TREMONT MORTGAGE TRUST

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share data)

(unaudited)

TREMONT MORTGAGE TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(amounts in thousands)

(unaudited)

TREMONT MORTGAGE TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a real estate investment trust,fair statement of results for the interim period have been included. All intercompany transactions and balances with or REIT, under Maryland law on June 1, 2017.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.

On September 18, 2017, we issuedThe preparation of financial statements in conformity with GAAP requires us to make estimates and sold 2,500,000assumptions 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 our common shares of beneficial interest, par value $0.01 per share, or our common shares, at a price of $20.00 per share in our initial public offering, or our IPO. Concurrently with our IPO, we issued and sold an additional 600,000 of our common shares to Tremont Realty Advisors LLC, or our Manager, at the public offering price in a private placement. The aggregate proceeds from these sales were $62,000.financial instruments.

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” (less risk) through “5” (greater risk) 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 credit

underwriting; and the property demonstrating stabilized occupancy and/or market rates, resulting in strong current cash flow and net operating income and/or having a very low LTV.

"2" average risk—Criteria 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.

"3" acceptable risk—Criteria reflects a sponsor having a history of repaying loans at maturity and meeting its credit obligations and our evaluation of management's experience; collateral performance expected to meet performance metrics included in the business plan or credit underwriting; and the property having a moderate LTV. New loans and loans with a limited history will typically be assigned this rating and will be adjusted to other levels from time to time as appropriate.

"4" higher risk—Criteria reflects a sponsor 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; andand/or the property having a high LTV.

"5" impaired/loss likely—Criteria reflects a very high risk of realizing a principal loss or having incurred a principal loss; a sponsor having a history of default payments, trouble fulfilling its credit obligations, deeds in lieu of foreclosures, and/or bankruptcies; collateral performance is significantly worse than performance metrics included in the business plan; loan covenants or performance milestones having been breached or not attained; timely exit via sale or refinancing being uncertain; andand/or the property having a very high LTV.

See Note 4 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Our Portfolio” included in Part I, Item 2 of this Quarterly Report on Form 10-Q for a discussionfurther information regarding our current loan portfolio’s assessment under our internal risk rating policy.

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 present value of expected future cash flows discounted at the loan’s contractual effective rate and the fair value of any available collateral, net of any costs we expect to incur to realize that value. The determination of whether loans are impaired 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, including assumptions regarding the values of loans, the values of underlying collateral and other 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.

Note 3. Recent Accounting Pronouncements

Note 4. Loans Held for Investment

We originate first mortgage whole loans secured by middle market and transitional CRE, and related instruments which are generally to be held as long term investments. To fundWe funded our existing loan originations to date, we usedportfolio using cash on hand and advancements under our master repurchase facility with Citibank, N.A., or Citibank, or our Master Repurchase Facility, and borrowings under our former term loan facility, in the form of a note payable, with Texas Capital Bank, National Association, or Texas Capital Bank, or the TCB note payable.other debt financing. See Note 5 for further information regarding our debt agreements.Master Repurchase Facility.

WeAs further described in Note 2, 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 LTV, debt yield, collateral performance, structure, exit plan and sponsorship.

Note 5. Debt Agreements

At September 30, 2019,The table below is an overview of our debt agreements includedthat provided financing for our Master Repurchase Facility.loans held for investment:

Until May 23, 2019, we were a party to a credit agreement with our Manager as lender, orUnder the RMR Credit Agreement. Following our repayment of the approximate $14,220 balance then outstanding under the RMR Credit Agreement, the RMR Credit Agreement was terminated. See below in this Note 5 for information regarding the RMR Credit Agreement.

March 31, 2020 and 2019, and 2018, respectively, and 4.42% and 4.34% forrespectively. For the ninethree months ended September 30,March 31, 2020 and 2019, we recorded interest expense of $1,638 and 2018, respectively.$1,084, respectively, in connection with our Master Repurchase Facility.

In connection with our Master Repurchase Agreement, we entered into a guaranty, or, as amended, the Guaranty, which requires us to payguarantee 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. This guarantyThe 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

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, 2019, we believeMarch 31, 2020, we were in compliance with the terms and conditionsall of the covenants ofand other terms under our Master Repurchase Agreement and the related guaranty.Guaranty.

Note 6. Fair Value of Financial Instruments

As of September 30, 2019March 31, 2020 and December 31, 2018,2019, 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. At September 30, 2019As of March 31, 2020 and December 31, 2018,2019, the outstanding principal balances under our Master Repurchase Facility and at December 31, 2018, the outstanding principal balance under the TCB note payable 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 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).

There were no transfers of financial assets or liabilities within the fair value hierarchy during the three or nine months ended September 30, 2019.March 31, 2020.

Note 8. Management Agreement with our Manager

We have 0 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.

In June 2018, our Manager agreed to waive any base management fees otherwise due and payable pursuant to our management agreement for the period beginning July 1, 2018 until June 30, 2020. In addition, our Manager also agreed that no incentive fee will be paid or payable by us for the 2018 or 2019 calendar years. As a result, weWe did not recognize any base management fees or incentive fees for the three or nine months ended SeptemberMarch 31, 2020 or 2019. Our Manager waived any base management or incentive fees otherwise due and payable by us under our management agreement through the period ending June 30, 2019 and the three months ended September 30, 2018.2020. If our Manager had not agreed to waivewaived these base management and incentive fees, we would have recognized $322$320 and $812 of base management fees for the three and nine months ended September 30, 2019, respectively, and no incentive fees for the three and nine months ended September 30, 2019. Pursuant to our management agreement, we recognized $0 and $447 of base management fees for the three and nine months ended September 30, 2018, respectively, and no incentive fees for the three or nine months ended September 30, 2018. If our Manager had not agreed to waive these fees, we would have recognized $222$223 of base management fees for the three months ended September 30, 2018, which would have resulted in us recognizing $669 of total base management fees for the nine months ended September 30, 2018 (including the $447 of business management fees actually recognized)March 31, 2020 and 2019, respectively, and no incentive fees would have been paid or payable for either of the three and nine months ended September 30, 2018.March 31, 2020 and 2019.

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 generally 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 and its affiliates, and theseaffiliates. These reimbursements may 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, with suchfunction. These shared services costs are subject to approval by

a majority of our Independent Trustees at least annually. We incurred shared services costs of $370$359 and $375$402 payable to our Manager as reimbursement for shared services costs it paid to RMR LLC for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and $1,110 and $1,125 for the nine months ended September 30, 2019 and 2018, 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.

Note 9. Related Person Transactions

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 andor 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 which 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, and 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 the RMR Real Estate Income Fund and 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 and certain of our other officers, 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.

We were formerly a 100% owned subsidiary of our Manager. Our Manager is our largest shareholder and, as of September 30, 2019,March 31, 2020, owned 1,600,100 of our common shares or approximately 19.4% of our outstanding common shares. Included in those shares are the 1,000,000 of our common shares that our Manager purchased in the Offering. See Note 7 for further information regarding the Offering.

Until May 23, 2019, we were a party to the RMR Credit Agreementa credit agreement with our Manager. See Note 5 for information regardingManager as lender, or the RMR Credit Agreement.

For further information about these and other such relationships and certain other related person transactions, refer to our 20182019 Annual Report.

Note 10. Income Taxes

We have elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the IRC. Accordingly, we generally are not, and will not be, subject to U.S. federal income tax, provided that we meet certain distribution and other requirements. We are subject to certain state and local taxes, certain of which amounts are or will be reported as income taxes in our condensed consolidated statements of operations.

As of September 30, 2019,March 31, 2020, we had unfunded commitments of $18,813$24,753 related to our loans held for investment. Unfunded commitments will generally be funded to finance property and building improvements and leasing capital over the term of the applicable loan. UnfundedThese commitments are not reflected in our condensed consolidated balance sheets. Loans held for investment related to our unfunded commitments had a weighted average initial maturity of 21.7 years. See Note 4 for further information regardingrelated to loans held for investment.

As of September 30, 2019,March 31, 2020, we had an aggregate of $131,253$196,344 in principal amount outstanding under our Master Repurchase Facility with a weighted average life to maturity of 1.81.4 years. See Note 5 for further information regarding our secured debt agreements.

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

We are a REIT that was organized under Maryland law in 2017. We focusOur 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 $75,000 and transitional CRE as commercial properties subject to redevelopment or repositioning activities that are expected to increase the value of the properties. These assets are classified 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,amended. or the Investment Company Act.

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

The borrower forunder our loan related to a first mortgage bridge whole loan with a total commitment of $22,582 to refinance a three building office portfolio located in Dublin, OH.

We did not have any impaired loans or non-accrual loans as of March 31, 2020; thus, we did not record a reserve for immediate advancement underloan loss as of that date. For further information regarding our Master Repurchase Facilityrisk 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 to us, which may result in the impairment of those loans, and the recording loan loss reserves with respect to those loans and recording of any income from those loans currently pledged pursuant toon a nonaccrual basis. For further information regarding the risks associated with our Master Repurchase Facility and $58,026loan portfolio, see the risk factors identified in Part II, Item 1A, “Risk Factors” of unused capacity Master Repurchase Facility subject to our identifying suitable first mortgage whole loans for investment.this Quarterly Report on Form 10-Q.