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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.

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, 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

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

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.

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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, 2020, we had approximately $778 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.

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.

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.

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

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

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

(2)	All in yield includes the amortization of deferred fees over the initial term of the loan.

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

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

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

    

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

		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	%

		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	%

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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 31, 2020 based on our internal risk rating policy:

Risk Rating		Number of Loans		Carrying Value
1		—		$	—
2		1		24,505
3		7		132,633
4		6		114,349
5		—		—
		14		$	271,487

The weighted average risk rating of our loans by carrying value was 3.3 and 2.9 as of March 31, 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, hospitality and office property collateral with exposure to the oil and gas industries, which are the types of properties that have been highly impacted by the pandemic. We expect that those negative impacts may continue and apply to other borrowers and 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 to us as currently scheduled. As a result, we have downgraded six loans representing 42% of the carrying value of our loan portfolio to a loan risk rating of “4” or “higher risk”.

We did not have any impaired loans or nonaccrual loans as of March 31, 2020 or December 31, 2019. However, subsequent to March 31, 2020, a borrower under one of our loans secured by a retail property that had been downgraded to "4" or "higher risk", as noted above, requested relief from its debt service obligation owed to us and failed to make its April 2020 debt servicing obligation, resulting in a default under the loan agreement. See Note 13 for further information regarding these requests.

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

		Debt Obligation
														Weighted Average				Collateral
		Maximum Facility Size				Principal Balance				Carrying Value				Coupon Rate		Remaining Maturity (1) (years)		Principal Balance				Fair Value (2)
March 31, 2020:
Master repurchase facility		$	213,482			$	196,344			$	195,566			L + 2.00%		1.4		$	272,234			$	268,450
December 31, 2019:
Master repurchase facility		$	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 extension options.

(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% and 4.47% for the three months ended

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March 31, 2020 and 2019, respectively. For the three months ended March 31, 2020 and 2019, we recorded interest expense of $1,638 and $1,084, respectively, in connection with our Master Repurchase Facility.

In connection with our Master Repurchase Agreement, we entered into a guaranty, or, as amended, the Guaranty, which requires us to 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, 2020, we have not received a margin call under our Master Repurchase 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, 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 outstanding principal and accrued interest under the TCB note payable, the TCB note payable terminated in accordance with its terms. We recorded $368 of interest expense for the three months ended March 31, 2019 in connection with the TCB note payable.

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

Year		Principal Payments (1)
2020		$	28,910
2021		167,434
2022		—
2023		—
2024		—
		$	196,344

(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.

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, 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 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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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
		Carrying Value				Fair Value				Carrying Value				Fair Value
Financial assets
Loans held for investment		$	271,487			$	268,450			$	242,078			$	242,763
Financial liabilities
Master repurchase facility		$	195,566			$	196,344			$	164,694			$	165,536

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.

Distributions

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

Record Date		Payment Date		Distribution Per Share		Total Distribution
January 27, 2020		February 20, 2020		$0.22		$1,813

On March 31, 2020, we declared a quarterly distribution of $0.01 per common share, or approximately $82, to shareholders of record on April 10, 2020. We expect to pay this distribution on or about May 21, 2020.

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

Our Manager, and not us, is responsible for the costs of its employees who provide services to us, including the cost of our Manager’s personnel who originate our loans, unless any such payment or reimbursement is specifically approved by a majority of our Independent Trustees, is a shared services cost or relates to awards made under any equity compensation plan adopted by us. We are 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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a majority of our Independent Trustees at least annually. We incurred shared services costs of $359 and $402 payable to our Manager for the three months ended March 31, 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.

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, 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.

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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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 the weighted average number of common shares used in the calculation of basic and diluted EPS (amounts in thousands):

		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.

Unfunded Commitments

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

Secured Borrowings

    The borrower under our loan related to a property located in Coppell, TX requested relief from its debt service obligation 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 of $22,204, which accounts for approximately 8.2% of the aggregate outstanding principal balance of 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.

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

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•	the duration and severity of the current economic downturn;

•	the strength and sustainability of any economic recovery;

•

the timing and process for how the government 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 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 of economic activities, the United States or other countries experience “second waves” of COVID-19 infection outbreaks and, if so, the responses of governments, businesses and the general public to those events.

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

(2)	All in yield includes the amortization of deferred fees over the initial term of the loan.

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

(1)	All in yield includes the amortization of deferred fees.

(2)	Maximum maturity assumes all extension options are 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.

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(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, 2020. If our Manager had not waived these base management and incentive fees, we would have recognized $320 and $223 of base management fees for the three months ended March 31, 2020 and 2019, respectively, and no incentive fees would have been paid or payable for either of the three months ended March 31, 2020 and 2019.

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(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, 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.

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

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

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(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 in our Master Repurchase Agreement. 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, 2020. The 100-basis point decrease in LIBOR used in the analysis above has been limited in that analysis to 0.86% to result in a LIBOR rate of 0.00%. The results are based on our current loan portfolio and debt outstanding at March 31, 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.

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•	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 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,

•	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,

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•	Our qualification for taxation as a REIT,

•	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.

•	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 "Risk Factors" in this Quarterly Report on Form 10-Q and the section captioned "Risk Factors" in our 2019 Annual Report.

•	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,

•

We reduced our quarterly cash distribution to common shareholders 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,

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•	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 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 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, 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,

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•	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, 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.

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•	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.

•	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

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(1)	These common share withholdings and purchases were made to satisfy the tax withholding and payment obligations of certain former officers and employees 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.

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