UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~March 31,~~June 30, 2020



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

Commission File Number 001-38199

Tremont Mortgage Trust

(Exact Name of Registrant as Specified in Its Charter)



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

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

(Address of Principal Executive Offices) (Zip Code)

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

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



Title of Each Class	Trading Symbol	Name of each exchange on which registered
Common Shares of Beneficial Interest	TRMT	The Nasdaq Stock Market LLC

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

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

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



Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

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

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

Number of registrant's common shares of beneficial interest, $0.01 par value per share, outstanding as of ~~April 30,~~August 3, 2020: ~~8,239,226~~8,253,836

TREMONT MORTGAGE TRUST

FORM 10-Q

~~March 31,~~June 30, 2020

INDEX



		Page
PART I	Financial Information
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets — ~~March 31,~~June 30, 2020 and December 31, 2019	1
	Condensed Consolidated Statements of Operations — Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019	2
	Condensed Consolidated Statements of Shareholders’ Equity — Three and Six Months Ended ~~March 31,~~June 30, 2020 and 2019	3
	Condensed Consolidated Statements of Cash Flows — ~~Three~~Six Months Ended ~~March 31,~~June 30, 2020 and 2019	4
	Notes to Unaudited Condensed Consolidated Financial Statements	56
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1416
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2629
Item 4.	Controls and Procedures	2730
	Warning Concerning Forward-Looking Statements	2831
PART II	Other Information	3235
Item 1A.	Risk Factors	3235
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3538
Item 6.	Exhibits	3639
	Signatures	3740

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

PART I. Financial Information

Item 1. Financial Statements

TREMONT MORTGAGE TRUST

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

(unaudited)


	March 31,			December 31,			June 30,			December 31,
	2020			2019			2020			2019
ASSETS
Cash and cash equivalents	$	10,204		$	8,732		$	10,632		$	8,732
Restricted cash	3			143			1			143
Loans held for investment, net	271,487			242,078			278,225			242,078
Accrued interest receivable	953			755			938			755
Prepaid expenses and other assets	193			221			193			221
Total assets	$	282,840		$	251,929		$	289,989		$	251,929

LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, accrued liabilities and deposits	$	908		$	1,011		$	777		$	1,011
Master repurchase facility, net	195,566			164,694			200,465			164,694
Due to related persons	334			3			282			3
Total liabilities	196,808			165,708			201,524			165,708

Commitments and contingencies

Shareholders' equity:
Common shares of beneficial interest, $0.01 par value per share; 25,000,000 shares authorized; 8,239,226 and 8,239,610 shares issued and outstanding, respectively	82			82
Common shares of beneficial interest, $0.01 par value per share; 25,000,000 shares authorized; 8,253,836 and 8,239,610 shares issued and outstanding, respectively							83			82
Additional paid in capital	88,909			88,869			88,979			88,869
Cumulative net income	3,603			1,937			5,965			1,937
Cumulative distributions	(6,562		)	(4,667		)	(6,562		)	(4,667		)
Total shareholders’ equity	86,032			86,221
Total shareholders' equity							88,465			86,221
Total liabilities and shareholders' equity	$	282,840		$	251,929		$	289,989		$	251,929

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

TREMONT MORTGAGE TRUST

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share data)

(unaudited)


	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019			2020			2019
INCOME FROM INVESTMENTS:
Interest income from investments	$	4,284		$	3,000		$	4,496		$	3,913		$	8,780		$	6,913
Less: interest and related expenses	(1,757		)	(1,549		)	(1,368		)	(2,031		)	(3,125		)	(3,580		)
Income from investments, net	2,527			1,451			3,128			1,882			5,655			3,333

OTHER EXPENSES:
General and administrative expenses	540			503			524			618			1,064			1,121
Reimbursement of shared services expenses	321			370			242			370			563			740
Total expenses	861			873			766			988			1,627			1,861

Net income	$	1,666		$	578		$	2,362		$	894		$	4,028		$	1,472

Weighted average common shares outstanding - basic	8,169			3,136
Weighted average common shares outstanding - diluted	8,169			3,142
Weighted average common shares outstanding - basic and diluted							8,177			5,401			8,173			4,275

Net income per common share - basic and diluted	$	0.20		$	0.18		$	0.29		$	0.16		$	0.49		$	0.34

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

TREMONT MORTGAGE TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(amounts in thousands)

(unaudited)


	Number of				Additional												Number of				Additional
	Common		Common		Paid In			Cumulative			Cumulative						Common		Common		Paid In			Cumulative			Cumulative
	Shares		Shares		Capital			Net Income (Loss)			Distributions			Total			Shares		Shares		Capital			Net Income (Loss)			Distributions			Total
Balance at December 31, 2019	8,240		$	82	$	88,869		$	1,937		$	(4,667	)	$	86,221		8,240		$	82	$	88,869		$	1,937		$	(4,667	)	$	86,221
Share grants	—		—		42			—			—			42			—		—		42			—			—			42
Share repurchases	(1	)	—		(2		)	—			—			(2		)	(1	)	—		(2		)	—			—			(2		)
Net income	—		—		—			1,666			—			1,666			—		—		—			1,666			—			1,666
Distributions	—		—		—			—			(1,895		)	(1,895		)	—		—		—			—			(1,895		)	(1,895		)
Balance at March 31, 2020	8,239		$	82	$	88,909		$	3,603		$	(6,562	)	$	86,032		8,239		82		88,909			3,603			(6,562		)	86,032
Share grants																	15		1		71			—			—			72
Share repurchases																	—		—		(1		)	—			—			(1		)
Net income																	—		—		—			2,362			—			2,362
Balance at June 30, 2020																	8,254		$	83	$	88,979		$	5,965		$	(6,562	)	$	88,465

Balance at December 31, 2018	3,179		$	32	$	62,540		$	(2,904	)	$	—		$	59,668		3,179		$	32	$	62,540		$	(2,904	)	$	—		$	59,668
Share grants	—		—		35			—			—			35			—		—		35			—			—			35
Net income	—		—		—			578			—			578			—		—		—			578			—			578
Distributions	—		—		—			—			(350		)	(350		)	—		—		—			—			(350		)	(350		)
Balance at March 31, 2019	3,179		$	32	$	62,575		$	(2,326	)	$	(350	)	$	59,931		3,179		32		62,575			(2,326		)	(350		)	59,931
Share grants																	15		—		185			—			—			185
Share repurchases																	(1	)	—		(6		)	—			—			(6		)
Net income																	—		—		—			894			—			894
Distributions																	—		—		—			—			(702		)	(702		)
Issuance of shares, net																	5,000		50		26,024			—			—			26,074
Balance at June 30, 2019																	8,193		$	82	$	88,778		$	(1,432	)	$	(1,052	)	$	86,376

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

TREMONT MORTGAGE TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(unaudited)


	Three Months Ended March 31,						Six Months Ended June 30,
	2020			2019			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,666		$	578		$	4,028		$	1,472
Adjustments to reconcile net income to net cash provided by operating activities:
Share based compensation	42			35			114			220
Amortization of deferred financing costs	119			100			241			225
Amortization of loan origination and exit fees	(462		)	(294		)	(950		)	(682		)
Changes in operating assets and liabilities:
Accrued interest receivable	(231		)	(339		)	(575		)	(525		)
Prepaid expenses and other assets	28			111			28			91
Accounts payable, accrued liabilities and deposits	(185		)	186			(234		)	150
Due to related persons	331			(126		)	279			(146		)
Net cash provided by operating activities	1,308			251			2,931			805

CASH FLOWS FROM INVESTING ACTIVITIES:
Origination of loans held for investment	(25,738		)	(44,105		)	(25,738		)	(119,062		)
Additional funding of loans held for investment	(3,176		)	(668		)	(9,067		)	(3,369		)
Net cash used in investing activities	(28,914		)	(44,773		)	(34,805		)	(122,431		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from master repurchase facility	30,806			31,866			35,602			92,983
Repayments under master repurchase facility							—			(11,900		)
Proceeds from RMR credit agreement							—			14,220
Repayment of RMR credit agreement							—			(14,220		)
Payments of deferred financing costs	(53		)	(1		)	(72		)	(341		)
Proceeds from issuance of common shares, net							—			26,074
Repurchase of common shares	(2		)	—			(3		)	(6		)
Distributions	(1,813		)	(350		)	(1,895		)	(1,052		)
Net cash provided by financing activities	28,938			31,515			33,632			105,758

Increase (decrease) in cash, cash equivalents and restricted cash	1,332			(13,007		)	1,758			(15,868		)
Cash, cash equivalents and restricted cash at beginning of period	8,875			27,335			8,875			27,335
Cash, cash equivalents and restricted cash at end of period	$	10,207		$	14,328		$	10,633		$	11,467

SUPPLEMENTAL DISCLOSURES:
Interest paid	$	1,660		$	1,336		$	2,941		$	3,149

SUPPLEMENTAL DISCLOSURE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

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


	As of March 31,				As of June 30,
	2020		2019		2020		2019
Cash and cash equivalents	$	10,204	$	13,899	$	10,632	$	11,467
Restricted cash	3		429		1		—
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows	$	10,207	$	14,328	$	10,633	$	11,467

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

Table of Contents

TREMONT MORTGAGE TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except per share data)

Note 1. Basis of Presentation

The accompanying condensed consolidated financial statements of Tremont Mortgage Trust and its consolidated subsidiaries are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2019, or our ~~2019~~ Annual Report.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the accompanying condensed consolidated financial statements include the fair value of financial instruments.

Note 2. Summary of Significant Accounting Policies

Consolidation. For each investment we make, we evaluate whether consolidation of the borrower's financial statements is required under GAAP. GAAP addresses the application of consolidation principles to an investor with a controlling financial interest. Variable interest entities, or VIEs, are subject to consolidation under GAAP if their equity investors do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties, are not able to direct the entity’s most significant activities or are not exposed to the entity’s losses or entitled to its residual returns. VIEs are required to be consolidated by their primary beneficiaries, which are the entities with the power to direct the activities which are most significant to the economic performance of the VIE. These determinations often involve complex and subjective analyses. As of ~~March 31,~~June 30, 2020, we concluded that our investments were not VIEs.

Cash, Cash Equivalents and Restricted Cash. We consider highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.

Restricted cash primarily consists of deposit proceeds from potential borrowers when originating loans, which may be returned to the applicable borrower upon the closing of the loan, after deducting any transaction costs paid by us for the benefit of such borrower.

Repurchase Agreements. Loans financed through repurchase agreements are treated as collateralized financing transactions, unless they meet sales treatment under GAAP. Pursuant to GAAP treatment of collateralized financing transactions, loans financed through repurchase agreements remain on our consolidated balance sheet as assets, and cash received from the purchasers is recorded on our consolidated balance sheet as liabilities. Interest paid in accordance with repurchase agreements is recorded as interest expense.

Loans Held for Investment. Generally, our loans are classified as held for investment based upon our intent and ability to hold them until maturity. Loans that are held for investment are carried at cost, net of unamortized loan origination and accreted exit fees that are required to be recognized in the carrying value of the loans in accordance with GAAP, unless the loans are deemed to be impaired. Loans that we have a plan to sell or liquidate are held at the lower of cost or fair value less cost to sell.

We evaluate each of our loans for impairment at least quarterly by assessing a variety of risk factors in relation to each loan and assigning a risk rating to each loan based on those factors. Factors considered in these evaluations include, but are not limited to, property type, geographic and local market dynamics, physical condition, leasing and tenant profile, projected cash flow, risk of loss, current loan to value ratio, or LTV, debt yield, collateral performance, structure, exit plan and sponsorship. Loans are rated “1” (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

TREMONT MORTGAGE TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

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; and/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; and/or the property having a very high LTV.

See Note 4 for further 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~~estimated fair value of ~~any available~~the underlying collateral, net of any costs we expect to incur to realize that value. The determination of ~~whether loans are impaired~~this estimated fair value involves judgments and assumptions based on objective and subjective factors. Consideration will be given to various factors, such as business plans, property occupancies, tenant profiles, rental rates, operating expenses and borrowers’ repayment plans, among others, and will require significant judgments ~~including assumptions~~ regarding ~~the values of loans, the values of underlying collateral and other~~certain circumstances, such as guarantees, if any. Upon measurement of an impairment, we will record an allowance to reduce the carrying value of the loan accordingly, and record a corresponding charge to net income in our condensed consolidated statements of operations.

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

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

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

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

TREMONT MORTGAGE TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

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

Deferred Financing Costs. Costs incurred in connection with financings are capitalized and recorded as an offset to the related liability and amortized over the respective financing terms and are recorded in our consolidated statements of operations as a component of interest and related expenses. At ~~March 31,~~June 30, 2020, we had approximately ~~$778~~$673 of capitalized financing costs, net of amortization.

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

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

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

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

Note 3. Recent Accounting Pronouncements

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

Note 4. Loans Held for Investment

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

TREMONT MORTGAGE TRUST

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

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


	Balance at March 31, 2020			Balance at December 31, 2019			Balance at June 30, 2020			Balance at December 31, 2019
Number of loans	14			12			14			12
Total loan commitments	$	296,987		$	260,167		$	296,050		$	260,167
Unfunded loan commitments ⁽¹⁾	$	24,753		$	17,268		$	17,566		$	17,268
Principal balance	$	272,234		$	242,899		$	278,484		$	242,899
Unamortized net deferred origination fees	$	(747	)	$	(821	)	$	(259	)	$	(821	)
Carrying value	$	271,487		$	242,078		$	278,225		$	242,078
Weighted average coupon rate	5.70		%	5.76		%	5.70		%	5.76		%
Weighted average all in yield ⁽²⁾	6.40		%	6.41		%	6.39		%	6.41		%
Weighted average maximum maturity (years)⁽³⁾	3.4			3.6			3.1			3.6
Weighted average LTV(4)	68		%	70		%	68		%	70		%


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


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


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


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

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


	Principal Balance		Deferred Fees			Carrying Value		Principal Balance		Deferred Fees			Carrying Value
Balance at December 31, 2019	$	242,899	$	(821	)	$	242,078
Balance at March 31, 2020								$	272,234	$	(747	)	$	271,487
Additional funding	3,209		—			3,209		6,250		—			6,250
Originations	26,126		(388		)	25,738
Net amortization of deferred fees	—		462			462		—		488			488
Balance at March 31, 2020	$	272,234	$	(747	)	$	271,487
Balance at June 30, 2020								$	278,484	$	(259	)	$	278,225

The ~~tables~~table below ~~detail~~details our loan activities during the ~~property type and geographic distribution of the properties securing the loans in our portfolio as of March 31, 2020 and December 31, 2019:~~six months ended June 30, 2020:

March 31, 2020 December 31, 2019
Property Type Number of Loans Carrying Value Percentage of Value Number of Loans Carrying Value Percentage of Value
Office 5
$ 84,986
31 % 4
$ 71,446
30 %
Hotel 1
23,817
9 % 1
23,101
10 %
Retail 3
44,827
17 % 3
43,782
18 %
Multifamily 3
69,043
25 % 3
68,911
28 %
Industrial 2
48,814
18 % 1
34,838
14 %

14
$ 271,487
100 % 12
$ 242,078
100 %



	Principal Balance		Deferred Fees			Carrying Value
Balance at December 31, 2019	$	242,899	$	(821	)	$	242,078
Additional funding	9,459		—			9,459
Originations	26,126		(388		)	25,738
Net amortization of deferred fees	—		950			950
Balance at June 30, 2020	$	278,484	$	(259	)	$	278,225

March 31, 2020 December 31, 2019
Geographic Location Number of Loans Carrying Value Percentage of Value Number of Loans Carrying Value Percentage of Value
East 5
$ 104,123
37 % 4
$ 90,047
37 %
South 5
104,598
39 % 5
103,295
43 %
West 1
9,751
4 % 1
9,014
4 %
Midwest 3
53,015
20 % 2
39,722
16 %

14
$ 271,487
100 % 12
$ 242,078
100 %
9

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

The tables below detail the property type and geographic location of the properties securing the loans in our portfolio as of June 30, 2020 and December 31, 2019:



	June 30, 2020					December 31, 2019
Property Type	Number of Loans	Carrying Value		Percentage of Value		Number of Loans	Carrying Value		Percentage of Value
Office	5	$	90,427	32	%	4	$	71,446	30	%
Hotel	1	23,848		9	%	1	23,101		10	%
Retail	3	45,676		16	%	3	43,782		18	%
Multifamily	3	69,391		25	%	3	68,911		28	%
Industrial	2	48,883		18	%	1	34,838		14	%
	14	$	278,225	100	%	12	$	242,078	100	%



	June 30, 2020					December 31, 2019
Geographic Location	Number of Loans	Carrying Value		Percentage of Value		Number of Loans	Carrying Value		Percentage of Value
East	5	$	104,461	37	%	4	$	90,047	37	%
South	5	105,385		38	%	5	103,295		43	%
West	1	10,503		4	%	1	9,014		4	%
Midwest	3	57,876		21	%	2	39,722		16	%
	14	$	278,225	100	%	12	$	242,078	100	%

Loan Risk Ratings

As 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. The following table allocates the carrying value of our loan portfolio at ~~March~~June 30, 2020 and December 31, ~~2020~~2019 based on our internal risk rating policy:


				June 30, 2020			December 31, 2019
Risk Rating	Number of Loans	Carrying Value		Number of Loans	Carrying Value		Number of Loans	Carrying Value
1	—	$	—	—	$	—	—	$	—
2	1	24,505		1	24,547		1	24,462
3	7	132,633		7	137,789		11	217,616
4	6	114,349		6	115,889		—	—
5	—	—		—	—		—	—
	14	$	271,487	14	$	278,225	12	$	242,078

The weighted average risk rating of our loans by carrying value was ~~3.3~~3.5 and 2.9 as of ~~March 31,~~June 30, 2020 and December 31, 2019, respectively. The ~~impact from the~~ COVID-19 pandemic has negatively impacted some of our borrowers’ business operations or tenants, particularly in the cases of our retail and hospitality ~~and office property~~ collateral, ~~with exposure to the oil and gas industries,~~ which are the types of properties that have been ~~highly~~significantly negatively impacted by the pandemic. We expect that those negative impacts may continue and may apply to other borrowers ~~and~~and/or their tenants. Therefore, certain of our borrowers’ business plans will likely take longer to execute than initially expected and certain of our borrowers may be unable to pay their debt service obligations owed and due to us as currently ~~scheduled.~~scheduled or at all. As a result, at June 30, 2020, we ~~have downgraded~~had 6 loans representing 42% of the carrying value of our loan portfolio towith a loan risk rating of “4” or “higher ~~risk”.~~

risk." These six loans were downgraded from a risk rating of "3" or "acceptable risk" during the three months ended March 31, 2020, and we did not downgrade any loans during the three months ended June 30, 2020. We did not have any impaired loans or nonaccrual loans as of ~~March 31,~~June 30, 2020 or December 31, 2019. ~~However, subsequent to March 31,~~

As of August 3, 2020, ~~a borrower under one~~all of our ~~loans secured by a retail property that~~borrowers had ~~been downgraded to "4" or "higher risk", as noted above, requested relief from its~~paid all of their debt service ~~obligation~~obligations owed and due to us and ~~failed to make its April 2020 debt servicing obligation, resulting~~none of the loans included in ~~a default under the loan agreement. See Note 13 for further information regarding these requests.~~our investment portfolio were in default.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 5. Debt Agreements

The table below is an overview of our debt agreements that provided financing for our loans held for investment:


	Debt Obligation												Debt Obligation
							Weighted Average		Collateral										Weighted Average		Collateral
	Maximum Facility Size		Principal Balance		Carrying Value		Coupon Rate	Remaining Maturity⁽¹⁾(years)	Principal Balance		Fair Value⁽²⁾		Maximum Facility Size		Principal Balance		Carrying Value		Coupon Rate	Remaining Maturity⁽¹⁾(years)	Principal Balance		Fair Value⁽²⁾
March 31, 2020:
June 30, 2020:
Master repurchase facility	$	213,482	$	196,344	$	195,566	L + 2.00%	1.4	$	272,234	$	268,450	$	213,482	$	201,138	$	200,465	L + 2.00%	1.1	$	278,484	$	273,860

December 31, 2019:
Master repurchase facility	$	213,482	$	165,536	$	164,694	L + 1.99%	1.6	$	242,899	$	242,763	$	213,482	$	165,536	$	164,694	L + 1.99%	1.6	$	242,899	$	242,763


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


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

Under the agreements that govern our Master Repurchase Facility, or collectively, as amended, our Master Repurchase Agreement, the initial purchase price paid by Citibank for each purchased asset is up to 75% of the lesser of the market value of the purchased asset or the unpaid principal balance of such purchased asset, subject to Citibank’s approval. Upon the repurchase of a purchased asset, we are required to pay Citibank the outstanding purchase price of the purchased asset, accrued interest and all accrued and unpaid expenses of Citibank relating to such purchased asset. The price differential (or interest rate) relating to a purchased asset is equal to LIBOR plus a premium of 200 to 250 basis points, determined by the yield of the purchased asset and the property type of the purchased asset’s real estate collateral. Citibank has the discretion under our Master Repurchase Agreement to make advancements at margins higher than 75% and at premiums of less than 200 basis points. The weighted average interest rate for advancements under our Master Repurchase Facility was ~~3.50%~~2.47% and ~~4.47%~~4.49% for the three months ended

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~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~(dollars in thousands, except per share data)~~

~~March 31,~~ June 30, 2020 and 2019, respectively, and 2.97% and 4.52% for the six months ended June 30, 2020 and 2019, respectively. For the three months ended ~~March 31,~~June 30, 2020 and 2019, we recorded interest expense of ~~$1,638~~$1,245 and ~~$1,084,~~$1,479, respectively, and $2,883 and $2,563 for the six months ended June 30, 2020 and 2019, 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 guarantee 25% of our subsidiary's prompt and complete payment of the purchase price, purchase price differential and any costs and expenses of Citibank related to our Master Repurchase Agreement. The Guaranty also requires us to comply with customary financial covenants, which include the maintenance of a minimum tangible net worth, minimum cash liquidity, a total indebtedness to tangible net worth ratio and a minimum interest coverage ratio. These maintenance provisions provide Citibank with the right, in certain circumstances related to a credit event, as defined in our Master Repurchase Agreement, to re-determine the value of purchased assets. Where a decline in the value of purchased assets has resulted in a margin deficit, Citibank may require us to eliminate such margin deficit through a combination of purchased asset repurchases and cash transfers to Citibank, subject to Citibank's approval. As of ~~March 31,~~June 30, 2020, we have not received a margin call under our Master Repurchase ~~agreement.~~Agreement.

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 ~~March 31,~~June 30, 2020, we were in compliance with all of the covenants and other terms under our Master Repurchase Agreement and the Guaranty.

From July 2018 until August 2019, we were a party to a term loan facility, in the form of a note payable, with Texas Capital Bank, National Association, or the TCB note payable. Following our repayment of the $31,790 then outstanding principal and accrued interest under the TCB note payable, the TCB note payable terminated in accordance with its terms. We recorded $368 and $736 of interest expense for the three and six months ended ~~March 31,~~June 30, 2019, respectively, in connection with the TCB note payable.

From February 2019 until May 2019, we were a party to a credit agreement with our Manager as lender, or the RMR Credit Agreement. Following our repayment of the $14,220 balance then outstanding under the RMR Credit Agreement, the

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

RMR Credit Agreement was terminated. We recorded $39 of interest expense for both the three and six months ended June 30, 2019, in connection with the RMR Credit Agreement.

At ~~March 31,~~June 30, 2020, our outstanding advancements under our Master Repurchase Facility had the following remaining maturities:


Year	Principal Payments ⁽¹⁾		Principal Payments ⁽¹⁾
2020	$	28,910	$	29,680
2021	167,434		171,458
2022	—		—
2023	—		—
2024	—		—
	$	196,344	$	201,138


(1)	The allocation of our outstanding advancements under our Master Repurchase Facility is based on the current maturity date of each loan investment with respect to which the individual borrowing ~~relates.~~relates assuming no borrower loan extension options have been exercised.

Note 6. Fair Value of Financial Instruments

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

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

We estimate the fair values of our loans held for investment and outstanding principal balances under our Master Repurchase Facility by using Level III inputs, including discounted cash flow analyses and currently prevailing market terms as of the measurement date, determined by significant unobservable market inputs, which include holding periods, discount rates based on LTV, property types and loan pricing expectations which are

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~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~(dollars in thousands, except per share data)~~

corroborated by a comparison with other market participants to determine the appropriate market spread to add to the one month LIBOR (Level III inputs as defined in the fair value hierarchy under GAAP).

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


	March 31, 2020				December 31, 2019				June 30, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets
Loans held for investment	$	271,487	$	268,450	$	242,078	$	242,763	$	278,225	$	273,860	$	242,078	$	242,763
Financial liabilities
Master repurchase facility	$	195,566	$	196,344	$	164,694	$	165,536
Master Repurchase Facility									$	200,465	$	197,102	$	164,694	$	165,536

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

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Note 7. Shareholders' Equity

Common Share Issuances and Repurchases

On January 9, 2020, we purchased an aggregate of 384 of our common shares, valued at $5.33 per common share, the closing price of our common shares on The Nasdaq Stock Market LLC, or Nasdaq, on that day, from former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

On May 13, 2020, in accordance with our Trustee compensation arrangements, we awarded to each of our five Trustees 3,000 of our common shares, valued at $1.92 per common share, the closing price of our common shares on Nasdaq that day.

On June 30, 2020, we purchased 390 of our common shares, valued at $3.08 per common share, the closing price of our common shares on Nasdaq on that day, from a former officer of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

Distributions

During the ~~three~~six months ended ~~March 31,~~June 30, 2020, we declared and paid a quarterly distribution to common shareholders as follows:


Record Date	Payment Date	Distribution Per Share	Total Distribution	Payment Date	Distribution Per Share		Total Distribution
January 27, 2020	February 20, 2020	$0.22	$1,813	February 20, 2020	$	0.22	$	1,813
April 10, 2020				May 21, 2020	0.01		82
					$	0.23	$	1,895

On ~~March 31,~~July 16, 2020, we declared a quarterly distribution of $0.01 per common share for the second quarter of 2020, or approximately ~~$82,~~$83, to shareholders of record on ~~April 10,~~July 27, 2020. We expect to pay this distribution on or about ~~May 21,~~August 20, 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.

We did not recognize any base management or incentive fees for the three or six months ended ~~March 31,~~June 30, 2020 or 2019. Our Manager has waived any base management or incentive fees otherwise due and payable by us under our management agreement for and through the ~~period~~periods ending ~~June 30,~~December 31, 2020. If our Manager had not waived these base management and incentive fees, we would have recognized ~~$320~~$323 and ~~$223~~$267 of base management fees for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively, $643 and $490 of base management fees for the six months ended June 30, 2020 and 2019, respectively, and no$36 of incentive fees for the three and six months ended June 30, 2020. NaN incentive fees would have been paid or payable for either of the three or six months ended ~~March 31, 2020 and~~June 30, 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 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. These reimbursements include an allocation of the cost of personnel employed by RMR LLC and our share of RMR LLC’s costs for providing our internal audit function. These shared services costs are subject to approval by

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~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~(dollars in thousands, except per share data)~~

a majority of our Independent Trustees at least annually. We incurred shared services costs of ~~$359~~$280 and ~~$402~~$409 payable to our Manager for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively, and $638 and $811 for the six months ended June 30, 2020 and 2019, respectively. We include these amounts in reimbursement of shared services expenses or general and administrative expenses, as applicable, in our condensed consolidated statements of operations.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

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 or officers who are also our Trustees or officers. Our Manager is a subsidiary of RMR LLC, which is a majority owned subsidiary of RMR Inc., and RMR Inc. is the managing member of RMR LLC. RMR LLC provides certain shared services to our Manager 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.

Our Manager, Tremont Realty Advisors LLC. We have a management agreement with our Manager to provide management services to us. See Note 8 for further information regarding our management agreement with our Manager.

~~We were formerly a 100% owned subsidiary of our Manager.~~ Our Manager is our largest shareholder and, as of ~~March 31,~~June 30, 2020, owned 1,600,100 of our common shares or approximately 19.4% of our outstanding common shares.

Until May 23, 2019, we were a party to ~~a credit agreement with our Manager 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 ~~2019~~ 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.

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~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~(dollars in thousands, except per share data)~~

Note 11. Weighted Average Common Shares

We calculate basic EPS by dividing net income by the weighted average number of common shares outstanding during the relevant period. We calculate diluted EPS using the more dilutive of the two class method or the treasury stock method. Unvested share awards and other potentially dilutive common share issuances, and the related impact on earnings, are considered when calculating diluted ~~EPS. The table below provides a reconciliation of~~earnings per share. For the ~~weighted average number of~~three months ended June 30, 2020 and 2019, 105,126 and 12,351 unvested common shares, ~~used in~~respectively, and for the six months ended June 30, 2020 and 2019, 63,739 and 3,051 unvested common shares, respectively, were excluded from the calculation of ~~basic and~~ diluted ~~EPS (amounts in thousands):~~earnings per share because to do so would have been antidilutive.

For the Three Months Ended March 31,
2020 2019
Weighted average common shares for basic earnings per share 8,169
3,136
Effect of dilutive securities: unvested share awards ⁽¹⁾
—
6
Weighted average common shares for diluted earnings per share 8,169
3,142


~~(1)~~	~~For the three months ended March 31, 2020, 22 unvested common shares were not included in the calculation of diluted EPS because to do so would have been antidilutive.~~

Note 12. Commitments and Contingencies

Unfunded Loan Commitments

As of ~~March 31,~~June 30, 2020, we had unfunded commitments of ~~$24,753~~$17,566 related to our loans held for ~~investment. These commitments~~investment that are not reflected in our condensed consolidated balance sheets. ~~Loans held for investment related to our~~These unfunded commitments had a weighted average initial maturity of ~~1.7 years.~~1.5 years as of June 30, 2020. See Note 4 for further information related to our loans held for investment.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(dollars in thousands, except per share data)

Secured Borrowings

As of ~~March 31,~~June 30, 2020, we had an aggregate of ~~$196,344~~$201,138 in principal amount outstanding under our Master Repurchase Facility with a weighted average life to maturity of ~~1.4~~1.1 years. See Note 5 for further information regarding our secured debt agreements.

Note 13. Subsequent Events

~~The~~In July 2020, the borrower under our loan related to a property located in Coppell, TX ~~requested relief from its~~sold a parcel of land that was a part of the property securing the loan. The borrower used $2,089 of the sale proceeds to repay part of the outstanding balance under the loan and we allowed the borrower to use the remaining $100 of sale proceeds to increase the reserve for future debt service obligation payments owed to us ~~and failed to make its April 2020 debt service payment by the scheduled due date, resulting in a default~~ under the ~~loan agreement. This full recourse loan has an outstanding principal balance~~loan. We used $1,358 of ~~$22,204, which accounts for approximately 8.2%~~these repayment proceeds to repay a part of the ~~aggregate~~ outstanding ~~principal~~ balance ofunder our loan portfolio. In response to this default, we implemented a cash flow sweep on this borrower's accounts and the loan agreement was modified to increase the interest reserve balance that may be used to make interest payments, if needed, and to waive the default. Before this loan modification and related waiver of default become effective, the borrower is required to pay us rent it collected for April 2020 to fulfill a portion of its debt service obligation. As of May 1, 2020, the borrower has not yet fulfilled this obligation. We have not recorded an allowance for loan loss with respect to this investment because we believe it is probable that we will ultimately collect all outstanding loan amounts due under this loan. As of May 1, 2020, all of our other borrowers have paid all of their debt service obligations owed to us and none of the other loans included in our investment portfolio are in default.Master Repurchase Facility.

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

The following discussion should be read in conjunction with our condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q and in our ~~2019~~ Annual Report.

OVERVIEW (dollars in thousands, except share data)

We are a REIT that was organized under Maryland law in 2017. Our business strategy is focused on originating and investing in first mortgage whole loans secured by middle market and transitional CRE. We define middle market CRE as commercial properties that have values up to $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.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, the United States declared a national emergency concerning this pandemic, and several states and municipalities have declared public health emergencies. The COVID-19 pandemic and various governmental and market responses intended to contain and mitigate the spread of the virus and its detrimental public health impact have severely negatively impacted the global economy, including the U.S. economy. As a result, most market observers believe the global economy is currently in the midst of a recession. ~~These~~States and municipalities across the United States have been allowing certain businesses to re-open and easing certain restrictions they had previously implemented in response to the COVID-19 pandemic, often in stages that are phased in over time. Recently, economic data have indicated that the U.S. economy has improved since the lowest periods experienced in March and April 2020. However, certain areas of the United States have experienced increased numbers of COVID-19 infections following the re-openings of their economies and easing of restrictions and, in some cases, certain states have imposed or re-imposed closings of certain business activities and other restrictions in response. It is unclear whether the increases in the number of COVID-19 infections will continue and/or amplify or whether any “second wave” of COVID-19 infection outbreaks will occur in the United States or elsewhere and, if so, what the impact of that would be on human health and safety, the economy or our business.

The current economic conditions ~~have~~are adversely ~~impacted~~impacting some of our borrowers’ tenants, which in turn, has ~~adversely~~negatively impacted our borrowers’ businesses and liquidity and their ability to pay interest owed under our loans. See elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations for further information about the impact these conditions have had on our borrowers, our loans and Master Repurchase Agreement, as well as on the broader market conditions, including for the CRE lending industry, and certain actions we have taken in response.

We and our Manager are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including:

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

our operations, liquidity and capital needs and resources,

conducting financial modeling and sensitivity analysis,

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

monitoring, with the assistance of counsel and other specialists, possible government relief funding sources and other programs that may be available to us or our borrowers to enable us and them to operate through the current economic conditions and enhance their ability to fund their debt service obligations owed and due to us.

In order to preserve ~~cash,~~our near term capital due to the economic downturn and uncertainty as to future economic conditions as a result of the COVID-19 pandemic, beginning with the first quarter of 2020, we ~~announced on March 30, 2020 that we had~~ reduced ~~the rate of~~ our quarterly ~~distributions~~distribution rate payable to our common shareholders to $0.01 per ~~share.~~share and on July 16, 2020, declared a quarterly distribution payable to our common shareholders of $0.01 per share for the second quarter of 2020. In addition, our Manager extended its waiver of the management and incentive fees under our management agreement, which waiver was set to expire June 30, 2020, for and through the periods ending December 31, 2020.

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

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

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

the duration and severity of the ~~current~~negative economic ~~downturn;~~impact;

the strength and sustainability of any economic recovery;

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

whether, following a recommencing of more normal ~~level~~levels of economic activities, the United States or other countries experience any “second ~~waves”~~wave” of COVID-19 infection outbreaks and, if so, the responses of governments, businesses and the general public to those events.

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

Book Value per Common Share

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


	March 31, 2020		December 31, 2019		June 30, 2020		December 31, 2019
Shareholders' equity	$	86,032	$	86,221	$	88,465	$	86,221
Total outstanding common shares	8,239		8,240		8,254		8,240
Book value per common share	$	10.44	$	10.46	$	10.72	$	10.46

Our Loan Portfolio

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


	Balance at March 31, 2020			Balance at December 31, 2019			Balance at June 30, 2020			Balance at December 31, 2019
Number of loans	14			12			14			12
Total loan commitments	$	296,987		$	260,167		$	296,050		$	260,167
Unfunded loan commitments ⁽¹⁾	$	24,753		$	17,268		$	17,566		$	17,268
Principal balance	$	272,234		$	242,899		$	278,484		$	242,899
Unamortized net deferred origination fees	$	(747	)	$	(821	)	$	(259	)	$	(821	)
Carrying value	$	271,487		$	242,078		$	278,225		$	242,078
Weighted average coupon rate	5.70		%	5.76		%	5.70		%	5.76		%
Weighted average all in yield ⁽²⁾	6.40		%	6.41		%	6.39		%	6.41		%
Weighted average maximum maturity (years)⁽³⁾	3.4			3.6			3.1			3.6
Weighted average LTV(4)	68		%	70		%	68		%	70		%


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


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


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


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

Loan Portfolio Details

The table below details our loan portfolio as of ~~March 31,~~June 30, 2020:


Location		Property Type	Origination Date	Committed Principal Amount		Principal Balance		Coupon Rate	All in Yield ⁽¹⁾	Maximum Maturity⁽²⁾(date)	LTV⁽³⁾	Risk Rating		Property Type	Origination Date	Committed Principal Amount		Principal Balance		Coupon Rate	All in Yield ⁽¹⁾	Maximum Maturity⁽²⁾(date)	LTV⁽³⁾	Risk Rating
First mortgage whole loans	First mortgage whole loans												First mortgage whole loans
Coppell, TX		Retail	02/05/2019	$	22,915	$	22,204	L + 3.50%	L + 4.25%	02/05/2021	73%	4		Retail	02/05/2019	$	22,915	$	22,204	L + 3.50%	L + 4.25%	02/05/2021	73%	4
Houston, TX		Multifamily	05/10/2019	28,000		27,475		L + 3.50%	L + 4.37%	11/10/2022	56%	4		Multifamily	05/10/2019	28,000		27,695		L + 3.50%	L + 4.37%	11/10/2022	56%	4
Paradise Valley, AZ(4)		Retail	11/30/2018	12,790		9,724		L + 4.25%	L + 5.76%	11/30/2022	48%	4		Retail	11/30/2018	11,853		10,441		L + 4.25%	L + 5.72%	11/30/2022	48%	4
Dublin, OH		Office	02/18/2020	22,820		12,947		L + 3.75%	L + 5.55%	02/18/2023	33%	3		Office	02/18/2020	22,820		17,534		L + 3.75%	L + 5.08%	02/18/2023	33%	3
Metairie, LA		Office	04/11/2018	18,102		17,030		L + 5.00%	L + 5.65%	04/11/2023	79%	4		Office	04/11/2018	18,102		17,115		L + 5.00%	L + 5.65%	04/11/2023	79%	4
Barrington, NJ		Industrial	05/06/2019	37,600		34,962		L + 3.50%	L + 4.05%	05/06/2023	79%	3		Industrial	05/06/2019	37,600		34,962		L + 3.50%	L + 4.05%	05/06/2023	79%	3
Houston, TX		Office	06/26/2018	15,200		13,901		L + 4.00%	L + 4.60%	06/26/2023	69%	4		Office	06/26/2018	15,200		14,199		L + 4.00%	L + 4.60%	06/26/2023	69%	4
St. Louis, MO		Office	12/19/2018	29,500		27,477		L + 3.25%	L + 3.75%	12/19/2023	72%	3		Office	12/19/2018	29,500		27,611		L + 3.25%	L + 3.75%	12/19/2023	72%	3
Atlanta, GA		Hotel	12/21/2018	24,000		23,904		L + 3.25%	L + 3.72%	12/21/2023	62%	4		Hotel	12/21/2018	24,000		23,904		L + 3.25%	L + 3.72%	12/21/2023	62%	4
Rochester, NY		Multifamily	01/22/2019	24,550		24,550		L + 3.25%	L + 3.86%	01/22/2024	74%	2		Multifamily	01/22/2019	24,550		24,550		L + 3.25%	L + 3.86%	01/22/2024	74%	2
Omaha, NE		Retail	06/14/2019	14,500		13,015		L + 3.65%	L + 4.05%	06/14/2024	77%	3		Retail	06/14/2019	14,500		13,054		L + 3.65%	L + 4.05%	06/14/2024	77%	3
Yardley, PA		Office	12/19/2019	14,900		14,008		L + 3.75%	L + 4.48%	12/19/2024	75%	3		Office	12/19/2019	14,900		14,178		L + 3.75%	L + 4.47%	12/19/2024	75%	3
Orono, ME		Multifamily	12/20/2019	18,110		17,037		L + 3.25%	L + 3.89%	12/20/2024	72%	3		Multifamily	12/20/2019	18,110		17,037		L + 3.25%	L + 3.89%	12/20/2024	72%	3
Allentown, PA		Industrial	01/24/2020	14,000		14,000		L + 3.50%	L + 4.02%	01/24/2025	67%	3		Industrial	01/24/2020	14,000		14,000		L + 3.50%	L + 4.02%	01/24/2025	67%	3
Total/weighted average	Total/weighted average			$	296,987	$	272,234	L + 3.59%	L + 4.29%		68%	3.3	Total/weighted average			$	296,050	$	278,484	L + 3.60%	L + 4.29%		68%	3.5


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


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


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


(4)	The borrower under this loan exercised its option to reduce the unfunded loan commitment allowance by $937, pursuant to the terms of the loan agreement.

As of ~~March 31,~~June 30, 2020, we had ~~$296,987~~$296,050 in aggregate loan commitments, consisting of a diverse portfolio, geographically and by property type, of 14 first mortgage whole loans. The impact from the COVID-19 pandemic has negatively impacted some of our borrowers’ business operations or tenants, particularly in the ~~case~~cases of our retail and hospitality ~~and office property~~ collateral, ~~with exposure to the oil and gas industries,~~ which are the types of properties that have been ~~highly~~significantly negatively impacted by the pandemic. We expect that those negative impacts may continue and may apply to other borrowers ~~and~~and/or their tenants. Therefore, certain of our borrowers’ business plans will likely take longer to execute than initially expected and certain of our borrowers may be unable

to pay their debt service obligation owed and due to us as currently scheduled. As a result, at June 30, 2020, we ~~have downgraded~~had six loans representing 42% of the carrying value of our loan portfolio to a loan risk rating of “4” or “higher risk”. These six loans were downgraded from a risk rating of "3" or "acceptable risk" during the three months ended March 31, 2020 and we did not downgrade any loans during the three months ended June 30, 2020.

All of the loans in our portfolio are structured with risk mitigation mechanisms, such as cash flow sweeps or interest reserves,

to help protect us against investment losses. In addition, we ~~are~~continue to actively ~~engaging~~engage with ~~each~~our borrowers regarding their execution of the business plan for the underlying collateral, among other things.

As of August 3, 2020, all of our borrowers ~~to assess performance~~had paid all of their ~~business plans with respect~~debt service obligations owed and due to ~~underlying assets, among other things.~~us and none of the loans included in our investment portfolio were in default.

We did not have any impaired loans, or non-accrual loans or loans in default as of ~~March 31,~~June 30, 2020; thus, we did not record a reserve for loan loss as of that date. For further information regarding our risk rating policy, see Notes 2 and 4 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. However, depending on the duration and severity of the COVID-19 pandemic and the current economic downturn, our borrowers' businesses, operations and liquidity may be materially adversely impacted. As a result, they may become unable to pay their debt service obligations owed and due to us, which may result in the impairment of those loans, and ~~the~~our recording loan loss reserves with respect to those loans and recording of any income ~~from~~with respect to those loans on a nonaccrual basis. For further information regarding the risks associated with our loan portfolio, see the risk factors identified in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form ~~10-Q.~~10-Q and the risk factors identified in Part I, Item IA, "Risk Factors" of our Annual Report.

Financing Activities

The table below is an overview of our ~~debt agreements that~~Master Repurchase Facility, which provided financing for our loans held for investment, as of ~~March 31,~~June 30, 2020 and December 31, 2019:


	Initial Maturity Date	Principal Balance		Unused Capacity		Maximum Facility Size		Collateral Principal Balance		Initial Maturity Date	Principal Balance		Unused Capacity		Maximum Facility Size		Collateral Principal Balance
March 31, 2020:
June 30, 2020:
Master repurchase facility	11/06/2021	$	196,344	$	17,138	$	213,482	$	272,234	11/06/2021	$	201,138	$	12,344	$	213,482	$	278,484
December 31, 2019:
Master repurchase facility	11/06/2021	$	165,536	$	47,946	$	213,482	$	242,899	11/06/2021	$	165,536	$	47,946	$	213,482	$	242,899

The table below details our Master Repurchase Facility activities during the three months ended ~~March 31,~~June 30, 2020:


	Total			Total
Balance at December 31, 2019	$	164,694
Balance at March 31, 2020				$	195,566
Advancements	30,806			4,796
Repayments	—
Deferred Fees	(53		)	(19		)
Amortization of Deferred Fees	119			122
Balance at March 31, 2020	$	195,566
Balance at June 30, 2020				$	200,465

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



	Total
Balance at December 31, 2019	164,694
Advancements	35,602
Deferred Fees	(72		)
Amortization of Deferred Fees	241
Balance at June 30, 2020	$	200,465

As of ~~March 31,~~June 30, 2020, outstanding advancements under our Master Repurchase Facility had a weighted average interest rate of LIBOR plus 200 basis points per annum, excluding associated fees and expenses. For further information regarding our Master Repurchase Agreement, see Note 5 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

As of ~~March 31,~~June 30, 2020, we had a ~~$196,344~~$201,138 aggregate outstanding principal balance under our Master Repurchase Agreement. In light of the impact of the COVID-19 pandemic, we ~~are~~continue to actively ~~engaging~~engage with Citibank regarding our liquidity

position and the status of the loans in our portfolio ~~which~~that are financed under our Master Repurchase ~~Agreement.~~Facility. Our Master Repurchase Agreement is structured with risk mitigation mechanisms, including a cash flow sweep, which would allow Citibank to control interest payments from our borrowers under our loans ~~which~~that are financed under our Master Repurchase ~~Agreement,~~Facility, and the ability to accelerate dates of repurchase and institute margin calls, which may require us to pay down balances associated with one or more of our loans ~~which~~that are financed under our Master Repurchase ~~Agreement.~~Facility. As of ~~May 1,~~August 3, 2020, we believe we were in compliance with all the covenants and other terms under our Master Repurchase Agreement and, to date, Citibank has not utilized any such risk mitigation mechanisms under our Master Repurchase Agreement.

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

~~As of February 18, 2020, we closed two additional loans and we~~We have fully committed the capital available to us. Our ability to obtain additional financing advancements under our Master Repurchase Facility is contingent upon our making additional advancements to our existing borrowers or our ability to effectively reinvest any additional capital, including any loan repayment proceeds, that we may obtain or receive. However, we cannot be sure that we will be able to obtain additional capital or additional financing advancements under our Master Repurchase Facility. It may take an extended period for us to reinvest any additional capital we may receive, and any reinvestments we may be able to make may not provide us with similar returns or comparable risks as those of our current investments. See “—Factors Affecting Operating Results—Market Conditions” below for information regarding the impact of the current market conditions on the access of capital for CRE lenders such as us.

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

Three Months Ended ~~March 31,~~June 30, 2020 Compared to Three Months Ended ~~March 31,~~June 30, 2019:


	Three Months Ended March 31,											Three Months Ended June 30,
	2020			2019			Change			% Change		2020			2019			Change			% Change
INCOME FROM INVESTMENTS:
Interest income from investments	$	4,284		$	3,000		$	1,284		43	%	$	4,496		$	3,913		$	583		15	%
Less: interest and related expenses	(1,757		)	(1,549		)	(208		)	13	%	(1,368		)	(2,031		)	663			(33	%)
Income from investments, net	2,527			1,451			1,076			74	%	3,128			1,882			1,246			66	%

OTHER EXPENSES:
General and administrative expenses	540			503			37			7	%	524			618			(94		)	(15	%)
Reimbursement of shared services expenses	321			370			(49		)	(13	%)	242			370			(128		)	(35	%)
Total expenses⁽¹⁾	861			873			(12		)	(1	%)	766			988			(222		)	(22	%)

Net income	$	1,666		$	578		$	1,088		188	%	$	2,362		$	894		$	1,468		164	%

Weighted average common shares outstanding - basic	8,169			3,136			5,033			160	%
Weighted average common shares outstanding - diluted	8,169			3,142			5,027			160	%
Weighted average common shares outstanding - basic and diluted												8,177			5,401			2,776			51	%

Net income per common share - basic and diluted	$	0.20		$	0.18		$	0.02		11	%	$	0.29		$	0.16		$	0.13		81	%

(1)

Our Manager has waived any base management or incentive fees otherwise due and payable by us under our management agreement through the period ending ~~June 30,~~December 31, 2020. If our Manager had not waived these base management and incentive fees, we would have recognized ~~$320~~$323 and ~~$223~~$267 of base management fees for the three months ended ~~March 31,~~June 30, 2020 and 2019, respectively, and no$36 of incentive fees for the three months ended June 30, 2020. No incentive fees would have been paid or payable for ~~either of~~ the three months ended ~~March 31, 2020 and~~June 30, 2019.

Interest income from investments. The increase in interest income from investments ~~of $4,284~~ for the 2020 period reflects interest earned on the 14 loans included in our loan portfolio at ~~March 31, 2020. Interest income from investments of $3,000 for the 2019 period primarily consists of interest earned on the nine~~June 30, 2020, as compared to 12 loans included in our loan portfolio at ~~March 31, 2019.~~June 30, 2019, partially offset by a decline in average LIBOR rates for the 2020 period as compared to the 2019 period.

Interest and related expenses. The ~~increase~~decrease in interest and related expenses is a result of ~~higher outstanding advancements under our Master Repurchase Facility, partially offset by declining~~a decline in average LIBOR rates ~~during~~for the 2020 period as compared to the 2019 ~~period.~~period, partially offset by higher outstanding advancements under our Master Repurchase Facility.

General and administrative expenses. General and administrative expenses primarily include legal and audit fees, insurance, dues and subscriptions, Trustee fees, internal audit costs, share based compensation expense and professional fees. General and administrative expenses ~~increased~~decreased for the 2020 period as compared to the 2019 period as a result of ~~increases~~decreases in ~~professional fees and~~ share based compensation.

Reimbursement of shared services expenses. Reimbursement of shared services expenses represents ~~reimbursements~~reimbursement of the costs for the ~~costs~~services that our Manager arranges on our behalf from RMR LLC. Reimbursement of shared services expenses for the 2020 period declined as compared to the 2019 period due to our reduced usage of shared services resulting from our loan portfolio being fully invested.

Net income. The increase in net income for the 2020 period as compared to the 2019 period is due to the changes noted above.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019:



	Six Months Ended June 30,
	2020			2019			Change			% Change
INCOME FROM INVESTMENTS:
Interest income from investments	$	8,780		$	6,913		$	1,867		27	%
Less: interest and related expenses	(3,125		)	(3,580		)	455			(13	%)
Income from investments, net	5,655			3,333			2,322			70	%

OTHER EXPENSES:
General and administrative expenses	1,064			1,121			(57		)	(5	%)
Reimbursement of shared services expenses	563			740			(177		)	(24	%)
Total expenses⁽¹⁾	1,627			1,861			(234		)	(13	%)

Net income	$	4,028		$	1,472		$	2,556		174	%

Weighted average common shares outstanding - basic and diluted	8,173			4,275			3,898			91	%

Net income per common share - basic and diluted	$	0.49		$	0.34		$	0.15		44	%

(1)

Our Manager has waived any base management or incentive fees otherwise due and payable by us under our management agreement through the period ending December 31, 2020. If our Manager had not waived these base management and incentive fees, we would have recognized $643 and $490 of base management fees for the six months ended June 30, 2020 and 2019, respectively, and $36 of incentive fees for the six months ended June 30, 2020. No incentive fees would have been paid or payable for the six months ended June 30, 2019.

Interest income from investments. The increase in interest income from investments for the six months ended June 30, 2020 reflects interest earned on the 14 loans included in our loan portfolio at June 30, 2020, as compared to 12 loans included in our loan portfolio at June 30, 2019, partially offset by a decline in average LIBOR rates for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019.

Interest and related expenses. The decrease in interest and related expenses is a result of a decline in average LIBOR rates for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 partially offset by higher outstanding advancements under our Master Repurchase Facility.

General and administrative expenses. General and administrative expenses decreased for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 as a result of decreases in share based compensation.

Reimbursement of shared services expenses. Reimbursement of shared services expenses for the six months ended June 30, 2020 declined as compared to the six months ended June 30, 2019 due to our reduced usage of shared services resulting from our loan portfolio being fully invested.

Net income. The increase in net income for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 is due to the changes noted above.

Non-GAAP Financial Measures

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

We believe that Core Earnings provides meaningful information to consider in addition to net income and cash flows from operating activities determined in accordance with GAAP. This measure helps us to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan

portfolio and operations. In addition, Core Earnings is used in determining the amount of base management and incentive fees payable by us to our Manager under our management agreement.

Core Earnings

We calculate Core Earnings as net income, computed in accordance with GAAP, including realized losses not otherwise included in net income determined in accordance with GAAP, and excluding: (a) the incentive fees earned by our Manager (if any); (b) depreciation and amortization (if any); (c) non-cash equity compensation expense; (d) unrealized gains, losses and other similar non-cash items that are included in net income for the period of the calculation (regardless of whether such items are included in or deducted from net income or in other comprehensive income under GAAP) (if any); and (e) one-time events pursuant to changes in GAAP and certain non-cash items (if any).


	Three Months Ended March 31,				Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019		2020		2019
Reconciliation of Net Income to Core Earnings:
Net income	$	1,666	$	578	$	2,362	$	894	$	4,028	$	1,472
Non-cash equity compensation expense	42		35		71		185		113		220
Core earnings	$	1,708	$	613	$	2,433	$	1,079	$	4,141	$	1,692

Weighted average common shares outstanding - basic	8,169		3,136
Weighted average common shares outstanding - diluted	8,169		3,142
Weighted average common shares outstanding - basic and diluted					8,177		5,401		8,173		4,275

Core earnings per common share - basic and diluted	$	0.21	$	0.20	$	0.30	$	0.20	$	0.51	$	0.40

Factors Affecting Operating Results

Our results of our operations are impacted by a number of factors and primarily depend on the interest income from our investments and the financing and other costs associated with our business. Our operating results are also impacted by general CRE market conditions and unanticipated defaults by our borrowers.

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

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

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

For further information regarding the risks associated with our loan portfolio, see the risk factors identified in Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form ~~10-Q.~~10-Q and the risk factors identified in Part I, Item IA, "Risk Factors" of our Annual Report.

Availability of Leverage and Equity. We use leverage to make additional investments that may increase our returns. We may not be able to obtain the expected amount of leverage we desire or its cost may exceed our expectation and, consequently, the returns generated from our investments may be reduced. In order to grow our loan portfolio, we will need to obtain additional capital. However, our access to additional capital depends on many factors including the price at which our common

shares trade relative to their book value and market lending conditions. See " —Market Conditions" below. We have experienced and may continue to experience challenges raising equity capital in the future.

Market Conditions. Prior to the COVID-19 pandemic, CRE ~~investment sales~~ transaction ~~volume~~volumes were increasing, driving demand for the first two months of 2020 was up over 7% compared to the same period last year according to Real Capital Analytics (market data and/or forecasts obtained from Real Capital Analytics are ©2019 Real Capital Analytics, Inc. all rights reserved) and according to the Mortgage Bankers Association, $601,000,000 in commercial and multifamily loans were originated in 2019, a 5% increase from 2018. At year end, there was approximately $3,700,000,000 in CRE ~~debt outstanding, 55% greater than what was outstanding at the end of 2007 and $250,000,000 more than at the end of 2018.~~loans. In 2019, alternative lenders, like us, had gained considerable market share ~~comprising approximately 11.9% of total mortgage debt outstanding at year end according to the Mortgage Bankers Association~~ and loan pricing had begun to stabilize, with loan spreads averaging approximately 300 basis points over LIBOR. The credit spread compression in 2019 allowed alternative CRE lenders the opportunity to provide capital for the financing of properties that are near or at stabilization. In addition, the wider array of uses for alternative debt has exposed alternative lenders to a broader borrower base which has increased the diversity and quality of loan portfolios.

stabilize. The COVID-19 pandemic has had a severe impact on the ~~commercial~~CRE debt markets due to the decline in the economy and the uncertainty of future economic conditions. Since late March 2020, there have been sharp declines in real estate ~~debt markets. Credit~~transaction volume and the availability of liquidity provided by traditional lending sources such as banks and commercial mortgage backed securities, or CMBS. The reduced supply of liquidity has caused an increase in credit spreads on recently issued, 10-year, investment grade ~~commercial mortgage backed securities,~~CMBS, which not only increased the pricing for investments funded with debt but also increased pricing on lending sources, such as credit facilities, used to leverage such investments. Since late April 2020, market volatility has declined significantly, and CMBS loan spreads have somewhat stabilized, but are still trending substantially wider than before the COVID-19 pandemic. In addition, there have been signs of increased activity in the CMBS securitization market as lenders have begun to aggregate new loans for securitization. However, the continued low level of CRE sale transactions and the curtailing of economic activities as a result of certain states imposing or ~~CMBS, bonds~~reinstating restrictions on economic activities in response to increased from approximately 80 basis points in late February to over 325 basis points in late March, which has effectively shut down the market for any new CMBS issuance. The U.S. Federal Reserve's April 9, 2020 announcement detailing its plan to offer $2,300,000 in loans has provided much needed liquidityCOVID-19 infections poses additional challenges to the ~~CRE debt markets by expanding the Term Asset-Backed Securities Loan Facility, or TALF,~~underwriting process, which may continue to include AAA rated CMBS bonds issued prior to March 23, 2020. TALF, however, does not include newly issued CMBS or commercial real estate collateralized loan obligation, or CRE-CLO, bonds at this time. We expect that CMBScause alternative lenders ~~will continue~~ to refrain from providing new ~~CRE~~ loans ~~until bond spreads tighten enough to allow for~~in the ~~sale or securitization of existing and any new loans on their balance sheets.~~short term.

~~Alternative~~

Many alternative lenders ~~have also sharply reduced providing new loan originations. Many~~ appear to currently be ~~waiting for market volatility~~unable or unwilling to ~~subside. Most~~lend due to the decline in the economy and the uncertainty of future economic conditions, as well as additional financial burdens related to margin calls by repurchase and credit facility lenders resulting from decreased collateral value, increased borrowing costs or the loss of repurchase or credit facilities altogether. We believe that most alternative lenders finance properties with respect to which the borrowers have value enhancing business plans, which business plans can be challenging to evaluate in ~~this~~the current economic environment. ~~Other alternative~~Alternative lenders ~~appear~~with significant exposure to ~~be unable to lend, financially burdened~~retail and hospitality collateral have seen COVID-19 pandemic related travel and stay-at-home restrictions significantly negatively impact collateral performance and are in active dialogue with borrowers that are most significantly negatively impacted by ~~margin calls, increased pricing or~~ the ~~loss of credit facilities all together.~~economic downturn. Alternative lenders that use mark-to-market repurchase facilities have been forced to cover margin calls due to volatility in pricing, regardless of the credit quality or performance of the loan collateral. Those with significant exposure to hospitality and retail have begun to see COVID-19 pandemic related travel and shelter in-place restrictions impact loan performance and are in active dialogue with borrowers most severely impacted by the economic shutdown. Despite the growth and maturation of the alternative lending segment, there is likely to be some attrition of less established alternative lenders ~~with inadequate balance sheets~~that are not subject to these additional financial burdens or ~~access to cost-effective~~disproportionately negative impacts are cautiously evaluating new loan opportunities, but a lack of CRE sales volume has resulted in limited financing ~~to withstand a prolonged, deep economic downturn. We expect~~opportunities for those lenders that ~~until the volatility in the bond market subsides and repurchase and warehouse facility providers~~ are ~~willing and~~ able to ~~fund new loans, many alternative lenders will focus on actively managing existing~~deploy capital and increased competition for high quality loan ~~portfolios.~~opportunities.

We believe that, compared to 2008 through 2010, the ~~commercial real estate~~CRE debt markets are better positioned to weather an economic downturn. Lenders ~~maintained~~with high exposure to hospitality and retail collateral will need to continue to closely monitor loan performance, but overall, lenders' disciplined underwriting standards during the period preceding the outbreak of the COVID-19 ~~pandemic. Although~~pandemic should help mitigate the ~~average LTV ratios of traditional lenders increased from 62% in 2018 to 64% in 2019, this ratio is lower than the 70% average LTV ratio seen in 2008 and 2009 according to Real Capital Analytics, Inc.~~impact. We believe that the increased government regulations imposed on banks and insurers in response to the last financial crisis generally have them better positioned for the current economic downturn. Furthermore, increased government regulation was a catalyst for the growth of the alternative lender segment of the CRE debt markets. Alternative lenders filled the void left by banks to provide financing to borrowers secured by properties with value ~~add~~enhancing and opportunistic business plans.

Despite the volatility and recent liquidity challenges impacting the CRE debt markets, we believe that the ~~recent maturation of the~~ alternative lending market ~~positions it~~is well positioned for future growth, subject to the duration and severity of the current economic downturn. The hospitality and retail sectors have been significantly negatively impacted by the economic downturn, and loans secured by hospitality and retail collateral are expected to continue to be challenges for lenders with significant exposure to such collateral. It is unclear how consumer and travel habits will be impacted over the long term during and after the COVID-19 pandemic; if consumer and travel activity do not substantially rebound, we believe that this uncertainty will continue to burden these sectors. In the near term, borrowing costs are likely to increase as banks and alternative lenders ~~slowly get back into the market~~begin to increase lending activity and determine how to quantify and price risk in the midst of aan economic recession. We believe that once the U.S. economy meaningfully improves and returns to a more stable state, there will be significant opportunities for alternative lenders, like us, to provide creative, flexible debt capital for a wide array of circumstances and business plans.

At year end, there was approximately $196,000,000 in un-invested capital in closed end real estate equity funds, 70% of which was earmarked for value add and opportunistic strategies according to Newmark Knight Frank. In addition, according to Prequin, more than $18,000,000 was raised in the first quarter of 2020 by CRE equity funds and there were over 930 CRE equity funds seeking to raise $297,000,000 of capital to invest in CRE of which more than half target value enhancing and opportunistic investment strategies. Subject to changes to these plans, we expect there will be significant future demand for bridge loans, including in the middle market, when the U.S. economy returns to a more stable state for a sustained period.

~~According to Real Capital Analytics, approximately 80% of all sales transactions are for property values between $15,000 and $75,000.~~

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

Conversely, decreases in interest rates, in general, may cause: (a) the interest expense associated with our variable rate borrowings, if any, to decrease; (b) the value of our fixed rate investments, if any, to increase; (c) ~~coupons~~the coupon rates on our variable rate investments, if any, to reset, perhaps on a delayed basis, to lower ~~interest~~ rates; and (d) ~~our borrowers' ability to refinance~~it to become easier and more

affordable ~~positively impacting~~for our ~~borrowers' ability~~borrowers to refinance, and as a result repay, our loans, but may negatively impact our future returns if any such repayment proceeds were to be reinvested in lower yielding investments.

The interest income on our loans and interest expense on our borrowings float with one month LIBOR. Because we generally ~~lever~~leverage approximately 75% of our investments, as LIBOR increases, our income from investments, net of interest and related expenses, will increase. LIBOR decreases are mitigated by interest rate floor provisions in our loan agreements with borrowers; therefore, changes to income from investments, net, may not move proportionately with the decrease in LIBOR.

LIBOR is currently expected to be phased out in 2021. We do not know what standard, if any, will replace LIBOR if it is phased out. We currently expect that, as a result of any phase out of LIBOR, the interest rates under our loan agreements with borrowers would be revised as provided under the agreements or amended as necessary to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR. In addition, we currently expect that the interest rates we pay under our Master Repurchase Facility and any other then existing debt financing arrangements would be similarly revised as provided under the agreement or amended as necessary for that same purpose.

Size of Portfolio. The size of our loan portfolio, as measured both by the aggregate principal balance and the number of our CRE loans and our other investments, is also an important factor in determining our operating results. Generally, if the size of our loan portfolio grows, the amount of interest income we receive would increase and we may achieve certain economies of scale and diversify risk within our loan portfolio. A larger portfolio, however, may result in increased expenses; for example, we may incur additional interest expense or other costs to finance our investments. Also, if the aggregate principal balance of our loan portfolio grows but the number of our loans or the number of our borrowers does not grow, we could face increased risk by reason of the concentration of our investments. At this time, we are focused on managing our current loan portfolio. We believe our growth is limited by our ability to access additional cost-effective capital.

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

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

Pursuant to our Master Repurchase Agreement, we may sell to, and later repurchase from, Citibank floating rate mortgage loans and other related assets, or purchased assets. The initial purchase price paid by Citibank for each purchased asset is up to 75% of the lesser of the market value of the purchased asset or the unpaid principal balance of such purchased asset, subject to Citibank’s approval. Upon the repurchase of a purchased asset, we are required to pay Citibank the outstanding purchase price of the purchased asset, accrued interest and all accrued and unpaid expenses of Citibank relating to such purchased asset. The price differential (or interest rate) relating to a purchased asset is equal to one month LIBOR plus a premium of 200 to 250 basis points, determined by the yield of the purchased asset and the property type of the purchased asset's real estate collateral. As of ~~March 31,~~June 30, 2020, the maximum amount available for advancement under our Master

Repurchase Facility was $213,482, of which we had a $201,138 aggregate outstanding principal balance, and the weighted average interest rate ~~for~~of advancements under our Master Repurchase Facility was ~~3.50%.~~2.97% for the six months ended June 30, 2020. Our Master Repurchase Facility is scheduled to expire on November 6, 2021. For further information regarding our Master Repurchase Facility, see Note 5 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I Item 1 of this Quarterly Report on Form 10-Q and ~~"-Overview-Financing~~"—Overview-Financing Activities" above.

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



	Six Months Ended June 30,
	2020			2019
Cash, cash equivalents and restricted cash at beginning of period	$	8,875		$	27,335
Net cash provided by (used in):
Operating activities	2,931			805
Investing activities	(34,805		)	(122,431		)
Financing activities	33,632			105,758
Cash, cash equivalents and restricted cash at end of period	$	10,633		$	11,467

Cash Provided by Operating Activities

During the ~~three~~six months ended ~~March 31,~~June 30, 2020, net cash provided by operating activities of ~~$1,308~~$2,931 was primarily due to our net income for the period and favorable changes in working capital from amounts due to our Manager accrued but not yet paid, partially offset by unfavorable changes in working capital primarily due to interest income accrued and not yet received and expenses paid in the period but accrued in previous periods.

During the ~~three~~six months ended ~~March 31,~~June 30, 2019, net cash ~~used in~~provided by operating activities of ~~$251~~$805 was primarily due to our net income for the period, partially offset by unfavorable changes in working capital primarily due to interest income accrued and not yet received.

Cash Used in Investing Activities

During the ~~three~~six months ended ~~March 31,~~June 30, 2020, net cash used in investing activities consisted of $25,738 of loan originations, net of deferred fees, and ~~$3,176~~$9,067 of additional fundings on our loans held for investment.

During the ~~three~~six months ended ~~March 31,~~June 30, 2019, net cash used in investing activities consisted of ~~$44,105~~$119,062 of loan originations, net of deferred fees, ~~received on our loans held for investment,~~ and ~~$668~~$3,369 of additional fundings on our loans held for investment.

Cash Provided by Financing Activities

During the ~~three~~six months ended ~~March 31,~~June 30, 2020, our cash provided by financing activities primarily consisted of ~~$30,806~~$35,602 of advancements under our Master Repurchase Facility, partially offset by distributions paid to our shareholders.

During the ~~three~~six months ended ~~March 31,~~June 30, 2019, our cash flows provided by financing activities consisted of ~~$31,866~~$92,983 of advancements under our Master Repurchase Facility, $14,220 of borrowings under the RMR Credit Agreement and $26,074 of net proceeds from the issuance and sale of our common shares in an underwritten public offering, or the Offering, partially offset by distributions paid to our shareholders. We used the Offering proceeds to repay the $14,220 balance then outstanding under the RMR Credit Agreement and to reduce borrowings under our Master Repurchase Facility by approximately $11,900.

As of ~~March 31,~~June 30, 2020, we have fully committed the capital available to us. Our ability to obtain additional financing advancements under our Master Repurchase Facility is contingent upon our making additional fundings to our existing borrowers or our ability to effectively reinvest any additional capital, including any loan repayment proceeds, that we may obtain or receive. However, we cannot be sure that we will be able to obtain additional capital or additional financing advancements under our Master Repurchase Facility. It may take an extended period for us to reinvest any additional capital we may receive, and any reinvestments we may be able to make may not provide us with similar returns or comparable risks as those of our current investments.

Distributions

During the ~~three~~six months ended ~~March 31,~~June 30, 2020, we paid a quarterly ~~distribution~~distributions to our shareholders ~~totaling $1,813~~aggregating $1,895, or $0.23 per common share, using cash on hand. For further information regarding distributions, see Note 7 to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

~~On March 31, 2020, we announced that,~~In order to preserve our near term capital due to the economic downturn and uncertainty ~~and extreme disruption~~as to ~~the U.S. capital markets~~future economic conditions as a result of the COVID-19 pandemic, ~~and its resulting impact on~~beginning with the ~~U.S. economy,~~first quarter of 2020, we reduced our quarterly distribution rate onpayable to our common ~~shares for the first quarter of 2020~~shareholders to $0.01 per ~~common~~ share ~~or approximately $82, in order to preserve our capital. This~~and on July 16, 2020, declared a quarterly distribution ~~will be paid~~payable to our common shareholders of ~~record as~~$0.01 per share for the second quarter of ~~the close of business on April 10, 2020 and we expect to pay this distribution on or about May 21,~~ 2020.

Our Board of Trustees will continue to monitor our financial performance and economic outlook as the year progresses to determine a prudent level for any subsequent quarterly distributions for 2020 or to declare and pay a distribution required to maintain our qualification for taxation as a REIT. ~~Depending upon~~We currently expect that we will need to make an increased distribution in the ~~ultimate distribution requirement in 2020, if~~future to maintain our qualification for taxation as a REIT for 2020. However, any future distributions are subject to the ~~reduction~~approval of ~~the distribution could preserve up to $5.2 million~~our Board of ~~capital this year.~~

Trustees.

Contractual Obligations and Commitments

Our contractual obligations and commitments as of ~~March 31,~~June 30, 2020 were as follows:


	Payment Due by Period										Payment Due by Period
	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 years		Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 years
Unfunded loan commitments⁽¹⁾	$	24,753	$	4,301	$	20,452	$	—	$	—	$	17,566	$	3,415	$	14,151	$	—	$	—
Principal payments on master repurchase facility ⁽²⁾	196,344		28,910		167,434		—		—		201,138		29,680		171,458		—		—
Interest payments ⁽³⁾	7,541		5,099		2,442		—		—		5,142		3,864		1,278		—		—
	$	228,638	$	38,310	$	190,328	$	—	$	—	$	223,846	$	36,959	$	186,887	$	—	$	—


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


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


(3)	Projected interest expense is attributable to only our debt service obligations at existing rates as of ~~March 31,~~June 30, 2020 and is not intended to estimate future interest costs which may result from debt prepayments, additional borrowings, new debt issuances or changes in interest rates.

Off-Balance Sheet Arrangements

As of ~~March 31,~~June 30, 2020, we had no off-balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Debt Covenants

Our principal debt obligations at ~~March 31,~~June 30, 2020 were the outstanding balances under our Master Repurchase Facility. Our Master Repurchase Agreement provides for acceleration of the date of repurchase of any then purchased assets and Citibank’s liquidation of the purchased assets upon the occurrence and continuation of certain events of default, including a change of control of us, which includes our Manager ceasing to act as our sole manager or to be a wholly owned subsidiary of RMR LLC. Our Master Repurchase ~~Facility~~Agreement also provides that upon the repurchase of any then purchased asset, we are required to pay Citibank the outstanding purchase price of such purchased asset and accrued interest and any and all accrued and unpaid expenses of Citibank relating to such purchased asset.

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

As of ~~March 31,~~June 30, 2020, we had a ~~$196,344~~$201,138 aggregate outstanding principal balance under our Master Repurchase ~~Agreement.~~Facility. In light of the impact of the COVID-19 pandemic, we ~~are~~continue to actively ~~engaging~~engage with Citibank regarding our liquidity position and the status of the loans in our portfolio ~~which~~that are financed under our Master Repurchase ~~Agreement.~~Facility. Our Master Repurchase Agreement is structured with risk mitigation mechanisms, including a cash flow sweep, which would allow Citibank to control interest payments from our borrowers under our loans ~~which~~that are financed under our Master Repurchase ~~Agreement,~~Facility, and the ability to accelerate dates of repurchase and institute margin calls, which may require us to pay down balances associated with one or more of our loans ~~which~~that are financed under our Master Repurchase ~~Agreement.~~Facility. As of ~~May 1,~~June 30, 2020, we believe we were in compliance with all the covenants and other terms under our Master Repurchase Agreement and, to date, Citibank has not utilized any such risk mitigation mechanisms under our Master Repurchase Agreement.

Related Person Transactions

We have relationships and historical and continuing transactions with our Manager, RMR LLC, RMR Inc. and others related to them. For example: we have no employees and the personnel and various services we require to operate our business are provided to us by our Manager pursuant to our management agreement with our Manager; our Manager is a subsidiary of RMR LLC and certain of the services provided to us by our Manager are provided by RMR LLC pursuant to a shared services

agreement between our Manager and RMR LLC; our Manager is our largest shareholder and, at ~~March 31,~~June 30, 2020, owned approximately 19.4% of our outstanding common shares; RMR Inc. is the managing member of RMR LLC; Adam Portnoy, one of our Managing Trustees, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., and he is also a director of our Manager, a managing director and the president and chief executive officer of RMR Inc., and an officer and employee of RMR LLC; David M. Blackman, our other Managing Trustee

and our President and Chief Executive Officer, also serves as the president, chief executive officer and a director of our Manager and is an officer and employee of RMR LLC; and each of our other officers is also an officer and/or employee of our Manager or RMR LLC. In addition, other companies to which RMR LLC or its subsidiaries provide management services have trustees, directors and officers some of whom are also trustees, directors or officers of us, our Manager, RMR LLC or RMR Inc. and some of our Trustees and officers serve as trustees, directors or officers of these companies.

For further information about these and other such relationships and related person transactions, see Notes 8 and 9 to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our ~~2019~~ Annual Report, our definitive Proxy Statement for our 2020 Annual Meeting of Shareholders and our other filings with the SEC. In addition, see the section captioned “Risk Factors” of our ~~2019~~ Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships. Our filings with the SEC and copies of certain of our agreements with these related persons, including our management agreement with our Manager, are available as exhibits to our filings with the SEC and accessible at the SEC’s website, www.sec.gov. We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.

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

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

Changes in the general economy may impact the ability and willingness of our borrowers to pay interest on and repay principal of our loans. A U.S. recession or a slowing of economic activity, ~~in areas where the collateral for our loans are located,~~ including as a result of the COVID-19 pandemic, ~~caused one of~~in the markets where the underlying collateral for our ~~borrowers to default and~~loans are located may cause ~~other~~our borrowers to default or may cause the value of ~~our loan~~the collateral to decrease and be ~~reduced below~~less than the ~~amounts we are owed.~~outstanding amount of the loan. To mitigate these market risks, when evaluating a potential investment, we perform thorough diligence on the value of ~~our~~the proposed collateral, ~~properties and of properties~~including as compared to comparable ~~to our~~ collateral ~~properties~~ in the ~~areas where our collateral properties are located~~same market, and on the historical business practices and credit worthiness of our borrowers and their ~~affiliates. We~~affiliates, as well as compare our borrowers' proposed business plans for and projected income from the proposed collateral to our expectations ~~for~~regarding the ~~economy~~market conditions of the geographic area where ~~our~~the collateral ~~properties are~~is located and ~~regarding~~ the potential for future income ~~potential of~~from the ~~specific collateral properties. We also~~collateral. In addition, with respect to our existing loans, we continuously monitor the credit quality and performance of our borrowers and loan collateral, ~~properties. In addition,~~and we ~~also include provisions in~~structure our ~~loan agreements that permit~~loans with risk mitigation mechanisms, such as cash flow sweeps or interest reserves, to help protect us ~~to impose cash sweeps~~against investment losses. However, despite these risk mitigation efforts and measures, our borrowers may default on our ~~borrowers' accounts to help preserve our ability to collect amounts owed to us. Nonetheless, no amount~~loans and/or the value of ~~diligence, no matter how extensive, detailed and well informed it~~the underlying collateral may ~~be, can provide complete assurance against borrower defaults~~decrease significantly if market conditions decline or ~~against the deterioration of collateral values in declining market conditions.~~for other reasons. For further information regarding the risks associated with our loan portfolio, see the risk factors identified in Part II, Item 1A, "Risk Factors" of this Quarterly Report on Form ~~10-Q.~~10-Q and the risk factors identified in Part I, Item IA, "Risk Factors" of our Annual Report.

Floating Rate Investments

As of ~~March 31,~~June 30, 2020, our loans held for investment had an aggregate principal balance of ~~$272,234~~$278,484 and the weighted average maximum maturity of our loan portfolio was ~~3.4~~3.1 years, assuming ~~full term extensions of~~ all ~~loans.~~borrower loan extension options have been exercised. All our loans held for investment were made in U.S. dollars and earn interest at LIBOR plus a premium. Accordingly, we are exposed to interest rate risk for changes in U.S. dollar based short term rates, specifically LIBOR. As LIBOR decreases, our risk is partially mitigated by interest rate floor provisions in our loan agreements with borrowers. In addition, upon repayment from our borrowers we are vulnerable to decreases in interest rate premiums due to market conditions at the time any such repayment proceeds are reinvested.

Floating Rate Debt

At ~~March 31,~~June 30, 2020, our floating rate debt obligations consisted of ~~$196,344~~$201,138 in outstanding advancements under our Master Repurchase Facility. Our Master Repurchase Facility matures in November 2021, subject to early termination as provided for in our Master Repurchase Agreement.

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

The table below details the impact, based on our current loan portfolio and debt outstanding at ~~March 31,~~June 30, 2020, on our interest income and interest expense of an immediate increase or decrease of 100 basis points in LIBOR, the applicable interest rate benchmark:


	Principal Balance as of March 31, 2020			Interest Rate Per Year ⁽¹⁾	100 Basis Point Increase			86 Basis Point Decrease⁽³⁾		Principal Balance as of June 30, 2020			Interest Rate Per Year ⁽¹⁾	100 Basis Point Increase			18 Basis Point Decrease⁽³⁾
Assets (Liabilities) Subject to Interest Rate Sensitivity:
Loans held for investment	$	272,234		5.70%	$	136		$	—	$	278,484		5.70%	$	—		$	—
Master repurchase facility	(196,344		)	2.87%	(1,963		)	1,694		(201,138		)	2.18%	(2,011		)	355
Total change in net income from investments					$	(1,827	)	$	1,694					$	(2,011	)	$	355

Annual earnings per share impact ⁽²⁾					$	(0.22	)	$	0.21					$	(0.25	)	$	0.04


(1)	Weighted based on interest rates and principal balances as of ~~March 31,~~June 30, 2020.


(2)	Based on weighted average number of shares outstanding (diluted) for the three months ended ~~March 31,~~June 30, 2020.

(3)

Our loan agreements with borrowers include interest rate floor provisions which set a minimum LIBOR for each loan. We do not currently have a LIBOR floor provision inrelating to any of the outstanding balances under our Master Repurchase ~~Agreement.~~Facility. As a result, if LIBOR decreases below the floor established for any of our investments, our income from investments will decrease less than our borrowing costs and the net amount may result in an increase in our net investment income. The above table illustrates the incremental impact on our annual income from investments, net, due to increases and decreases in LIBOR of 100 basis points, taking into consideration our borrowers' interest rate floors as of ~~March 31,~~June 30, 2020. The ~~100-basis~~100 basis point increase in LIBOR used in the analysis above does not result in any increase in interest we would receive in our loans held for investment because the increased rate would not exceed the current interest rate floor provision. The 100 basis point decrease in LIBOR used in the analysis above has been limited in that analysis to ~~0.86%~~18 basis points to result in a LIBOR rate of 0.00%. The results are based on our current loan portfolio and debt outstanding at ~~March 31,~~June 30, 2020. Any changes to the mix of our investments of debt outstanding could impact this interest rate sensitivity analysis and this illustration is not meant to forecast future results.

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

LIBOR Phase Out

LIBOR is currently expected to be phased out in 2021. All the agreements governing our loans held for investment require our borrowers, and under our Master Repurchase Facility we are required, to pay interest at floating rates based on LIBOR. Future agreements governing loans that we may make and debt that we may incur may also require interest to be paid at floating rates based on LIBOR. We currently expect that the determination of interest under such agreements would be revised as provided under such agreements or amended as necessary to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR. Despite our current expectations, we cannot be sure that, if LIBOR is phased out or transitioned, the changes to the determination of interest under such agreements would approximate the current calculation in accordance with LIBOR. We do not know what standard, if any, will replace LIBOR if it is phased out or transitioned.

Item 4. Controls and Procedures

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

There have been no changes in our internal control over financial reporting during the quarter ended ~~March 31,~~June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Warning Concerning Forward-Looking Statements

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

The duration and severity of the economic downturn resulting from the COVID-19 pandemic and its impact on us and our borrowers,

The likelihood and extent to which our borrowers will be negatively impacted by the COVID-19 pandemic and its aftermath and be able and willing to fund their debt service obligations owed to us,

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

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

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

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

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

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

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

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

Our expected operating results,

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

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

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

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

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

Yields that may be available to us from mortgages on middle market and transitional ~~commercial real estate,~~CRE,

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

The credit qualities of our borrowers,

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

Our projected leverage,

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

Our qualification for taxation as a REIT,

Our expectation that we will need to make an increased distribution in the future to maintain our qualification for taxation as a REIT for 2020,

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

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

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

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

Other matters.

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

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

Competition within the CRE lending industry,

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

Defaults by our borrowers,

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

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

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

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

Additional factors, including, but not limited to, those set forth in ~~the section captioned~~Part II, Item IA, "Risk Factors" inof this Quarterly Report on Form 10-Q and the ~~section captioned~~risk factors identified in Part I, Item IA, "Risk Factors" inof our ~~2019~~ Annual Report.

For example:

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

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

WeBeginning with the first quarter of 2020, we reduced our quarterly ~~cash~~ distribution torate on our common ~~shareholders~~shares to $0.01 per share. Our distribution rate is set and reset from time to time by our Board of Trustees. The timing, amount and form of future distributions will be determined at the discretion of our Board of Trustees and will depend upon various factors that our Board of Trustees deems relevant, including our historical and projected income, our Core Earnings, the then-current and expected needs and availability of cash to pay our obligations and fund our investments, distributions which may be required to be paid by us to maintain our qualification for taxation as a REIT, limitations on distributions contained in our financing arrangements and other factors deemed relevant by our

Board of Trustees in its discretion. Therefore, we cannot be sure that we will resume paying distributions in the future at historic levels or that we will increase distributions in the future,

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

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

~~Contingencies related to loans that we may enter applications with borrowers for but have not closed may not be satisfied,~~

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

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

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

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

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

The risk mitigation mechanisms that apply to our investments may not adequately cover our borrowers' debt service amounts and the borrowers may not be able to fully fund their debt service obligations owed to us,

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

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

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

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

Although, as of ~~May 1,~~August 3, 2020, Citibank has not instituted cash sweeps on our accounts and we have not received a margin call under our Master Repurchase Facility, it may do so in the future in accordance with our Master Repurchase Agreement,

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

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

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

As of ~~March 31,~~June 30, 2020, we have fully committed the capital available to us. Our ability to obtain additional financing advancements under our Master Repurchase Facility is contingent upon our making additional advancements to our existing borrowers or our ability to effectively reinvest any additional capital, including any loan repayment proceeds, that we may obtain or receive. However, we cannot be sure that we will be able to obtain additional capital or additional financing advancements under our Master Repurchase Facility. It may take an extended period for us to reinvest any additional capital we may receive, and any reinvestments we may be able to make may not provide us with similar returns or comparable risks as those of our current investments,

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

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

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

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

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

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

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

The information contained elsewhere in this Quarterly Report on Form 10-Q and in our ~~2019~~ Annual Report or in our other filings with the SEC, including in the section captioned “Risk Factors” herein or therein, or incorporated herein or therein, identifies other important factors that could cause differences from our forward-looking statements. Our filings with the SEC are available on the SEC's website at www.sec.gov.

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

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

Statement Concerning Limited Liability

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

Part II. Other Information

Item 1A. Risk Factors

Our business faces many risks, a number of which are described in the section captioned “Risk Factors” in our ~~2019~~ Annual Report. The risks described in our ~~2019~~ Annual Report and below may not be the only risks we face. Other risks of which we are not yet aware, or that we currently believe are not material, may also materially and adversely impact our business operations or financial results. If any of the events or circumstances described in the risk factors contained in our ~~2019~~ Annual Report or described below occur, our business, financial condition or results of operations could be adversely impacted and the value of an investment in our securities could decline. Investors and prospective investors should consider the risks described in our ~~2019~~ Annual Report and below, and the information contained in the section captioned “Warning Concerning Forward-Looking Statements” and elsewhere in this Quarterly Report before deciding whether to invest in our securities.

Our business, operations, financial results and liquidity ~~have been~~could be materially adversely impacted by the COVID-19 pandemic, and it is not known what the duration of this pandemic will be or what its ultimate adverse impact on us and our business will be, but we expect it will be substantial.

COVID-19 has been declared a pandemic by the World Health Organization and, in response to the outbreak, the U.S. Health and Human Services Secretary has declared a public health emergency in the United States. COVID-19 has had a devastating impact on the global economy, including the U.S. economy, and has resulted ~~or is expected to result,~~ in a global economic recession.

These conditions ~~have~~could materially and adversely ~~impacted~~impact our business, results of operations and liquidity. In addition, some of our borrowers and their tenants have experienced substantial declines in their businesses and some of our borrowers have sought relief from us from their debt service obligations owed to us, and we expect these declines and requests to continue or increase in the future. As a result of the COVID-19 pandemic and restrictions implemented in response, there have been construction moratoriums and decreases in available construction workers and construction activity, including required inspectors and governmental personnel for permitting and other requirements. These conditions may prevent our borrowers from completing ongoing and planned construction projects and improving their properties that secure our loans. As a result, borrowers may be unable to generate sufficient cash flow to make payments on or refinance our loans, and we may not recover some or all of our investment. We have, as of ~~May 1,~~August 3, 2020, provided relief to one of our borrowers who was in default during April 2020 but is no longer in default and we ~~are~~continue to actively ~~engaging~~engage in discussions with our borrowers to maximize our ability to collect interest and principal payments from them. We cannot be sure these efforts will succeed and, if the current economic conditions continue or worsen for a prolonged period, there is a significant risk that some of our other borrowers may default on their debt service obligations owed to us.

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

We have been limited in our ability to access capital and, as a result, we have limited capital to invest. The long-term impact of the COVID-19 pandemic and its aftermath on financial markets is uncertain. To the extent that impact is sustained for an extended period, we expect that we will be further challenged in accessing capital. As a result, our ability to grow our business and investment portfolio may be limited for an indefinite period.

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

We cannot predict the extent and duration of the COVID-19 pandemic or the severity and duration of its economic impact, but we expect it will be substantial. Potential consequences of the current unprecedented measures taken in response to the spread of COVID-19 and the current market disruptions and volatility affecting us include, but are not limited to:

the current low market price of our common shares may continue for an indefinite period and could decline further;

possible significant declines in the value of our portfolio;

our inability to accurately or reliably value our portfolio;

our inability to comply with financial covenants that could result in our defaulting under our Master Repurchase Agreement;

our maintaining the current reduced rate of distributions on our common shares for an extended period of time or suspending our payment of distributions entirely;

our failure to pay interest and principal when due on our outstanding debt, which would result in events of default under our Master Repurchase Facility and our possible loss of our Master Repurchase Facility;

our inability to access debt and equity capital on attractive terms, or at all;

increased risk of default or bankruptcy of our borrowers;

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

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

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

Further, the extent and strength of any economic recovery after the COVID-19 pandemic abates, including following any "second wave" or other intensifying of the pandemic, is uncertain and subject to various factors and conditions. Our business, operations and financial position may continue to be negatively impacted after the COVID-19 pandemic abates and may remain at depressed levels compared to prior to the outbreak of the COVID-19 pandemic and those conditions may continue for an extended period.

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

~~We announced on March 31,~~Beginning with the first quarter of 2020, ~~that~~ we ~~had~~ reduced our quarterly ~~cash distributions~~distribution rate on our common shares to $0.01 per share. We currently intend to continue to make quarterly distributions to our ~~shareholders.~~shareholders at this rate, subject to applicable REIT tax requirements. However:

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

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

our distribution rate is set and reset from time to time by our Board of Trustees. The timing, amount and form of future distributions will be determined at the discretion of our Board of Trustees and will depend upon various factors that our Board of Trustees deems relevant, including our historical and projected income, our Core

Earnings, the then-current and expected needs and availability of cash to pay our obligations and fund our investments, distributions which may be required to be paid to maintain our qualification for taxation as a REIT, limitations on distributions contained in our financing arrangements and other factors deemed relevant by our

Board of Trustees in its discretion. Accordingly, future distribution rates may be increased or decreased and there is no assurance as to the rate at which future distributions will be paid.

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

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

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

The current economic conditions resulting from the COVID-19 pandemic have significantly negatively impacted some of our borrowers’ businesses, operations and liquidity. Some of our borrowers have requested relief from their debt service obligations owed to us. As of ~~May 1,~~August 3, 2020, we have provided one borrower with relief in the form of an ~~increased~~increase to the interest ~~reserve.~~reserve balance that may be used to make interest payments. We expect to receive additional similar requests in the future, and we may determine to grant relief in the future if we determine it prudent or appropriate to do so. In addition, if our borrowers are unable to continue as going concerns as a result of the current economic conditions or otherwise, we may incur losses of all or some of our loan investments to them, including if the collateral securing our loans less our costs of recovery are less than the defaulted amounts.

Our borrowers and their tenants may not be eligible to participate in the relief programs provided under the recently adopted Coronavirus Aid Relief, and Economic Security (CARES) Act, and even if they are eligible, any benefits they realize from participating in such programs may not be sufficient to enable our borrowers to withstand the current economic conditions and any extended economic downturn or recession which may result from the COVID-19 pandemic.

On March 27, 2020, the President of the United States signed the Coronavirus Aid Relief, and Economic Security (CARES) Act into law. The CARES Act, among other things, provides billions of dollars of relief to individuals and businesses suffering from the impact of the COVID-19 pandemic. However, receipt of government funds and other benefits from the CARES Act is subject to a detailed application and approval process and it is too soon to accurately predict whether our borrowers and their tenants will meet any eligibility requirements, how and when any government funds will flow to them (if at all) and the effect these funds may have in offsetting the drastic cash flow disruptions experienced by our borrowers. Further, there can be no guarantee that any relief provided by the CARES Act, either directly through participation in government programs, or indirectly through increased revenues attributable to a possible economic recovery generated by the CARES Act, will enable our borrowers to withstand the current economic conditions and any extended economic downturn or recession which may result from the COVID-19 pandemic.

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

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

liquidity position that would allow us to satisfy our collateral obligations. As a result, we may not be able to leverage our assets to maximum capacity, which could reduce our return on assets. If we are unable to meet any such collateral obligations, our financial condition and prospects could deteriorate rapidly.

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

Issuer purchases of equity securities. The following table provides information about our purchases of our equity securities during the quarter ended ~~March 31,~~June 30, 2020.


Calendar Month	Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs		Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 2020	384	$	5.33	—	$	—
June 2020							390	$	3.08	—	$	—
Total	384	$	5.33	—	$	—	390	$	3.08	—	$	—

(1)

~~These~~This common share ~~withholdings~~withholding and ~~purchases were~~purchase was made to satisfy the tax withholding and payment obligations of ~~certain~~a former ~~officers~~officer and ~~employees~~employee of RMR LLC in connection with the vesting of awards of our common shares. We withheld and purchased these shares at their fair market value based upon the trading price of our common shares at the close of trading on Nasdaq on the purchase date.

Item 6. Exhibits



Exhibit Number		Description

3.1		Articles of Amendment and Restatement of the Company effective September 14, 2017. (Incorporated by reference to the Company’s Current Report on Form 8-K ~~dated~~filed on September 13, 2017.)
3.2		Amended and Restated Bylaws of the Company dated September 14, 2017. (Incorporated by reference to the Company’s Current Report on Form 8-K ~~dated~~filed on September 13, 2017.)
4.1		Form of Common Share Certificate. (Incorporated by reference to Amendment No. 1 to the Company’s Registration Statement on Form S-11 ~~dated~~filed on August 3, 2017, File No. 333-219205.)
10.1		Form of Indemnification Agreement. (Filed herewith)
31.1		Rule 13a-14(a) Certification. (Filed herewith.)
31.2		Rule 13a-14(a) Certification. (Filed herewith.)
32.1		Section 1350 Certification. (Furnished herewith.)
99.1		Letter, dated ~~as of April 10,~~June 29, 2020, between the Company and Tremont Realty Advisors LLC regarding Management Agreement. ~~(Filed herewith.~~(Incorporated by reference to the Company's Current Report on Form 8-K filed on June 30, 2020.)
101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		XBRL Taxonomy Extension Schema Document. (Filed herewith.)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document. (Filed herewith.)
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document. (Filed herewith.)
101.LAB		XBRL Taxonomy Extension Label Linkbase Document. (Filed herewith.)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document. (Filed herewith.)
104		Cover Page Interactive Data File. (Formatted as Inline XBRL and contained in Exhibit 101.)

SIGNATURES

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



	TREMONT MORTGAGE TRUST


	By:	/s/ David M. Blackman
		David M. Blackman President and Chief Executive Officer
		Dated: ~~May~~August 4, 2020

	By:	/s/ G. Douglas Lanois
		G. Douglas Lanois Chief Financial Officer and Treasurer (principal financial and accounting officer)
		Dated: ~~May~~August 4, 2020

3740



	For the Three Months Ended March 31,
	2020	2019
Weighted average common shares for basic earnings per share	8,169	3,136
Effect of dilutive securities: unvested share awards ⁽¹⁾	—	6
Weighted average common shares for diluted earnings per share	8,169	3,142