three months ended June 30, 2025 as compared to the three months ended March 31, 2025.

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 reimbursements during the three months ended September 30, 2025 as compared to the three months ended June 30, 2025.

Previous wording

General and administrative expenses. The increase in general and administrative expenses was primarily due to an increase in share based compensation resulting from shares awarded to our trustees during the three months ended June 30, 2025.

Current 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, 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.

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 an adjustment to our estimate of the costs for the usage of shared services from RMR.

Previous wording

Provision for (reversal of) credit losses. The provision for (reversal of) credit losses represents the change 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 June 30, 2025 was primarily attributable to unfavorable CRE pricing forecasts used in our CECL model and extensions for certain of our loans, partially offset by loan repayments.

Current wording

Provision for credit losses. The provision for credit losses represents the change 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, 2025 was primarily attributable to decreased net operating income for the collateral securing certain of our loans, partially offset by loans nearing maturity and loan repayments.

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 decrease in expenses from real estate owned was primarily due to lower utility expenses during the three months ended June 30, 2025 as compared to the three months ended March 31, 2025.

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.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Interest and related income. The decrease in interest and related income was primarily the result of lower weighted average coupon rates under our loan investment portfolio, partially offset by higher outstanding principal balances during the six months ended June 30, 2025. The weighted average coupon rate was 8.03% as of June 30, 2025 compared to 9.11% as of June 30, 2024. The weighted average principal balance was approximately $642,000 for the six months ended June 30, 2025 compared to approximately $607,000 for the six months ended June 30, 2024.

Current wording

Interest and related income. The decrease in interest and related income was primarily due to lower weighted average coupon rates, partially offset by higher principal balances outstanding during the nine months ended September 30, 2025. The weighted average coupon rate was 7.85% as of September 30, 2025 compared to 8.89% as of September 30, 2024. The weighted average principal balance of our loan investments was approximately $626,000 for the nine months ended September 30, 2025 compared to approximately $598,000 for the nine months ended September 30, 2024.

Previous wording

Interest and related expenses. The decrease in interest and related expenses was primarily the result of lower weighted average coupon rates under our Secured Financing Facilities, partially offset by higher outstanding principal balances during the six months ended June 30, 2025. The weighted average coupon rate was 6.51% as of June 30, 2025 compared to 7.48% as of June 30, 2024. The weighted average principal balance was approximately $432,000 for the six months ended June 30, 2025 compared to approximately $431,000 for the six months ended June 30, 2024.

Current wording

Interest and related expenses. The decrease in interest and related expenses was primarily the result of a lower weighted average coupon rates during the nine months ended September 30, 2025. The weighted average coupon rate was 6.30% as of September 30, 2025 compared to 7.25% as of September 30, 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. The increase in revenue from real estate owned was primarily due to higher operating expense reimbursements during the six months ended June 30, 2025 as compared to the six months ended June 30, 2024.

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 reimbursements during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024.

Previous wording

Incentive fees. We recognize management incentive fees payable to Tremont in accordance with our management agreement. The decrease in management incentive fees was due to lower “core earnings”, as defined in our management agreement, during the six months ended June 30, 2025 as compared to the six months ended June 30, 2024.

Current wording

Incentive fees. We recognize management incentive fees payable to Tremont in accordance with our management agreement. The decrease in management incentive fees was due to lower “core earnings”, as defined in our management agreement, during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024.

Previous wording

General and administrative expenses. The increase in general and administrative expenses was primarily due to an increase in share based compensation resulting from shares awarded to our trustees during the six months ended June 30, 2025.

Current wording

General and administrative expenses. The increase in general and administrative expenses was primarily due to an increase in share based compensation resulting from shares awarded to our trustees and legal and professional fees during the nine months ended September 30, 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 lower usage of shared services from RMR during the six months ended June 30, 2025 as compared to the six months ended June 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 nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024.

Previous wording

Provision for credit losses. The provision for credit losses represents the change in the allowance for credit losses on our loan portfolio and unfunded commitments. The decrease in the provision for credit losses during the six months ended June 30, 2025 was primarily attributable to improved performance at certain of the collateral properties underlying our loans, partially offset by higher total loan commitments during the six months ended June 30, 2025 as compared to the six months ended June 30, 2024.

Current wording

Provision for credit losses. The provision for credit losses represents the change 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, 2025 was primarily attributable to increased provisions for our office loans, partially offset by loans nearing maturity and loan repayments.

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 decrease in expenses from real estate owned was primarily due to decreases in maintenance expenses, partially offset by higher utility expenses during the six months ended June 30, 2025 as compared to the six months ended June 30, 2024.

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, depreciation and amortization expenses, partially offset by higher utility expenses during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024.

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 then held for investment and that we acquired as a result of 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

(1)Excludes the impact of our allowance for credit losses. As of June 30, 2025 and December 31, 2024, our allowance for credit losses for our loan portfolio and unfunded loan commitments was $9,667 and $8,908, respectively.

Current wording

(1)Excludes the impact of our allowance for credit losses. As of September 30, 2025 and December 31, 2024, our allowance for credit losses for our loan portfolio and unfunded loan commitments was $9,704 and $8,908, respectively.

Previous 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 change from cash provided by to cash used in investing activities was primarily due to increased loan originations in the 2025 period. The decrease in cash used in financing activities was primarily due to increased proceeds from our Secured Financing Facilities in the 2025 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, loan portfolio size and unfavorable changes in working capital. The change from cash provided by investing activities to cash used in investing activities was primarily due to increased loan originations in the 2025 period. The decrease in cash used in financing activities was primarily due to increased proceeds from our Secured Financing Facilities in the 2025 period.

Previous wording

During the six months ended June 30, 2025, we declared and paid regular quarterly distributions to our common shareholders totaling $10,433, or $0.70 per common share, using cash on hand.

Current wording

During the nine months ended September 30, 2025, we declared and paid regular quarterly distributions to our common shareholders totaling $14,617, or $0.98 per common share, using cash on hand.

Previous wording

On July 10, 2025, we declared a reduced regular quarterly distribution of $0.28 per common share, or $4,184, to shareholders of record on July 21, 2025. The reduced quarterly distribution reflects a sustainable rate with expectations that loan repayment proceeds will be redeployed at lower net interest margins and a declining SOFR index rate curve. We expect to pay this distribution to our common shareholders on or about August 14, 2025 using cash on hand.

Current wording

On October 9, 2025, we declared a regular quarterly distribution of $0.28 per common share, or $4,218, to shareholders of record on October 27, 2025. We expect to pay this distribution to our common shareholders on or about November 13, 2025 using cash on hand.

Previous wording

As of June 30, 2025, we had a $345,010 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 September 30, 2025, we had a $353,165 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.