RMR Mortgage Trust
Consolidated Financial Statements
Consolidated Statement of Assets and Liabilities
						December 31, 2020
Assets
Cash and cash equivalents						$	103,313,544
Loans held for investment (cost $91,878,969)						91,878,969
Restricted cash						250,000
Dividends and interest receivable						138,832
Prepaid expenses						345,145
Other assets						128,732
Total assets						196,055,222
Liabilities
Accrued income taxes						2,386,000
Accrued expenses and other liabilities						490,480
Advisory fee payable						140,860
Deferred revenue						82,238
Compliance and internal audit costs payable						31,413
Administrative fee payable						29,943
Total liabilities						3,160,934
Net assets attributable to common shares						$	192,894,288
Composition of net assets attributable to common shares
Common shares, $0.001 par value per share; unlimited number of shares authorized						$	10,202
Additional paid-in capital						192,884,086
Net assets attributable to common shares						$	192,894,288
Common shares outstanding						10,202,009
Net asset value per share attributable to common shares						$	18.91
See notes to consolidated financial statements.

RMR Mortgage Trust
Consolidated Financial Statements - continued
Consolidated Statement of Operations
						For the
						Year Ended
						December 31, 2020
Investment Income
Dividend income						$	6,803,613
Interest income from mortgage loan investments						563,655
Other income						352,991
Total investment income						7,720,259
Expenses
Advisory						2,363,603
Legal						361,411
Compliance and internal audit						144,543
Shareholder reporting						110,246
Custodian						86,257
Administrative						76,757
Preferred share remarketing and auction fees						65,458
Trustees' fees and expenses						55,347
Audit						49,134
Other						424,403
Total expenses before interest expense						3,737,159
Interest expense						1,207,561
Total expenses						4,944,720
Net investment income						2,775,539
Realized and change in unrealized gain (loss) on investments
Net realized gain on investments before taxes						13,207,592
Income tax expense						(2,386,000)
Net realized gain on investments after taxes						10,821,592
Net change in unrealized losses on investments						(69,278,340)
Net realized and change in unrealized losses on investments after taxes						(58,456,748)
Net decrease in net assets before preferred distributions resulting from operations						(55,681,209)
Distributions to preferred shareholders from net investment income						(322,917)
Net decrease in net assets attributable to common shares resulting from operations						$	(56,004,126)
See notes to consolidated financial statements.

RMR Mortgage Trust
Consolidated Financial Statements - continued
Consolidated Statements of Changes in Net Assets
						Year Ended December 31, 2020						Year Ended December 31, 2019
Increase (decrease) in net assets resulting from operations
Net investment income						$	2,775,539					$	4,896,213
Net realized gain on investments after taxes						10,821,592						4,292,510
Net change in unrealized gains (losses) on investments						(69,278,340)						61,744,128
Distributions to preferred shareholders						(322,917)						(639,400)
Net increase (decrease) in net assets attributable to common shares resulting from operations						(56,004,126)						70,293,451
Distributions to common shareholders from:
Distributable earnings						(6,427,266)						(8,334,106)
Return of capital						—						(5,132,546)
Total distributions to common shareholders						(6,427,266)						(13,466,652)
Capital shares transactions
Redemption of auction rate preferred shares						(16,675,000)						—
Net decrease in capital share transactions						(16,675,000)						—
Liquidation preference of preferred shares repurchased						16,675,000						—
Total increase (decrease) in net assets attributable to common shares						(62,431,392)						56,826,799
Net assets attributable to common shares
Beginning of year						255,325,680						198,498,881
End of year						$	192,894,288					$	255,325,680
Common shares issued and repurchased
Shares outstanding, beginning of year						10,202,009						10,202,009
Shares outstanding, end of year						10,202,009						10,202,009
See notes to consolidated financial statements.

RMR Mortgage Trust
Consolidated Financial Statements - continued
Consolidated Statement of Cash Flows
						Year Ended
						December 31, 2020
Cash flows from operating activities
Net decrease in net assets before preferred distributions resulting from operations						$	(55,681,209)
Adjustments to reconcile net decrease in net assets before preferred distributions
resulting from operations to cash provided by operating activities:
Origination of loans held for investment						(91,878,969)
Purchases of long term investments						(10,077,968)
Proceeds from sales of long term investments						302,797,118
Net (purchases)\ and sales of short term investments						4,476,850
Decrease in payable for securities purchased						(9,832)
Changes in assets and liabilities:
Decrease in dividends and interest receivable and other assets						2,436,359
Increase in accrued income taxes						2,386,000
Increase in accrued expenses and other liabilities						430,012
Increase in prepaid expenses						(296,775)
Decrease in advisory fee payable						(118,012)
Decrease in interest payable						(212,232)
Decrease in compliance and internal audit costs payable						(5,934)
Increase in administrative fee payable						2,272
Net change in unrealized losses on investments						69,278,340
Net realized gain on investments and foreign currency transactions						(13,207,592)
Cash provided by operating activities						210,318,428
Cash flows from financing activities
Distributions paid to preferred shareholders						(322,917)
Distributions paid to common shareholders						(6,427,266)
Repayment of revolving credit facility						(88,000,000)
Redemption of Auction Preferred Shares						(16,675,000)
Cash used in financing activities						(111,425,183)
Increase in cash and cash equivalents						98,893,245
Cash and cash equivalents at beginning of year						4,670,299
Cash and cash equivalents and restricted cash at end of year						$	103,563,544
Cash and cash equivalents and restricted cash at end of year
Cash and cash equivalents						$	103,313,544
Restricted cash						250,000
Cash and cash equivalents and restricted cash at end of year						$	103,563,544
Supplemental cash flow information:
Cash paid for interest and fees on borrowings						$	1,419,793
See notes to consolidated financial statements.

(a)			Based on weighted average shares outstanding.
(b)			As discussed in Note A(7) to the financial statements, a portion of the distributions we received on our investments are not included in investment income for financial reporting purposes.
(c)			Represents the impact of our rights offering of 2,550,502 common shares in September 2017 at a subscription price per share based on a formula.
(d)			Total return based on per share market price assumes the purchase of common shares at the market price on the first day and sale of common shares at the market price on the last day of the period indicated; dividends and distributions, if any, are assumed to be reinvested at market prices on the ex-dividend date. The total return based on net asset value, or NAV, assumes the purchase of common shares at NAV on the first day and sale of common shares at NAV on the last day of the period indicated; distributions are assumed to be reinvested at NAV on the ex-dividend date. All assumed purchases, sales and reinvestments noted in the preceding sentences are assumed to have been executed as of the close of trading on the assumed date. Results represent past performance and do not guarantee future results.
(e)			We incurred a one time non-recurring expense equal to 0.17% of net assets attributable to common shares, fully reimbursed to us by RMR Advisors LLC. If the non-recurring reimbursed expense was not included, Expenses, including interest expense, would have been 2.45%.
(f)			All of our borrowings under our revolving credit facility were repaid in November 2020. Please refer to Note F for further information.
(g)			Asset coverage ratio of borrowings equals net assets attributable to common shares plus the outstanding balance under our revolving credit facility plus the liquidation preference of our outstanding preferred shares divided by the outstanding balance under our revolving credit facility.
(h)			All of our issued and outstanding auction rate preferred shares were redeemed at par value of $16,675,000 plus accrued but unpaid dividends during November 2020. Please refer to Note D for further information.
(i)			Asset coverage ratio of preferred shares equals net assets attributable to common shares plus the liquidation preference of our outstanding preferred shares divided by the liquidation preference of our preferred shares.
(j)			Asset coverage ratio of borrowings and liquidation preference of our preferred shares equals net assets attributable to common shares plus the outstanding balance under our revolving credit facility plus the liquidation preference of our outstanding preferred shares divided by the outstanding balance under our revolving credit facility plus the liquidation preference of our outstanding preferred shares.
			See notes to consolidated financial statements.

Notes to Consolidated Financial Statements

Note A

1. Organization

RMR Mortgage Trust (formerly known as RMR Real Estate Income Fund), or we, us, our, or the Trust, was organized as a Delaware statutory trust on December 17, 2008, and was registered under the Investment Company Act of 1940, as amended, or the 1940 Act, as a non-diversified closed end management investment company. At our annual meeting on April 13, 2017, our shareholders approved the redomestication of the Trust from a Delaware statutory trust to a Maryland statutory trust. The redomestication was completed on April 18, 2017, and we then became and continue to be a Maryland statutory trust.

On April 16, 2020, our shareholders approved a change in business from a registered investment company that makes equity investments in real estate companies to a real estate investment trust, or REIT, engaged in the business of originating and investing in first mortgage whole loans secured by middle market and transitional commercial real estate. Our fundamental investment objectives of earning and paying a high level of current income to common shareholders, with capital appreciation as a secondary objective, have been replaced with a non-fundamental primary objective to balance capital preservation with generating attractive risk adjusted returns. Our shareholders also amended our fundamental investment restrictions to permit us to engage in our new business while awaiting deregistration as an investment company and approved our return to non-diversified status under the 1940 Act. On January 5, 2021, the SEC issued an order granting our request to deregister as an investment company under the 1940 Act.

We sold all our legacy portfolio assets in 2020 and during 2020 began originating and investing in commercial mortgage loans within our new investment scope.

2. Basis of Presentation

These consolidated financial statements includes the accounts of us and our subsidiaries, RMRM RTP Lender LLC and RMTG Lender LLC, all of which are 100% owned directly by us. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated.

For the year ended December 31, 2020, we are an investment company in accordance with the FASB Accounting Standards Codification (ASC) 946, Financial Services - Investment Companies, for the purposes of financial reporting. We will apply accounting and reporting guidance for REITs beginning in 2021.

Preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that may affect the amounts reported in our financial statements and related notes. Our actual results could differ from these estimates.

3. Portfolio Valuation

As of December 31, 2020, our portfolio primarily consisted of mortgage loans and cash. Our mortgage loans held for investment are carried at their fair values. Please see Note 4 Fair Value Measurements for further information on these investments. Investments in open end mutual funds are valued at the closing NAV on the valuation date.

As of December 31, 2020 we held $21,441,093 shares in State Street Institutional U.S. Government Money Market Fund valued at $21,441,093. This amount in included with other cash balances in the Statement of Assets and Liabilities and are considered Level 1 assets for fair value measurements (see Note 4).

4. Fair Value Measurements

We estimate the fair values of our loans held for investment 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 loan to value, or LTV, property types and loan pricing expectations which are corroborated by a comparison with other market participants to determine the appropriate market spread to add to the one month LIBOR (Level III inputs as defined in the fair value hierarchy under GAAP). As of December 31, 2020, the fair value of the mortgage loans approximated their historical cost.

We report the value of our investments at their fair value. Fair value is defined as the price that we would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market for the investment. When valuing investments, we use observable market data when possible and otherwise uses other significant observable or unobservable inputs for fair value measurements. Inputs refer broadly to the assumptions we believe believes that market participants would use in valuing the asset or liability, including assumptions about risk; for example, the risk inherent in using a particular valuation technique to measure fair value and the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in valuing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our own assumptions about the assumptions market participants would use in valuing the asset or liability developed based on the best information available in the circumstances. The three tier hierarchy of inputs used to value securities reported in these financial statements is summarized below:

    •    Level 1 – unadjusted quoted prices in active markets for identical investments.

    

•    Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, credit risk, etc.).

    

•    Level 3 – significant unobservable inputs (including our own assumptions in determining the fair value of investments).

Legacy Portfolio Assets

We use broker quotes, issuer company financial information and other market indicators to value the securities whose prices are not readily available. The types of inputs used to value a security may change as the markets fluctuate and/or the availability of data used in an investment’s valuation changes.

When the S&P 500 Index (an unmanaged index published as Standard & Poor’s Composite Index of 500 common stocks) fluctuates more than 0.75% from the previous day close, we believe that the closing price of foreign securities on the principal foreign exchange on which they trade may no longer represent the fair value of those securities at the time the U.S. market closes, in which case, we fair value those foreign securities. In such circumstances, we report holdings in foreign securities at their fair values as determined by an independent security pricing service. The service uses a multi-factor model that includes such information as the security’s local closing price, relevant general and sector indices, currency fluctuations, depository receipts and futures, as applicable. The model generates an adjustment factor for each security that is applied to the local closing price to adjust it for post closing events, resulting in the security’s reported fair value. The adjustment factor is applied to a security only if the minimum confidence interval is 75% or more. The types of inputs may change as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. We recognize interperiod transfers between the input levels as of the end of the period.

Mortgage Loans Held for Investment

Our loans are classified as held for investment based upon our intent and ability to hold them until maturity. We evaluate each of our loans for impairment at least quarterly by assessing a variety of risk factors in relation to each loan and assigning a risk rating to each loan based on those factors. Factors considered in these evaluations include, but are not limited to, property type, geographic and local market dynamics, physical condition, leasing and tenant profile, projected cash flow, risk of loss, current LTV, debt yield, collateral performance, structure, exit plan and sponsorship. Loans are rated “1” (lower risk) through “5” (impaired/loss likely) as defined below:

"1" lower risk—Criteria reflects a sponsor having a strong financial condition and low credit risk and our evaluation of management's experience; collateral performance exceeding performance metrics included in the business plan or

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

"2" average risk—Criteria reflects a sponsor having a stable financial condition and our evaluation of management's experience; collateral performance meeting or exceeding substantially all performance metrics included in the business plan or credit underwriting; and the property demonstrating improved occupancy at market rents, resulting in sufficient current cash flow and/or having a low LTV.

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

"4" higher risk—Criteria reflects a sponsor having a history of unresolved missed or late payments, maturity extensions and difficulty timely fulfilling its credit obligations and our evaluation of management's experience; collateral performance failing to meet the business plan or credit underwriting; the existence of a risk of default possibly leading to a loss and/or potential weaknesses that deserve management’s attention; 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.

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 December 31, 2020 based on our internal risk rating policy:

The weighted average risk rating of our loans by carrying value was 3.0 as of December 31, 2020. We did not have any impaired loans or nonaccrual loans as of December 31, 2020. As of December 31, 2020, and February 22, 2021, all of our borrowers had paid all of their debt service obligations owed and due to us and none of the loans included in our investment portfolio were in default.

RMR Mortgage Trust

Notes to Consolidated Financial Statements (continued)

December 31, 2020

The following table provides a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:

						Investments in Mortgage Loan Characterized as Level 3
Balance, as of December 31, 2019						$	—
Loan originations (Level 3)						91,878,969
Balance, as of December 31, 2020						$	91,878,969
Net change in unrealized appreciation/depreciation from investments still held as of December 31, 2020						$	—

At December 31, 2020, there were no Level 3 fair value measurements utilizing significant inputs determined by management. We recognize interperiod transfers between the input levels as of the end of the period. There were no transfers of financial assets or liabilities within the fair value hierarchy during the year ended December 31, 2020.

5. Investment Transactions and Investment Income

We record securities transactions on a trade date basis, dividend income on the ex-dividend date and any non-cash dividends at the fair market value of the securities received. We use the accrual method for recording interest income, including accretion of original issue discount, where applicable, and accretion of discount on short term investments and identified cost basis for realized gains and losses from securities transactions. The difference between cost and fair value of for investments we continue to hold is reflected as unrealized gain (loss), and any change in that amount from a prior period is reflected in the accompanying consolidated statement of operations.

Interest income related to our first mortgage whole loans secured by 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.

6. Taxes

We have adopted the provisions of the Topic of the FASB Accounting Standard Codification, or ASC 740. ASC 740 sets forth a minimum threshold for financial statement recognition of a tax position taken, or expected to be taken, in a tax return. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. These reclassifications have no impact on net assets or results of operations. We recognize interest and penalties, if any, related to unrecognized tax positions as an income tax expense in the Consolidated Statement of Operations. At December 31, 2020, we did not have any unrecognized tax positions. Each of the tax years in the four year period ended December 31, 2020 remains subject to examination by the Internal Revenue Service.

We have elected to retain realized capital gains and designate such gains as a distribution to shareholders in accordance with section 852(b)(3)(D) of the Internal Revenue Code, or IRC, and we have recorded a $2,386,000 provision for income taxes for the year ended December 31, 2020. The amount of undistributed capital gains was $7,997,377 for the year ended December 31, 2020. The aggregate cost of investments that generated these undistributed gains for U.S. federal income tax purposes was $334,389,280. Current income tax expense as shown on our consolidated statement of operations is comprised of as described in the table below:

RMR Mortgage Trust

Notes to Consolidated Financial Statements (continued)

December 31, 2020

			Year ended
			December 31, 2020
Income tax expense
Federal			$	1,746,210
State			639,790
Total			$	2,386,000

On January 5, 2021, the SEC issued an order deregistering us as an investment company. We elected to be taxed as a REIT beginning with the 2020 tax year. Our REIT election, assuming continuing compliance with the then applicable qualification tests, will continue in effect for subsequent taxable years. Although we cannot be sure, beginning with our taxable year for which we make our election to be taxed as a REIT, we expect that we will be organized and will operate in a manner that will allow us to so qualify, and we expect that we will continue to be so organized and to so operate in subsequent taxable years. Accordingly, we generally 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 consolidated statements of operations.

7. Distributable Earnings

We earn income, net of expenses on our investments. On February 22, 2019, we, acting pursuant to an SEC exemptive order and with the approval of our Board of Trustees adopted a managed distribution plan, consistent with our investment objectives and policies, allowing us to include long term capital gains, where applicable, as part of a regular fixed quarterly distribution to our shareholders that is intended to distribute an amount consistent with our total returns in relation to NAV over time, or the Managed Distribution Plan. Distributions following our deregistration as an investment company are no longer subject to our Managed Distribution Plan, which ceased to be effective as of that time. Consistent with the Managed Distribution Plan (when effective) and our currently effective distribution policy, our distributions to common shareholders may consist of ordinary income (net investment income and short term capital gains), a portion of the estimated realized long term capital gains or return of capital, which is not taxable. To the extent net realized capital gains, if any, can be offset by capital loss carry forwards, it is our policy not to distribute such gains.

During the year ended December 31, 2020, we had substantial investments in REITs, which are generally not subject to U.S. federal income taxes. Distributions that we receive from REITs can be classified as ordinary income, capital gain income or return of capital by the REITs that make these distributions to us. We have excluded from our investment income the portions of the distributions received from REITs classified by those REITs as capital gain income or return of capital. We have included in our "net realized gain on investments" that portion of the distributions received from REITs that is classified by those REITs as capital gain income. We credited "net change in unrealized appreciation on investments" with that portion of the distributions received from REITs that is classified by those REITs as return of capital. In addition, if we use capital loss carryforwards to offset capital gains, a portion of our distribution to common shareholders may be classified as ordinary income for U.S. federal income tax purposes. Further, our distributions to common shareholders for the years ended December 31, 2020 and 2019 did not exceed the aggregate of the cash distributions we received from our investments and capital gains as a result of trading activities less our expenses and distributions to preferred shareholders. The classifications of distributions received from our investments were as follows:

(1) Reported as investment income in our Consolidated Statement of Operations.

(2) Included in net realized gain on investments, net of tax, in our Consolidated Statement of Operations.

(3) Included in net change in unrealized gain on investments in our Consolidated Statement of Operations.

Only distributions in excess of accumulated tax basis earnings and profits are reported in the financial statements as a return of capital for tax purposes.

RMR Mortgage Trust

Notes to Consolidated Financial Statements (continued)

December 31, 2020

The tax character of distributions during the years ended December 31, 2020 and December 31, 2019 were as follows:

			Year ended						Year ended
			December 31, 2020						December 31, 2019
Ordinary income			$	1,786,150					$	5,431,697
Long term capital gains			4,964,033						3,541,809
Return of capital			—						5,132,546
			$	6,750,183					$	14,106,052

As of December 31, 2020, the components of distributable earnings on a U.S. federal income tax basis were as follows:

Capital losses generated are carried forward indefinitely, and retain the character of the original loss. Net capital loss carryforwards may be applied against any net realized taxable gains in succeeding years where applicable.

During the year ended December 31, 2020, we utilized net capital loss carryforwards of $209,830. At December 31, 2020, our accumulated capital loss carryovers that can be used to offset future realized long term capital gains were $1,140,262.

8. Concentration, Interest Rate and Illiquidity Risk

As of December 31, 2020, our investments were concentrated in income producing debt securities, primarily first mortgage whole loans secured by middle market and transitional CRE. All our loans held were made in U.S. dollars and earn interest at floating rates based on London Interbank Offer Rate, or LIBOR, plus a premium. Accordingly, we are exposed to interest rate risk for changes in U.S. dollar based short-term rates, specifically LIBOR. As LIBOR decreases, our risk is partially mitigated by interest rate floor provisions in our loan agreements with borrowers. In addition, upon repayment from our borrowers we are vulnerable to decreases in interest rate premiums due to market conditions at the time any such repayment proceeds are reinvested.

LIBOR is currently expected to be phased out for new contracts by December 31, 2021 and for pre-existing contracts by June 30, 2023. We currently expect that the determination of interest under our loan agreements with our borrowers would be revised as provided under the agreements or amended as necessary to provide for an interest rate that approximates the existing interest rate as calculated in accordance with LIBOR. Despite our current expectations, we cannot be sure that, if LIBOR is phased out or transitioned, the changes to the determination of interest under our agreements would approximate the current calculation in accordance with LIBOR.

Our mortgage loans are considered illiquid securities for which no secondary market is readily available. The lack of liquidity of these investments may make it difficult to sell such investments if the need or desire arises. If we are required to liquidate all or a portion of our portfolio quickly, we may incur losses.

Note B

Advisory and Administration Agreements and Other Transactions with Affiliates; Trustee Compensation; Other Agreements

We had an investment advisory agreement with RMR Advisors LLC, or RMR Advisors, to provide us with a continuous investment program, to make day to day investment decisions and to generally manage our business affairs in accordance with our investment objectives and policies. This agreement was terminated on January 5, 2021 in connection with our deregistration as an investment company. Pursuant to this agreement, RMR Advisors was compensated at an annual rate of 0.85% of our average daily managed assets. Managed assets means our total assets less liabilities other than any indebtedness

entered into for purposes of leverage. Thus, for purposes of calculating managed assets, our revolving credit facility and the liquidation preference of our preferred shares were not considered a liability and they were considered indebtedness entered into for purposes of leverage. We incurred advisory fees of $2,363,603 for the year ended December 31, 2020. On January 5, 2021, we terminated this investment advisory agreement and entered into a management agreement, or Management Agreement, with Tremont Realty Advisors LLC, or our Manager, effective January 5, 2021, or the Effective Date, to manage our day-to-day operations, subject to the oversight and direction of our Board of Trustees.

Under the terms of the Management Agreement:

1.Base Management Fee: We are required to pay our Manager an annual base management fee equal to 1.5% of our equity, payable in cash quarterly (0.375% per quarter) in arrears. Under the Management Agreement, “equity” means (a) the sum of (i) our net asset value as of the Effective Date, plus (ii) the net proceeds received by us from any future sale or issuance of our shares of beneficial interest, plus (iii) our cumulative core earnings (as defined below) for the period commencing on the Effective Date to the end of the applicable most recent completed calendar quarter, less (b) (i) any distributions previously paid to holders of our common shares, (ii) any incentive fee previously paid to our Manager and (iii) any amount that we may have paid to repurchase our common shares. All items in the foregoing sentence (other than clause (a)(iii)) are calculated on a daily weighted average basis.

2.Incentive Fee: Starting in the calendar quarter ending March 31, 2021, we are required to pay our Manager quarterly an incentive fee in arrears in cash equal to the difference between: (a) the product of (i) 20% and (ii) the difference between (A) our core earnings for the most recent 12 month period (or such lesser number of completed calendar quarters, if applicable), including the calendar quarter (or part thereof) for which the calculation of the incentive fee is being made, and (B) the product of (1) our equity in the most recent 12 month period (or such lesser number of completed calendar quarters, if applicable), including the calendar quarter (or part thereof) for which the calculation of the incentive fee is being made, and (2) 7% per year and (b) the sum of any incentive fees paid to our Manager with respect to the first three calendar quarters of the most recent 12 month period (or such lesser number of completed calendar quarters preceding the applicable period, if applicable). No incentive fee shall be payable with respect to any calendar quarter unless our core earnings for the 12 most recently completed calendar quarters (or such lesser number of completed calendar quarters from the Effective Date) in the aggregate is greater than zero. The incentive fee may not be less than zero.

3.Termination Fee. In the event the Management Agreement is terminated by us without a cause event or by our Manager for a material breach, we will be required to pay our Manager a termination fee equal to (a) three times the sum of (i) the average annual base management fee and (ii) the average annual incentive fee, in each case paid or payable to our Manager during the 24 month period immediately preceding the most recently completed calendar quarter prior to the date of termination or, if such termination occurs within 24 months of its initial commencement, the base management fee and the incentive fee will be annualized for such two year period based on such fees earned by our Manager during the period from the Effective Date through the most recently completed calendar quarter prior to the termination date, plus (b) $1,600,000. No termination fee will be payable if the Management Agreement is terminated by us for a cause event or by our Manager without our material breach.

4.Expense Reimbursement. Our Manager will be responsible for the costs of our Manager's 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 (as defined under our governing documents) or is a shared services cost. We are required to pay or to reimburse our Manager and its affiliates for all other costs and expenses of our operations, including but not limited to, the costs of rent, utilities, office furniture, equipment, machinery and other overhead type expenses, the costs of legal, accounting, auditing, tax planning and tax return preparation, consulting services, diligence costs related to our investments, investor relations expenses and other professional services, and other costs and expenses not specifically required under the management agreement to be borne by our Manager. Some of these overhead, professional and other services will be provided by The RMR Group LLC, or RMR LLC, pursuant to a shared services agreement between our Manager and RMR LLC. In addition, we will also pay our pro rata portion of internal audit costs incurred by RMR LLC on our behalf and on behalf of other public companies to which RMR LLC or its affiliates provides management services.

5.Term and Termination. The initial term of the Management Agreement ends on December 31, 2023, and the agreement will automatically renew for successive one year terms beginning January 1, 2024 and each January 1 thereafter, unless it is sooner terminated upon written notice delivered no later than 180 days prior to a renewal date

by the affirmative vote of at least two thirds (2/3) of our Independent Trustees based upon a determination that (a) our Managers' performance is unsatisfactory and materially detrimental to us or (b) the base management fee and incentive fee, taken as a whole, payable to our Manager under the Management Agreement are not fair to us (provided that, in the instance of (b), our Manager will be afforded the opportunity to renegotiate the base management fee and incentive fee prior to termination). The Management Agreement may be terminated by our Manager before each annual renewal upon written notice delivered to our Board of Trustees no later than 180 days prior to an annual renewal date.

Our Manager may also terminate the Management Agreement if we become required to register as an investment company under the 1940 Act, with such termination deemed to occur immediately before such event. In addition, our Manager may terminate the Management Agreement upon 60 days’ written notice for a material breach by us, as defined in the Management Agreement, which includes if we default in the performance or observance of any material term, condition or covenant contained in the Management Agreement, the consequence of which was materially adverse to our Manager and which did not result from and was not attributable to any action, or failure to act, of our Manager and the default continues for a period of 30 days after written notice to us requesting that the default be remedied within that period, we materially reduce our Managers’ duties and responsibilities or scope of its authority under the Management Agreement or we cease or take steps to cease to conduct the business of originating or investing in commercial real estate loans.

6.Other Provisions. We have agreed to indemnify our Manager and its affiliates, including RMR LLC, its members, officers, employees and affiliates against liabilities relating to acts or omissions of such party with respect to the provision of services to us, except to the extent such provision of services was in bad faith or was grossly negligent. In addition, the Management Agreement provides that any disputes, as defined in the agreements, arising out of or relating to the agreement or the provision of services pursuant thereto, upon the demand of a party to the dispute, shall be subject to mandatory arbitration in accordance with procedures provided in the agreement.

For purposes of the calculation of base management fees and incentive fees payable to our Manager under the Management Agreement, “core earnings” is defined as net income (or loss) attributable to common shareholders computed in accordance with GAAP, including realized losses not otherwise included in GAAP net income (loss), and excluding: (a) the incentive fees earned by our Manager; (b) depreciation and amortization (if any); (c) non cash equity compensation expense (if any); (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 or loss under GAAP); and (e) one-time events pursuant to changes in GAAP and certain material non cash income or expense items (in each case after discussions between our Manager and our Independent Trustees and approved by a majority of such Independent Trustees). Pursuant to the terms of the Management Agreement, the exclusion of depreciation and amortization from the calculation of core earnings shall only apply to owned real estate. Our shares of beneficial interest that are entitled to a specific periodic distribution or have other debt characteristics will not be included in equity for the purpose of calculating incentive fees payable to our Manager. Instead, the aggregate distribution amount that accrues to such shares during the calendar quarter of such calculation will be subtracted from core earnings for purposes of calculating incentive fees, unless such distribution is otherwise already excluded from core earnings. Equity and core earnings as defined in the Management Agreement are non-GAAP financial measures and may be different than our shareholders’ equity and net income calculated according to GAAP.

Until January 6, 2021, RMR Advisors also performed administrative functions for us pursuant to an administration agreement with us. RMR Advisors also entered into a subadministration agreement with State Street Bank and Trust Company, or State Street, to perform substantially all fund accounting and other administrative services for us. Under the administration agreement, RMR Advisors was entitled to reimbursement of the cost of providing administrative services. We paid RMR Advisors $76,757 for subadministrative fees charged by State Street for the year ended December 31, 2020. On January 6, 2021, RMR Advisors merged with and into our Manager, with our Manager being the surviving entity. Our Manager has assumed the administration agreement with us and the subadministration agreement with State Street.

Each trustee who is not a director, officer or employee of Tremont Realty Advisors, and who is not an "interested person" of us, as defined under the 1940 Act, for the year ended December 31, 2020 is considered to be a "disinterested trustee". We pay cash compensation to our disinterested trustees, consisting primarily of an annual retainer. We incurred trustee fees and expenses of $55,347 for the year ended December 31, 2020.

Our Board of Trustees, and separately the disinterested trustees, has authorized us to make payments to RMR Advisors and, commencing January 5, 2021, our Manager for costs, related to our compliance and internal audit programs. We incurred compliance and internal audit expenses of $144,543, which includes our allocated portion for compliance and internal audit related costs for the year ended December 31, 2020.

(1)			Includes the cost of brokerage commissions we paid for purchases and sales of securities of $2,039  and $179,106 respectively. These amounts are recorded as the cost of security for purchases and reduced from net proceeds while recording sales.

Note D

Preferred Shares

In November 2020, we redeemed all 667 of our issued and outstanding auction rate preferred shares (64 Series M, 438 Series T, 47 Series W, 91 Series Th and 27 Series F auction rate preferred shares) for a total liquidation preference of $16,675,000, plus accrued and unpaid dividends.

Note E

Capital Share Transactions

As of December 31, 2020, 10,202,009 common shares, $.001 par value per share, were issued and outstanding. The Trust had no capital stock transactions during the year ended December 31, 2020.

Note F

Revolving Credit Facility

In November 2020, we repaid all outstanding amounts and terminated our $88,000,000 revolving credit facility, or the Facility, with BNP Paribas Prime Brokerage International, Ltd., or PBL. During 2020, the average outstanding daily balance under the Facility was $86,673,780 at a weighted average borrowing cost of 1.51%. The Facility with PBL permitted, subject to certain conditions, PBL to rehypothecate portfolio securities pledged by us up to the amount of the loan balance outstanding. We received dividends and interest on these rehypothecated securities. We received a portion of the fees earned by PBL in connection with the rehypothecation of portfolio securities. During the year ended December 31, 2020, we earned $41,814 in fees from rehypothecated securities, which we recorded as other income in our Consolidated Statement of Operations under other income.

Note G

Subsequent Events

In January 2021, we closed a first mortgage bridge loan of $10,900,000 to finance the acquisition of a nine story multi-tenant office building with 83,000 square feet located in Miami, Florida. This loan requires the borrower to pay interest at per annum floating rate of LIBOR plus a premium of 450 basis points. This floating rate loan was fully funded at closing and has a two year term with two one-year extension options, subject to the borrower meeting certain conditions.

In January 2021, we closed a first mortgage bridge loan of $54,575,000 to refinance two manufactured housing communities comprised of 1,200 home sites located in Cleveland and Olmsted Falls, Ohio. This loan requires the borrower to pay interest at per annum floating rate of LIBOR plus a premium of 400 basis points. This floating rate loan includes an initial funding of $44,615,000 and a future funding allowance of $9,960,000 for capital improvements to further enhance these communities and has a three year term with two one-year extension options, subject to the borrower meeting certain conditions.

We entered into a master repurchase agreement, with UBS AG, or UBS, on February 18, 2021, or the Master Repurchase Agreement. Under the Master Repurchase Agreement, UBS will purchase the mortgage loans and advance up to 75% of the lesser of the market value of the mortgage asset or the unpaid principal balance of such mortgage asset, subject to UBS’s approval. In connection with our Master Repurchase Agreement, we entered into a guaranty, or the Guaranty, which requires us to guarantee 25% of the aggregate repurchase price, and 100% of losses in the event of certain bad acts as well any costs and expenses of UBS 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 and a total indebtedness to stockholders equity ratio. These maintenance provisions provide UBS with the right, in certain circumstances related to a credit event, as defined in our Master Repurchase Agreement, to re-determine the market value of purchased assets. Where a decline in the market value of purchased assets has resulted in a margin deficit, UBS may require us to eliminate such margin deficit through a combination of purchased asset repurchases and cash transfers to UBS, subject to UBS's approval.