8-K
Seven Hills Realty Trust (SEVN)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT of 1934
Date of report (Date of earliest event reported): July 27, 2022
Seven Hills Realty Trust
(Exact Name of Registrant as Specified in Its Charter)
Maryland
(State or other Jurisdiction of Incorporation)
| 001-34383 | 20-4649929 |
|---|---|
| (Commission File Number) | (IRS Employer Identification Number) |
Two Newton Place, 255 Washington Street, Suite 300,
Newton, Massachusetts 02458-1634
(Address of Principal Executive Offices) (Zip Code)
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 | SEVN | The Nasdaq Stock Market LLC |
(617) 332-9530
(Registrant’s Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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 pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
On July 27, 2022, Seven Hills Realty Trust, or the Company, issued a press release regarding the Company’s results of operations and financial condition for the quarter and six months ended June 30, 2022 and also provided certain supplemental operating and financial data for the quarter and six months ended June 30, 2022. Copies of the Company’s press release and supplemental operating and financial data are furnished as Exhibits 99.1 and 99.2 hereto, respectively.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
99.1 Press release dated July 27, 2022
99.2 Second Quarter 2022 Supplemental Operating and Financial Data
104 Cover Page Interactive Data File. (Embedded within the inline XBRL document.)
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 hereunto duly authorized.
| SEVEN HILLS REALTY TRUST | |||
|---|---|---|---|
| Date: | July 27, 2022 | By: | /s/ G. Douglas Lanois |
| Name: | G. Douglas Lanois | ||
| Title: | Chief Financial Officer and Treasurer |
3
Document
Exhibit 99.1
FOR IMMEDIATE RELEASE
Seven Hills Realty Trust Announces Second Quarter 2022 Results
Aggregate Loan Commitments Reach $735 Million
Net Income Per Share of $0.31
Adjusted Distributable Earnings Per Share of $0.24
____________________________________________________________________________________________________
Newton, MA (July 27, 2022): Seven Hills Realty Trust (Nasdaq: SEVN) today announced financial results for the quarter and six months ended June 30, 2022.
Tom Lorenzini, President of SEVN, made the following statement:
"During the second quarter, we experienced strong earnings growth year over year and continued to execute on our plan to fully invest SEVN’s capital. We completed $60 million of high-quality loan originations, bringing our committed capital to $735 million, which represents a threefold increase in our loan book compared to a year ago. The credit quality of our portfolio remains strong, with all loans current on debt service and no loans in default.
We begin the second half of the year in an excellent position to continue to grow distributable earnings and further enhance returns for our shareholders. With a portfolio entirely comprised of 100% floating rate loans, we expect to earn increased income from our investments in this rising interest rate environment. For example, we estimate that a 75 basis point increase in our base lending rate would increase SEVN's annual net income per share by approximately $0.07, based on our loan portfolio as of June 30, 2022. Additionally, our investment pipeline remains strong with many attractive opportunities to deploy our available capital with the goal of reaching approximately $950 million dollars in aggregate loan commitments this year."
Quarterly Results
| Three Months Ended | |||
|---|---|---|---|
| (dollars in thousands, except per share data) | June 30, 2022 | March 31, 2022 | June 30, 2021 |
| Income from investments, net | $7,498 | $13,777 | $2,863 |
| Net income | $4,578 | $11,126 | $1,160 |
| Net income per diluted share | $0.31 | $0.76 | $0.11 |
| Distributable Earnings | $3,490 | $5,273 | $1,342 |
| Distributable Earnings per diluted share | $0.24 | $0.36 | $0.13 |
| Adjusted Distributable Earnings | $3,490 | $5,310 | $1,342 |
| Adjusted Distributable Earnings per diluted share | $0.24 | $0.37 | $0.13 |
| Book value per common share | $18.22 | $18.17 | $18.90 |
| Adjusted Book Value per common share (1) | $18.89 | $18.95 | $18.90 |
(1)Adjusted Book Value per common share is a non-GAAP financial measure that excludes the impact of the unaccreted purchase discount resulting from the excess of the fair value of the loans Tremont Mortgage Trust, or TRMT, then held for investment and which SEVN acquired as a result of the merger with TRMT, or the Merger, over the consideration SEVN paid in the Merger. The purchase discount of $36.4 million was allocated to each acquired loan and is being accreted into income over the remaining term of the respective loan. As of June 30, 2022 and March 31, 2022, Adjusted Book Value per common share excludes $9.8 million, or $0.67 per common share, and $11.5 million, or $0.78 per common share, respectively, of unaccreted purchase discount.
Additional information and a reconciliation of net income determined in accordance with U.S. generally accepted accounting principles, or GAAP, to Distributable Earnings and Adjusted Distributable Earnings for the quarter and six months ended June 30, 2022 and 2021 appear later in this press release.
Portfolio Summary
| (dollars in thousands) | June 30, 2022 | March 31, 2022 | June 30, 2021 |
|---|---|---|---|
| Number of loans | 28 | 27 | 9 |
| Total loan commitments | $734,883 | $684,547 | $250,710 |
| Weighted average maximum maturity (years) | 3.6 | 3.7 | 4.2 |
| Weighted average coupon rate | 5.14% | 4.57% | 4.98% |
| Weighted average all in yield | 5.64% | 5.10% | 5.62% |
| Weighted average floor | 0.61% | 0.61% | 0.76% |
| Weighted average risk rating | 2.7 | 2.8 | 2.9 |
| Weighted average loan to value | 68% | 68% | 68% |
Recent Investment Activities
SEVN originated the following first mortgage loans during the three months ended June 30, 2022:
| Location | Property Type | Origination Date | Committed Principal | Principal as of June 30, 2022 | Coupon Rate | All in Yield | Maximum <br>Maturity <br>(date) | Loan to Value | |||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (dollars in thousands) | |||||||||||
| Farmington Hills, MI | Multifamily | 05/24/2022 | $ | 31,520 | $ | 28,520 | S + 3.15% | S + 3.50% | 05/24/2027 | 75 | % |
| Las Vegas, NV | Multifamily | 06/10/2022 | 28,950 | 23,100 | S + 3.30% | S + 4.08% | 06/10/2027 | 60 | % | ||
| Total/weighted average | $ | 60,470 | $ | 51,620 | S + 3.22% | S + 3.76% | 68 | % |
•During the quarter ended June 30, 2022, SEVN received $11.1 million of loan repayment proceeds.
Recent Financing Activities
•On April 25, 2022, SEVN amended its facility loan program agreement and the security agreement with BMO Harris Bank N.A. to increase the maximum principal amount available under its credit facility from $100.0 million to $150.0 million.
•The aggregate outstanding principal balance under SEVN's secured financing facilities was $455.0 million as of June 30, 2022 and $469.8 million as of July 25, 2022.
•As of June 30, 2022, SEVN was in compliance with all covenants and other terms under its secured financing facilities.
Distributions
•On May 19, 2022, SEVN paid a quarterly distribution of $0.25 per common share, or approximately $3.6 million, to shareholders of record as of April 25, 2022.
•On July 14, 2022, SEVN declared a quarterly distribution of $0.25 per common share, or approximately $3.6 million, to shareholders of record on July 25, 2022. SEVN expects to pay this distribution on August 18, 2022.
Conference Call
At 11:00 a.m. Eastern Time on Thursday, July 28, 2022, President, Tom Lorenzini, and Chief Financial Officer and Treasurer, Doug Lanois, will host a conference call to discuss SEVN’s second quarter 2022 financial results. The conference call telephone number is (866) 739-7850. Participants calling from outside the United States and Canada should dial (412) 317-6592. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available through 11:59 p.m. Eastern Time on Thursday, August 4, 2022. To access the replay, dial (412) 317-0088. The replay pass code is 8396123.
A live audio webcast of the conference call will also be available in a listen-only mode on SEVN’s website, which is located at www.sevnreit.com. Participants wanting to access the webcast should visit SEVN’s website about five minutes before the call. The archived webcast will be available for replay on SEVN’s website after the call. The transcription, recording and retransmission in any way of SEVN’s second quarter conference call are strictly prohibited without the prior written consent of SEVN.
Supplemental Data
A copy of SEVN’s Second Quarter 2022 Supplemental Operating and Financial Data is available for download at SEVN’s website, www.sevnreit.com. SEVN’s website is not incorporated as part of this press release.
About Seven Hills Realty Trust
Seven Hills Realty Trust (Nasdaq: SEVN) is a real estate investment trust, or REIT, that originates and invests in first mortgage loans secured by middle market and transitional commercial real estate. SEVN is managed by Tremont Realty Capital, an affiliate of The RMR Group (Nasdaq: RMR), a leading U.S. alternative asset management company with over $37 billion in assets under management and more than 35 years of institutional experience in buying, selling, financing and operating commercial real estate. For more information about SEVN, please visit www.sevnreit.com.
Non-GAAP Financial Measures
SEVN presents Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings, Adjusted Distributable Earnings per common share and Adjusted Book Value per common share, which are considered “non-GAAP financial measures” within the meaning of the applicable rules of the Securities and Exchange Commission, or SEC.
These non-GAAP financial measures do not represent net income, net income per common share or cash generated from operating activities and should not be considered as an alternative to net income or net income per common share determined in accordance with GAAP or as an indication of SEVN’s cash flows from operations determined in accordance with GAAP, a measure of SEVN’s liquidity or operating performance or an indication of funds available for SEVN’s cash needs. In addition, SEVN’s methodologies for calculating these non-GAAP financial measures may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures; therefore, SEVN’s reported Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share may not be comparable to distributable earnings, distributable earnings per common share, adjusted distributable earnings and adjusted distributable earnings per common share, as reported by other companies.
SEVN calculates Distributable Earnings and Distributable Earnings per common share as net income and net income per common share, respectively, computed in accordance with GAAP, including realized losses not otherwise included in net income determined in accordance with GAAP, and excluding: (a) the management incentive fees earned by SEVN’s manager, if any; (b) depreciation and amortization, if any; (c) non-cash equity compensation expense; (d) unrealized gains, losses and other similar non-cash items that are included in net income for the period of the calculation (regardless of whether such items are included in or deducted from net income or in other comprehensive income under GAAP), if any; and (e) one-time events pursuant to changes in GAAP and certain non-cash items, if any. Distributable Earnings are reduced for realized losses on loan investments when amounts are deemed uncollectable.
SEVN defines Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share as Distributable Earnings and Distributable Earnings per common share, respectively, excluding the effects of certain non-recurring transactions.
Management believes that Adjusted Book Value per common share is a meaningful measure of SEVN's capital adequacy because it excludes the unaccreted purchase discount resulting from the excess of the fair value of the loans TRMT then held for investment and that SEVN acquired as a result of the Merger over the consideration SEVN paid in the Merger. Adjusted Book Value per common share does not represent book value per common share or alternative measures determined in accordance with GAAP. SEVN's methodology for calculating Adjusted Book Value per common share may differ from the methodologies employed by other companies to calculate the same or similar supplemental capital adequacy measures; therefore, SEVN's Adjusted Book Value per common share may not be comparable to the adjusted book value per common share reported by other companies.
In order to maintain its qualification for taxation as a REIT, SEVN is generally required to distribute substantially all of its taxable income, subject to certain adjustments, to its shareholders. SEVN believes that one of the factors that investors consider important in deciding whether to buy or sell securities of a REIT is its distribution rate. Over time, Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share may be useful indicators of distributions to SEVN's shareholders and are measures that are considered by SEVN's Board of Trustees when determining the amount of distributions. SEVN believes that Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share provide meaningful information to consider in addition to net income, net income per common share and cash flows from operating activities determined in accordance with GAAP. These measures help SEVN evaluate its performance excluding the effects of certain transactions, the variability of any management incentive fees that may be paid or payable and GAAP adjustments that SEVN believes are not necessarily indicative of SEVN’s current loan portfolio and operations. In addition, Distributable Earnings is used in determining the amount of base management and management incentive fees payable by SEVN to its manager under SEVN’s management agreement.
Please see the pages attached hereto for a more detailed statement of SEVN’s operating results and financial condition and for an explanation of SEVN's calculation of Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share and a reconciliation of net income and net income per common share determined in accordance with GAAP to those amounts.
SEVEN HILLS REALTY TRUST
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
(unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| INCOME FROM INVESTMENTS: | ||||||||
| Interest income from investments | $ | 8,869 | $ | 3,055 | $ | 18,448 | $ | 5,056 |
| Purchase discount accretion | 1,636 | — | 7,571 | — | ||||
| Less: interest and related expenses | (3,007) | (192) | (4,744) | (192) | ||||
| Income from investments, net | 7,498 | 2,863 | 21,275 | 4,864 | ||||
| OTHER EXPENSES: | ||||||||
| Base management fees | 1,063 | 721 | 2,126 | 1,436 | ||||
| General and administrative expenses | 1,378 | 714 | 2,324 | 1,306 | ||||
| Reimbursement of shared services expenses | 440 | 275 | 1,000 | 601 | ||||
| Other transaction related costs | — | — | 37 | — | ||||
| Total other expenses | 2,881 | 1,710 | 5,487 | 3,343 | ||||
| Income before income taxes | 4,617 | 1,153 | 15,788 | 1,521 | ||||
| Income tax (expense) benefit | (39) | 7 | (84) | (11) | ||||
| Net income | $ | 4,578 | $ | 1,160 | $ | 15,704 | $ | 1,510 |
| Weighted average common shares outstanding - basic and diluted | 14,521 | 10,208 | 14,514 | 10,205 | ||||
| Net income per common share - basic and diluted | $ | 0.31 | $ | 0.11 | $ | 1.08 | $ | 0.15 |
SEVEN HILLS REALTY TRUST
CALCULATION AND RECONCILIATION OF NET INCOME TO DISTRIBUTABLE EARNINGS AND
ADJUSTED DISTRIBUTABLE EARNINGS
(amounts in thousands, except per share data)
(unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||
| Reconciliation of net income to Distributable Earnings and Adjusted Distributable Earnings: | ||||||||
| Net income | $ | 4,578 | $ | 1,160 | $ | 15,704 | $ | 1,510 |
| Non-cash equity compensation expense | 548 | 182 | 630 | 182 | ||||
| Non-cash accretion of purchase discount | (1,636) | — | (7,571) | — | ||||
| Distributable Earnings | 3,490 | 1,342 | 8,763 | 1,692 | ||||
| Other transaction related costs (1) | — | — | 37 | — | ||||
| Adjusted Distributable Earnings | $ | 3,490 | $ | 1,342 | $ | 8,800 | $ | 1,692 |
| Weighted average common shares outstanding - basic and diluted | 14,521 | 10,208 | 14,514 | 10,205 | ||||
| Net income per common share - basic and diluted | $ | 0.31 | $ | 0.11 | $ | 1.08 | $ | 0.15 |
| Distributable Earnings per common share - basic and diluted | $ | 0.24 | $ | 0.13 | $ | 0.60 | $ | 0.17 |
| Adjusted Distributable Earnings per common share - basic and diluted | $ | 0.24 | $ | 0.13 | $ | 0.61 | $ | 0.17 |
(1) Other transaction related costs include expenses related to the Merger.
SEVEN HILLS REALTY TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
(unaudited)
| June 30, | December 31, | |||
|---|---|---|---|---|
| 2022 | 2021 | |||
| ASSETS | ||||
| Cash and cash equivalents | $ | 48,230 | $ | 26,197 |
| Restricted cash | 166 | 98 | ||
| Loans held for investment, net | 670,185 | 570,780 | ||
| Prepaid expenses and other assets | 3,108 | 2,918 | ||
| Total assets | $ | 721,689 | $ | 599,993 |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
| Accounts payable, accrued liabilities and deposits | $ | 1,191 | $ | 1,561 |
| Secured financing facilities, net | 452,705 | 339,627 | ||
| Due to related persons | 1,063 | 1,111 | ||
| Total liabilities | 454,959 | 342,299 | ||
| Commitments and contingencies | ||||
| Shareholders' equity: | ||||
| Common shares of beneficial interest, $0.001 par value, 25,000,000 shares authorized; 14,638,063 and 14,597,079 shares issued and outstanding, respectively | 15 | 15 | ||
| Additional paid in capital | 238,254 | 237,624 | ||
| Cumulative net income | 40,354 | 24,650 | ||
| Cumulative distributions | (11,893) | (4,595) | ||
| Total shareholders' equity | 266,730 | 257,694 | ||
| Total liabilities and shareholders' equity | $ | 721,689 | $ | 599,993 |
Warning Concerning Forward-Looking Statements
This press release 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 SEVN uses words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “will”, “may” and negatives or derivatives of these or similar expressions, SEVN is making forward-looking statements. These forward-looking statements are based upon SEVN’s present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Actual results may differ materially from those contained in or implied by SEVN’s forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond SEVN’s control. For example:
•Mr. Lorenzini states that SEVN experienced strong earnings growth year over year and continued to execute on its plan to fully invest SEVN’s capital. Mr. Lorenzini also states that SEVN completed $60 million of high-quality loan originations, bringing its committed capital to $735 million. These statements may imply that SEVN will experience continued growth in future periods including in its loan originations and investment income. However, SEVN operates in a highly competitive industry and its business is subject to various risks, many of which are outside its control. These risks and other factors may prevent SEVN from successfully closing additional loans, executing its business plans and realizing its investment objectives. Further, once SEVN invests or commits its remaining capital, its ability to continue to grow and fund loans will be subject to its ability to obtain additional cost-effective capital or to redeploy proceeds from repayments of its loan investments. Additionally, any growth of its loan portfolio may not benefit SEVN if, for example, SEVN does not realize the returns it expects from that growth.
•Mr. Lorenzini states that the credit quality of SEVN's portfolio remains strong with its loans current on debt service and no loans in default and stated that the $60 million of SEVN's loan originations in the second quarter 2022 were high quality. These statements may imply that SEVN’s loans will remain current. However, SEVN's borrowers' and their tenants' businesses are subject to risks, including those related to the current economic conditions, including inflation and possible recession as well as possible impacts of the COVID-19 pandemic. As a result of these or other factors, SEVN’s loans may not continue to remain current.
•Mr. Lorenzini states that SEVN is in an excellent position to continue to grow Distributable Earnings and further enhance returns for its shareholders. Mr. Lorenzini also states that with a portfolio entirely comprised of 100% floating rate loans, SEVN expects to earn increased income from its investments in the rising interest rate environment. These statements may imply that SEVN will experience continued growth in its investment income and Distributable Earnings, resulting in continued or increased distributions to SEVN's shareholders. However, SEVN's business is subject to various risks, including interest rate risks that could cause SEVN's interest costs to increase to a level that may prevent SEVN from realizing its business objectives. In addition, as SEVN's loan investments are repaid, it may not be able to reinvest those amounts in loans that provide it with spreads similar to those it currently expects. Further, the timing, amount and form of any future distributions will be determined at the discretion of SEVN's Board of Trustees and will depend on various factors that its Board of Trustees deems relevant, including SEVN's historical and projected income, its Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share, the then current and expected needs and availability of cash to pay its obligations and fund its investments, distributions which may be required to be paid to maintain SEVN's qualification for taxation as a REIT, limitations on distributions contained in SEVN's financing arrangements and other factors
deemed relevant by SEVN's Board of Trustees. Accordingly, any future distributions may be increased, decreased, suspended or discontinued, and there is no assurance as to the rate at which future dividends, if any, will be paid.
•Mr. Lorenzini states that SEVN's investment pipeline remains strong with many attractive opportunities to deploy its available capital with the goal of reaching approximately $950 million in aggregate loan commitments this year. These statements may imply that SEVN will close additional loans and achieve its goal of having approximately $950 million in aggregate loan commitments, and that its business will continue to improve as a result. However, as described above, SEVN’s business and ability to execute loans and realize its business objectives are subject to various risks, including the competitive nature of the industry in which it operates, as well as other factors, many of which are outside its control. These risks and other factors may prevent SEVN from successfully closing additional loans and executing and realizing its goal this year or at all.
The information contained in SEVN's filings with the SEC, including under “Risk Factors” in SEVN's periodic reports, or incorporated therein, identifies other important factors that could cause SEVN’s actual results to differ materially from those stated in or implied by SEVN’s forward looking statements. SEVN’s filings with the SEC are available on the SEC’s website at www.sec.gov.
You should not place undue reliance upon forward-looking statements.
Except as required by law, SEVN does not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.
Contact:
Kevin Barry
Director, Investor Relations
(617) 796-7651
(END)
10
exhibit99
1 SECOND QUARTER 2022 Supplemental Operating and Financial Data ALL AMOUNTS IN THIS REPORT ARE UNAUDITED. Exhibit 99.2Shopping Center Acquisition Financing Brandywine, MD
2 Supplemental Q2 2022 2 Table of Contents CORPORATE INFORMATION Company Profile ...................................................................................................................................................................... 3 Investor Information and Research Coverage ................................................................................................................... 4 Company Highlights ............................................................................................................................................................... 5 PORTFOLIO OVERVIEW Second Quarter 2022 Highlights ......................................................................................................................................... 6 Loan Portfolio Summary ......................................................................................................................................................... 7 Portfolio Growth and Diversification ................................................................................................................................... 8 Portfolio Credit Quality .......................................................................................................................................................... 9 Capital Structure Overview .................................................................................................................................................... 10 Interest Rate Sensitivity ........................................................................................................................................................... 11 APPENDIX Loan Investment Details ......................................................................................................................................................... 13 Purchase Discount Details ..................................................................................................................................................... 15 Condensed Consolidated Balance Sheets ......................................................................................................................... 16 Condensed Consolidated Statements of Operations ...................................................................................................... 17 Reconciliation of Net Income to Distributable Earnings and Adjusted Distributable Earnings ............................... 18 WARNING CONCERNING FORWARD-LOOKING STATEMENTS ................................................................................................ 19 NON-GAAP FINANCIAL MEASURES AND CERTAIN DEFINITIONS Non-GAAP Financial Measures ............................................................................................................................................. 20 Other Measures and Definitions .......................................................................................................................................... 21 Please refer to Non-GAAP Financial Measures and Other Measures and Definitions for terms used throughout this document.
3 Supplemental Q2 2022 3 Management: Our manager, Tremont Realty Capital LLC, or Tremont, is registered with the Securities and Exchange Commission, or SEC, as an investment adviser. Tremont is owned by The RMR Group (Nasdaq: RMR). RMR is an alternative asset management company that is focused on CRE and related businesses. RMR primarily provides management services to publicly traded real estate companies, privately held real estate funds and real estate related operating businesses. As of June 30, 2022, RMR had over $37 billion of real estate assets under management and the combined RMR managed companies had approximately $12 billion of annual revenues, more than 2,100 properties and approximately 38,000 employees. We believe Tremont’s relationship with RMR provides us with a depth of market knowledge that may allow us to identify high quality investment opportunities and to evaluate them more thoroughly than many of our competitors, including other commercial mortgage REITs. We also believe RMR’s broad platform provides us with access to RMR’s extensive network of real estate owners, operators, intermediaries, sponsors, financial institutions and other real estate related professionals and businesses with which RMR has historical relationships. We also believe that Tremont provides us with significant experience and expertise in investing in middle market and transitional CRE. The Company: Seven Hills Realty Trust, or SEVN, we, our or us, is a real estate investment trust, or REIT, that focuses on originating and investing in floating rate first mortgage loans secured by middle market and transitional commercial real estate, or CRE. We define middle market CRE as commercial properties that have values up to $100.0 million and transitional CRE as commercial properties subject to redevelopment or repositioning activities that are expected to increase the value of the properties. Corporate Headquarters: Two Newton Place 255 Washington Street, Suite 300 Newton, MA 02458-1634 (617) 332-9530 Stock Exchange Listing: Nasdaq Trading Symbol: Common Shares: SEVN Key Data (as of and for the three months ended June 30, 2022): (dollars in thousands) Q2 2022 income from investments, net $ 7,498 Q2 2022 net income $ 4,578 Q2 2022 Adjusted Distributable Earnings $ 3,490 Loans held for investment, net $ 670,185 Total assets $ 721,689 Company Profile RETURN TO TABLE OF CONTENTSCORPORATE INFORMATION
4 Supplemental Q2 2022 4 Investor Information and Research Coverage Board of Trustees Barbara D. Gilmore Phyllis M. Hollis William A. Lamkin Joseph L. Morea Jeffrey P. Somers Independent Trustee Independent Trustee Independent Trustee Lead Independent Trustee Independent Trustee Matthew P. Jordan Adam D. Portnoy Managing Trustee Chair of the Board & Managing Trustee Executive Officers Equity Research Coverage Thomas J. Lorenzini G. Douglas Lanois JMP Securities President Chief Financial Officer and Treasurer Chris Muller, CFA (212) 906-3559 Contact Information cmuller@jmpsecurities.com Investor Relations Inquiries Seven Hills Realty Trust Financial, investor and media inquiries should be directed to: Jones Trading Institutional Services, LLC Two Newton Place Kevin Barry, Director, Investor Relations Jason M. Stewart 255 Washington Street, Suite 300 at (617) 332-9530 or ir@sevnreit.com (646) 465-9932 (617) 796-8253 jstewart@jonestrading.com ir@sevnreit.com www.sevnreit.com SEVN is followed by the analysts listed above. Please note that any opinions, estimates or forecasts regarding SEVN’s performance made by these analysts do not represent opinions, estimates or forecasts of SEVN or its management. SEVN does not by its reference above imply its endorsement of or concurrence with any information, conclusions or recommendations provided by any of these analysts. CORPORATE INFORMATION RETURN TO TABLE OF CONTENTS
5 Supplemental Q2 2022 5 Note: As of June 30, 2022 Company Highlights CORPORATE INFORMATION 28 Floating Rate First Mortgage Loans SEVN Nasdaq Listed $735M Total Loan Commitments 100% Loans Current on Debt Service $682M Total Debt Capacity 68% Weighted Average Loan to Value 1.7x Debt to Equity Ratio 2.7 Weighted Average Portfolio Risk Rating 0.6x Price to Adjusted Book Value RETURN TO TABLE OF CONTENTS Multifamily Acquisition Financing Las Vegas, NV
6 Supplemental Q2 2022 6 Financial Results Investment Activity Portfolio Update Capitalization Note: As of and for the three months ended June 30, 2022 (unless otherwise noted) • Generated net income of $4.6 million, or $0.31 per diluted share, and Adjusted Distributable Earnings of $3.5 million, or $0.24 per diluted share. • Book value per common share of $18.22 and Adjusted Book Value per common share of $18.89. • Declared quarterly dividend of $0.25 per common share. • Portfolio of 28 first mortgage loans with an aggregate total loan commitment of $734.9 million. • Diversified by property type and geographic location. • All loans current on debt service and credit quality remains strong at a weighted average risk rating of 2.7. • Closed two new loans with a total commitment of $60.5 million and a weighted average coupon rate of 4.42%. • One loan with an aggregate principal of $10.9 million was fully repaid during the quarter. • Continued execution of business plan with goal of reaching total aggregate loan commitments of approximately $950.0 million this year. • Expanded our BMO Harris note on note facility from $100.0 million to $150.0 million. • Outstanding principal balance of $455.0 million under our Secured Financing Facilities. • Enhanced the efficiency of our equity by increasing debt to equity ratio to 1.7x at June 30, 2022 from 1.4x at March 31 2022. Second Quarter 2022 Highlights PORTFOLIO OVERVIEW RETURN TO TABLE OF CONTENTS
7 Supplemental Q2 2022 7 (dollars in thousands) $636.8 $636.8 $688.4 $682.3 $682.3 $51.6 $4.9 $11.0$47.8 $52.7 Q1 2022 Portfolio Originations Fundings Repayments Q2 2022 Portfolio Second Quarter 2022 Portfolio Activity (dollars in millions) Total Loan Commitments Unfunded Commitments Second Quarter Originations Total Portfolio As of June 30, 2022 Number of loans 2 28 Average loan commitment $30,235 $26,246 Total loan commitments $60,470 $734,883 Unfunded loan commitments $8,850 $52,694 Principal balance $51,620 $682,285 Weighted average coupon rate 4.42% 5.14% Weighted average All In Yield 4.96% 5.64% Weighted average Maximum Maturity 5.0 3.6 Weighted average LTV 68% 68% Weighted average floor 0.70% 0.61% Loans with active floors 0% 14% Weighted average risk rating 3.0 2.7 Principal Balance Second Quarter 2022 Portfolio Summary $734.9 PORTFOLIO OVERVIEW RETURN TO TABLE OF CONTENTS $684.5
8 Supplemental Q2 2022 8 Retail East: 10% South: 28% West: 26% Midwest: 36% Office: 40% Multifamily: 29% Retail: 22% Industrial: 9% Geographic Region (2) Property Type (2) (dollars in millions) Portfolio Growth and Diversification (1) Includes loans originated by Tremont Mortgage Trust, or TRMT, and acquired by SEVN on September 30, 2021, as a result of the merger with TRMT, or the Merger. (2) Based on principal balance of loans held for investment as of June 30, 2022. $55.5 $77.0 $128.4 $157.3 $91.2 $51.6 $10.0 $11.8 $11.1 $7.4 $4.6 $8.9 $65.5 $88.8 $139.5 $164.7 $95.8 $60.5 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Total Loan Commitments Unfunded Commitments Principal Balance Loan Originations by Quarter (1) PORTFOLIO OVERVIEW Loan Count 6 6 3 2 RETURN TO TABLE OF CONTENTS 32
9 Supplemental Q2 2022 9 Loan Count 14% 13% 26% 40% 7% 30% - 60% 61% - 65% 66% - 70% 71% - 75% 76% - 80% Loan to Value (1) % of Portfolio Portfolio Credit Quality Loan Count 4 2 8 12 2 0 10 16 2 0 —% 34% 62% 4% —% Lower Risk (1) Average Risk (2) Acceptable Risk (3) Higher Risk (4) Impaired/Loss Likely (5) Risk Rating Distribution (1) % of Portfolio Weighted Average LTV: 68% Weighted Average Risk Rating: 2.7 (1) Percentage of portfolio based on principal balance of loans held for investment as of June 30, 2022. PORTFOLIO OVERVIEW RETURN TO TABLE OF CONTENTS
10 Supplemental Q2 2022 10 CA PI TA L ST RU CT UR E OV ER VI EW Secured Financing Facilities Maximum Facility Size Principal Balance Unused Capacity Weighted Average Advance Rate Weighted Average Coupon Rate Weighted Average Remaining Maturity (1) Master Repurchase Facilities $ 532,000 $ 372,768 $ 159,232 73.7% 3.41% 1.7 Asset Specific Financing 150,000 82,276 67,724 74.9% 3.14% 2.7 Total $ 682,000 $ 455,044 $ 226,956 73.9% 3.36% 1.9 Reconciliation of Book Value per Common Share to Adjusted Book Value per Common Share Shareholders’ equity $ 266,730 Total outstanding common shares 14,638 Book value per common share 18.22 Unaccreted purchase discount per common share 0.67 Adjusted Book Value per common share (2) $ 18.89 Capital Structure Detail (amounts in thousands, except per share data) (1) The weighted average remaining maturity of our Master Repurchase Facilities is determined using the earlier of the underlying loan maturity date and the respective repurchase agreement maturity date. The weighted average remaining maturity of Asset Specific Financing is determined using the underlying loan maturity date. (2) Adjusted Book Value per common share excludes the impact of the unaccreted purchase discount resulting from the excess fair value over the purchase price of the loans held for investment acquired in the Merger. The purchase discount of $36.4 million was allocated to each acquired loan held for investment and is accreted into income over the remaining term of the respective loan held for investment. As of June 30, 2022, the unaccreted purchase discount was $9.8 million. Secured Financing Facilities, 63% Equity, 37% Capital Structure Overview as of June 30, 2022 Capital Structure Composition RETURN TO TABLE OF CONTENTS PORTFOLIO OVERVIEW RETURN TO TABLE OF CONTENTS
11 Supplemental Q2 2022 11 The above table illustrates the incremental impact on our annual income from investments, net, due to hypothetical increases in LIBOR and SOFR, taking into consideration our borrowers’ interest rate floors as of June 30, 2022. The results in the table above are based on our loan portfolio and debt outstanding at June 30, 2022. Any changes to the mix of our investments or debt outstanding could impact the interest rate sensitivity analysis. This illustration is not meant to forecast future results. Interest Rate Increases $0.02 $0.05 $0.07 $0.10 $0.14 $0.18 $0.22 $0.26 25 bps 50 bps 75 bps 100 bps 125 bps 150 bps 175 bps 200 bps Interest Rate Sensitivity as of June 30, 2022 Estimated Annual Increase in Net Interest Income Per Share PORTFOLIO OVERVIEW RETURN TO TABLE OF CONTENTS • Active interest rate floors on 14% of loan investments ranging from 1.90% to 2.32%. • Weighted average interest rate floor on entire portfolio of 0.61%. • No interest rate floors on advances under our Secured Financing Facilities.
12 Supplemental Q2 2022 12APPENDIX Appendix
13 Supplemental Q2 2022 13 First mortgage loans as of June 30, 2022: (1) Location Property Type Origination Date Committed Principal Amount Principal Balance (2) Coupon Rate All in Yield Maturity Date Maximum Maturity Date LTV Risk Rating St. Louis, MO Office 12/19/2018 $ 29,500 $ 28,917 L + 3.25% L + 3.74% 12/19/2022 12/19/2023 72% 2 Coppell, TX Retail 02/05/2019 19,365 19,365 L + 3.50% L + 4.24% 08/12/2022 08/12/2022 73% 3 Yardley, PA Office 12/19/2019 16,500 14,972 L + 4.97% L + 5.67% 12/19/2023 12/19/2024 75% 4 Allentown, PA Industrial 01/24/2020 10,078 10,078 L + 3.50% L + 4.03% 01/24/2023 01/24/2025 67% 2 Dublin, OH Office 02/18/2020 22,820 22,507 S + 3.75% S + 4.95% 02/18/2023 02/18/2023 33% 2 Downers Grove, IL Office 09/25/2020 30,000 29,500 L + 4.25% L + 4.69% 11/25/2023 11/25/2024 67% 3 Los Angeles, CA Retail 12/17/2020 24,600 21,040 L + 4.25% L + 5.03% 12/17/2022 12/17/2024 67% 2 Aurora, IL Office / Industrial 12/18/2020 17,460 15,105 L + 4.35% L + 5.03% 12/18/2023 12/18/2024 73% 2 Olmstead Falls, OH Multifamily 01/28/2021 54,575 46,083 L + 4.00% L + 4.64% 01/28/2024 01/28/2026 63% 3 Colorado Springs, CO Office / Industrial 04/06/2021 34,275 30,210 L + 4.50% L + 5.02% 04/06/2024 04/06/2025 73% 2 Westminster, CO Office 05/25/2021 15,250 13,894 L + 3.75% L + 4.20% 05/25/2024 05/25/2026 66% 2 Plano, TX Office 07/01/2021 27,385 25,209 L + 4.75% L + 5.17% 07/01/2024 07/01/2026 78% 3 Portland, OR Multifamily 07/09/2021 19,687 19,687 L + 3.57% L + 3.97% 07/09/2024 07/09/2026 75% 3 Portland, OR Multifamily 07/30/2021 13,400 13,400 L + 3.57% L + 3.98% 07/30/2024 07/30/2026 71% 4 Seattle, WA Multifamily 08/16/2021 12,500 12,265 L + 3.55% L + 3.89% 08/16/2024 08/16/2026 70% 3 Loan Investment Details (dollars in thousands) APPENDIX RETURN TO TABLE OF CONTENTS (dollars in thousands)
14 Supplemental Q2 2022 14 First mortgage loans as of June 30, 2022: (1) Location Property Type Origination Date Committed Principal Amount Principal Balance (2) Coupon Rate All in Yield Maturity Date Maximum Maturity Date LTV Risk Rating Dallas, TX Office 08/25/2021 50,000 43,450 L + 3.25% L + 3.61% 08/25/2024 08/25/2026 72% 3 Sandy Springs, GA Retail 09/23/2021 16,488 15,017 L + 3.75% L + 4.11% 09/23/2024 09/23/2026 72% 2 Carlsbad, CA Office 10/27/2021 24,750 23,825 L + 3.25% L + 3.58% 10/27/2024 10/27/2026 78% 3 Bellevue, WA Office 11/05/2021 21,000 20,000 L + 3.85% L + 4.19% 11/05/2024 11/05/2026 68% 3 Ames, IA Multifamily 11/15/2021 18,000 17,680 L + 3.80% L + 4.13% 11/15/2024 11/15/2026 71% 2 Downers Grove, IL Office 12/09/2021 23,530 23,530 L + 4.25% L + 4.57% 12/09/2024 12/09/2026 72% 3 West Bloomfield, MI Retail 12/16/2021 42,500 37,388 L + 3.85% L + 4.66% 12/16/2023 12/16/2024 59% 3 Summerville, SC Industrial 12/20/2021 35,000 35,000 L + 3.50% L + 3.82% 12/20/2024 12/20/2026 70% 2 Delray Beach, FL Retail 03/18/2022 16,000 13,947 S + 4.25% S + 4.96% 03/18/2024 03/18/2026 56% 3 Starkville, MS Multifamily 03/22/2022 37,250 36,396 S + 4.00% S + 4.33% 03/22/2025 03/22/2027 70% 3 Brandywine, MD Retail 03/29/2022 42,500 42,200 S + 3.85% S + 4.25% 03/29/2025 03/29/2027 62% 3 Farmington Hills, MI Multifamily 05/24/2022 31,520 28,520 S + 3.15% S + 3.50% 05/24/2025 05/24/2027 75% 3 Las Vegas, NV Multifamily 06/10/2022 28,950 23,100 S + 3.30% S + 4.08% 06/10/2025 06/10/2027 60% 3 Total/weighted average $ 734,883 $ 682,285 + 3.82% + 4.33% 68% 2.7 Loan Investment Details (Continued) (dollars in thousands) APPENDIX RETURN TO TABLE OF CONTENTS (1) As of July 25, 2022, all of our borrowers had paid their debt service obligations owed and due to us and none of the loans included in our investment portfolio were in default. (2) The principal balance excludes the impact of the $9,820 unaccreted purchase discount related to the Merger.
15 Supplemental Q2 2022 15 (1) The estimate of purchase discount accretion is based on information as of June 30, 2022 and is subject to change as a result of early repayments or modifications of loans accounted for as extinguishments. Purchase Discount Details (dollars in millions) The fair value of the loans acquired in the Merger exceeded the purchase price of the loans. In accordance with U.S. generally accepted accounting principles, or GAAP, a purchase discount is recorded for the difference between the fair value and purchase price of the loans acquired. The purchase discount is accreted into income over the remaining terms of the acquired loans. Purchase Discount Fair value of TRMT loans acquired in the Merger $ 205.6 Less: Purchase price of TRMT loans acquired in the Merger 169.2 Purchase discount as of September 30, 2021 36.4 Less: Accumulated accretion of purchase discount as of June 30, 2022 (26.6) Remaining purchase discount to be accreted as of June 30, 2022 $ 9.8 Estimate of Purchase Discount Accretion $18.9 $5.9 $1.6 $1.6 $1.5 $4.4 $2.3 Q4 2021 (Actual) Q1 2022 (Actual) Q2 2022 (Actual) Q3 2022 Q4 2022 2023 2024 (1) PORTFOLIO OVERVIEW RETURN TO TABLE OF CONTENTS
16 Supplemental Q2 2022 16 Financial Summary June 30, 2022 December 31, 2021 ASSETS Cash and cash equivalents $ 48,230 $ 26,197 Restricted cash 166 98 Loans held for investment, net 670,185 570,780 Prepaid expenses and other assets 3,108 2,918 Total assets $ 721,689 $ 599,993 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable, accrued liabilities and deposits $ 1,191 $ 1,561 Secured financing facilities, net 452,705 339,627 Due to related persons 1,063 1,111 Total liabilities 454,959 342,299 Commitments and contingencies Shareholders' equity: Common shares of beneficial interest, $0.001 par value, 25,000,000 shares authorized; 14,638,063 and 14,597,079 shares issued and outstanding, respectively 15 15 Additional paid in capital 238,254 237,624 Cumulative net income 40,354 24,650 Cumulative distributions (11,893) (4,595) Total shareholders' equity 266,730 257,694 Total liabilities and shareholders' equity $ 721,689 $ 599,993 Condensed Consolidated Balance Sheets (dollars in thousands, except per share data) APPENDIX RETURN TO TABLE OF CONTENTS
17 Supplemental Q2 2022 17 Condensed Consolidated Statements of Operations Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 INCOME FROM INVESTMENTS: Interest income from investments $ 8,869 $ 3,055 $ 18,448 $ 5,056 Purchase discount accretion 1,636 — 7,571 — Less: interest and related expenses (3,007) (192) (4,744) (192) Income from investments, net 7,498 2,863 21,275 4,864 OTHER EXPENSES: Base management fees 1,063 721 2,126 1,436 General and administrative expenses 1,378 714 2,324 1,306 Reimbursement of shared services expenses 440 275 1,000 601 Other transaction related costs — — 37 — Total other expenses 2,881 1,710 5,487 3,343 Income before income taxes 4,617 1,153 15,788 1,521 Income tax (expense) benefit (39) 7 (84) (11) Net income $ 4,578 $ 1,160 $ 15,704 $ 1,510 Weighted average common shares outstanding - basic and diluted 14,521 10,208 14,514 10,205 Net income per common share - basic and diluted $ 0.31 $ 0.11 $ 1.08 $ 0.15 (amounts in thousands, except per share data) APPENDIX RETURN TO TABLE OF CONTENTS
18 Supplemental Q2 2022 18 Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Reconciliation of net income to Distributable Earnings and Adjusted Distributable Earnings: Net income $ 4,578 $ 1,160 $ 15,704 $ 1,510 Non-cash equity compensation expense 548 182 630 182 Non-cash accretion of purchase discount (1,636) — (7,571) — Distributable Earnings 3,490 1,342 8,763 1,692 Other transaction related costs (1) — — 37 — Adjusted Distributable Earnings $ 3,490 $ 1,342 $ 8,800 $ 1,692 Weighted average common shares outstanding - basic and diluted 14,521 10,208 14,514 10,205 Net income per common share - basic and diluted $ 0.31 $ 0.11 $ 1.08 $ 0.15 Distributable Earnings per common share - basic and diluted $ 0.24 $ 0.13 $ 0.60 $ 0.17 Adjusted Distributable Earnings per common share - basic and diluted $ 0.24 $ 0.13 $ 0.61 $ 0.17 Reconciliation of Net Income to Distributable Earnings and Adjusted Distributable Earnings (amounts in thousands, except per share data) APPENDIX RETURN TO TABLE OF CONTENTS (1) Other transaction related costs primarily include expenses related to the Merger.
19 Supplemental Q2 2022 19 This supplemental operating and financial data may contain 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. 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. For example, we state that our anticipated total aggregate loan commitments will be approximately $950.0 million when fully invested this year. This may imply that we will close additional loans and have approximately $950.0 million in aggregate loan commitments by December 31, 2022, and that our business will continue to improve as a result. However, our business and ability to execute loans and realize our business objectives are subject to various risks, including the competitive nature of the industry in which we operate, as well as other factors, many of which are outside our control. These risks and other factors may prevent us from successfully closing additional loans and executing and realizing our goals by December 31, 2022 or at all. The information contained in our filings with the SEC, including under “Risk Factors” in our periodic reports, or incorporated therein, identifies important factors that could cause our actual results to differ materially from those stated in or implied by 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 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. Warning Concerning Forward-Looking Statements WARNING CONCERNING FORWARD-LOOKING STATEMENTS RETURN TO TABLE OF CONTENTS
20 Supplemental Q2 2022 20 ON -G AA P FI NA NC IA L ME AS UR ES A ND C ER TA IN D EF IN IT IO NS We present Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings, Adjusted Distributable Earnings per common share and Adjusted Book Value per common share, which are considered “non-GAAP financial measures” within the meaning of the applicable SEC rules. These non-GAAP financial measures do not represent net income, net income per common share or cash generated from operating activities and should not be considered as an alternative to net income or net income per common share determined in accordance with GAAP or as an indication of our cash flows from operations determined in accordance with GAAP, a measure of our liquidity or operating performance or an indication of funds available for our cash needs. In addition, our methodologies for calculating these non- GAAP financial measures may differ from the methodologies employed by other companies to calculate the same or similar supplemental performance measures; therefore, our reported Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings, and Adjusted Distributable Earnings per common share may not be comparable to distributable earnings, distributable earnings per common share, adjusted distributable earnings and adjusted distributable earnings per common share, as reported by other companies. We believe that Adjusted Book Value per common share is a meaningful measure of our capital adequacy because it excludes the unaccreted purchase discount resulting from the excess of the fair value of the loans TRMT then held for investment and that we acquired as a result of the Merger over the consideration we paid in the Merger. Adjusted Book Value per common share does not represent book value per common share or alternative measures determined in accordance with GAAP. Our methodology for calculating Adjusted Book Value per common share may differ from the methodologies employed by other companies to calculate the same or similar supplemental capital adequacy measures; therefore, our Adjusted Book Value per common share may not be comparable to the adjusted book value per common share reported by other companies. In order to maintain our qualification for taxation as a REIT, we are generally required to distribute substantially all of our taxable income, subject to certain adjustments, to our shareholders. We believe that one of the factors that investors consider important in deciding whether to buy or sell securities of a REIT is its distribution rate. Over time, Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share may be useful indicators of distributions to our shareholders and are measures that are considered by our Board of Trustees when determining the amount of distributions. We believe that Distributable Earnings, Distributable Earnings per common share, Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share provide meaningful information to consider in addition to net income, net income per common share and cash flows from operating activities determined in accordance with GAAP. These measures help us to evaluate our performance excluding the effects of certain transactions, the variability of any management incentive fees that may be paid or payable and GAAP adjustments that we believe are not necessarily indicative of our current loan portfolio and operations. In addition, Distributable Earnings is used in determining the amount of base management and management incentive fees payable by us to Tremont under our management agreement. Distributable Earnings: We calculate Distributable Earnings and Distributable Earnings per common share as net income and net income per common share, respectively, computed in accordance with GAAP, including realized losses not otherwise included in net income determined in accordance with GAAP, and excluding: (a) the management incentive fees earned by our Manager, if any; (b) depreciation and amortization, if any; (c) non-cash equity compensation expense; (d) unrealized gains, losses and other similar non-cash items that are included in net income for the period of the calculation (regardless of whether such items are included in or deducted from net income or in other comprehensive income under GAAP), if any; and (e) one-time events pursuant to changes in GAAP and certain non-cash items, if any. Distributable Earnings are reduced for realized losses on loan investments when amounts are deemed uncollectable. Adjusted Distributable Earnings: We define Adjusted Distributable Earnings and Adjusted Distributable Earnings per common share as Distributable Earnings and Distributable Earnings per common share, respectively, excluding the effects of certain non-recurring transactions. Adjusted Book Value: Adjusted Book Value per common share is a non-GAAP measure that excludes the impact of the unaccreted purchase discount resulting from the excess of the fair value of the loans TRMT then held for investment which we acquired as a result of the merger with TRMT over the consideration we paid in the merger. Non-GAAP Financial Measures NON-GAAP FINANCIAL MEASURES AND CERTAIN DEFINITIONS RETURN TO TABLE OF CONTENTS
21 Supplemental Q2 2022 21 ON -G AA P FI NA NC IA L ME AS UR ES A ND C ER TA IN D EF IN IT IO NS All In Yield: All In Yield represents the yield on a loan, including amortization of deferred fees over the initial term of the loan and excluding any purchase discount accretion. Asset Specific Financing: Amounts advanced under the facility loan agreement and security agreement with BMO Harris Bank N.A. are pursuant to separate facility loan agreements that we refer to as Asset Specific Financing. LIBOR: LIBOR refers to the London Interbank Offered Rate. LTV: Loan to value ratio, or LTV, represents the initial loan amount divided by the underwritten in-place value of the underlying collateral at closing. Master Repurchase Facilities: Collectively, we refer to the master repurchase facilities with UBS AG, Citibank, N.A. and Wells Fargo, National Association as our Master Repurchase Facilities. Maximum Maturity: Maximum Maturity assumes all borrower loan extension options have been exercised, which options are subject to the borrower meeting certain conditions. Secured Financing Facilities: Collectively, we refer to the Master Repurchase Facilities and our Asset Specific Financing as our Secured Financing Facilities. SOFR: SOFR is defined as the Secured Overnight Financing Rate. Other Measures and Definitions NON-GAAP FINANCIAL MEASURES AND CERTAIN DEFINITIONS RETURN TO TABLE OF CONTENTS