Good day, and welcome to the Tremont Mortgage Trust Second Quarter 2021 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kevin Berry, Manager of Investor Relations. Please go ahead..

Thank you, and good morning, everyone. Thanks for joining us today. With me on the call are President, Tom Lorenzini, and Chief Financial Officer and Treasurer, Doug Lanois. In just a moment, they will provide details about our business and our performance for the second quarter of 2021.

We will then open the call to a question-and-answer session with sell-side analysts. I would like to note that the recording and retransmission of today’s conference call is strictly prohibited without the prior consent of the company.

Also note that today’s conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws.

These forward-looking statements are based on TRMT’s beliefs and expectations as of today, Wednesday, July 28, 2021, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today’s conference call.

Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission, or SEC, which can be accessed from the SEC’s website. Investors are cautioned not to place undue reliance upon any forward-looking statements.

In addition, our discussion regarding the pending merger of TRMT and RMRM does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval.

In connection with the merger, RMRM has filed with the SEC a registration statement on Form S-4 containing a Joint Proxy Statement Prospectus and other documents with respect to the merger.

Investors are urged to read the Joint Proxy Statement Prospectus, including all amendments and supplements and any other documents filed or to be filed with the SEC in connection with the merger or incorporated by reference in the Joint Proxy Statement Prospectus because they contain and will contain important information about the merger.

Information regarding potential participants and any proxy solicitation of TRMT and RMRM shareholders in a description of their direct and indirect interest by security holdings or otherwise are contained in the Joint Proxy Statement Prospectus.

Finally, we will be discussing non-GAAP numbers during this call, including distributable earnings and adjusted distributable earnings. For a reconciliation of net income determined in accordance with GAAP to distributable earnings and adjusted distributable earnings, please see our quarterly earnings release, which is available on our website.

I will now turn the call over to Tom..

Thank you, Kevin. Good morning, everyone, and welcome to the second quarter earnings call for Tremont Mortgage Trust. I will begin with an update on TRMT’s second quarter performance, and will provide some details on our loan portfolio and investment pipeline. I’ll then turn the call over to Doug to review our financial results and the balance sheet.

During the second quarter, we continued to execute on our business objective of investing capital in first mortgage loans secured by middle market and transitional commercial real estate. TRMT’s portfolio continues to perform well with all of our loans current on debt service, and our risk rating continues to remain stable.

We generated adjusted distributable earnings of $0.25 per share. And earlier this month, our board maintained our quarterly distribution to shareholders of $0.10 per share, consistent with what we paid in May. We also remain on track for our merger with RMR Mortgage Trust.

During the quarter, we filed our S-4, Joint Proxy Registration Statement, with the SEC, which became effective earlier this week. We encourage all our shareholders to read these materials as they contain important information about the merger.

On September 17, we are holding a special meeting where shareholders will vote whether to adopt the merger agreement, although we urge all our shareholders to submit their vote as soon as possible. With shareholder approval, we expect to close the transaction later this quarter.

This is a tremendous opportunity for our shareholders to bring together 2 highly complementary businesses that will create a larger, more diversified commercial mortgage REIT, approaching $1 billion in assets when fully invested.

With increased scale and greater financial strength, we believe the combined company will be much better positioned to pursue its focus on commercial mortgage lending, drive earnings growth and deliver more attractive risk-adjusted returns over the long term.

Based on the compelling benefits of the transaction, TRMT’s board recommends the shareholders vote for the merger proposal. We join our board in their recommendation and look forward to the successful combination of TRMT and RMRM.

Now turning to our investment activity during the second quarter, we closed on a first mortgage whole own of $15.2 million to refinance a Denver area office property. The collateral is comprised of 2 multi-tenant office buildings totaling approximately 125,000 square feet.

The loan includes an initial funding of $13.5 million and future advances of up to $1.7 million, with an initial loan term of 3 years. This loan fits well within our program of lending the middle market transitional real estate with its stable current rent roll and likely enhanced collateral value as our borrower executes their business plan.

We received the early repayment of our industrial loan in Barrington, New Jersey, with an outstanding principal amount of $36.2 million, which we used to pay down our Citi repurchase facility. We also amended our loan secured by an office building in Houston, Texas.

The loan was extended by 45 days until August 10, while the sponsor finalizes their efforts to refinance our $14.5 million position. We expect this loan to pay at maturity. We also anticipate repayments during the third quarter from 3 additional loans with an aggregate outstanding principal balance of $60.7 million.

Based on this anticipated repayment activity, we expect to have approximately $100 million of dry powder available for new investments during the third quarter.

As of June 30, we had approximately $246 million in aggregate loan commitments, consisting of 13 first mortgage whole loans with a weighted average loan-to-value of 65% and a weighted average maximum maturity of 2.2 years when including extension options. Our portfolio is 100% floating rate, and all of our loans have active LIBOR floors.

The portfolio had a weighted average coupon of 5.6% and an all-in yield of 6.4% at quarter end. Our investments continued to be broadly diversified across geographies and property type. We continue to monitor the execution of our borrowers’ business plans and remain pleased with the ongoing strength of our investments.

None of our loans are in default, and we have not recorded any credit losses. The weighted average risk rating of our portfolio was stable at 3, which speaks to the strong credit quality of our borrowers and our managers’ ability to originate high quality loans. During the second quarter, we upgraded 2 loans.

Our Houston, Texas office loan was upgraded to a 3 based on our improved assessment of energy market office fundamentals, and we upgraded our Dublin, Ohio loan from a 3 to a 2 rating, driven by progress on the underlying business plan, which resulted in a substantial increase in debt yield and debt coverage exceeding our originally underwritten estimates.

We did not have any downgrades. Looking at the risk distribution of our loan book, approximately 70% of our portfolio was rated 3 or better, and none of our loans are rated at 5%.

During the second half of 2021, we are focused on reinvesting our available capital into strong credit opportunities backed by high-quality properties and sponsors with business plans that meet our investment return and credit criteria.

We expect increased deal flow will continue in the second half of the year as acquisition activity continues to increase and has remained strong this summer, which is typically a slower season for transaction volume.

Our manager, Tremont Realty Advisors, under their trade name Tremont Realty Capital, remains active in the bridge loan market with a healthy deal pipeline comprised of more than 20 potential transactions totaling over $600 million in various stages of review, underwriting and diligence, including office, retail, multifamily and hospitality.

The debt markets continue to be marked by significant amounts of liquidity seeking yield, creating a very competitive landscape, further driving down pricing. Competition to lend to quality properties is frequently coming from banks in addition to other mortgage REITS, debt funds and life insurance companies.

With the continuing improvement in the economy and the availability of the COVID vaccine, lenders such as TRMT are beginning to expand beyond multifamily, lab, office and industrial, which have been the preferred property types over the last year to once again include retail and hospitality, along with niche products such as self-storage and manufactured housing.

This increases the universe of investment opportunities as we continue to focus on new loans that best align with our investment strategy and meet our required risk-adjusted returns on capital. We currently have 2 loans in diligence to backfill approximately $63 million of TRMT’s recent and expected loan repayments.

One loan provides acquisition financing for a Class A multifamily property in Portland, Oregon, which we expect to close within the next week. The second is for an acquisition financing for an office property outside of Dallas that we anticipate closing during the third quarter, subject to our final diligence.

And with that, I’ll now turn it over to Doug to review our quarterly financial results.

Doug?.

Thank you, Tom, and good morning, everyone. Thank you for joining our call. TRMT’s second quarter financial results reflect the adverse impact of transaction expenses we incurred related to a proposed merger with RMR Mortgage Trust, as well as our loan repayment activity during the first half of 2021.

We generated distributable earnings of $226,000 or $0.03 per diluted share. Excluding $1.8 million of merger transaction costs, our adjusted distributable earnings came in at $2 million, or $0.25 per weighted average diluted share. This compares to distributable earnings of $0.27 in the prior quarter.

Our earnings continue to benefit from strong portfolio performance and in-the-money LIBOR floors embedded in our loans.

Interest income from our investments for the quarter was $4.8 million, driven by full quarter interest payments on 12 loans and partial quarter interest payments on the loan that repaid and the new loan originated during the second quarter.

Interest and related expenses incurred from borrowings on our master repurchase facility was $988,000, resulting in income from investments net of approximately $3.2 million for the quarter. As presented in our supplemental financial package, our weighted average all-in yield on the investments as of June 30 was 6.4%.

This includes our weighted average LIBOR floor of 194 basis points, a weighted average spread of 366 basis points and amortization of our loan fees. Total expenses were approximately $3.1 million during the second quarter. This includes $1.8 million of transaction costs related to the merger with RMRM.

General and administrative expenses totaled $685,000, including $128,000 of noncash equity-based compensation. Shared service expense reimbursement amounted to $206,000. TRMT did not record any management incentive fees during the second quarter.

Earlier this month, we announced a regular quarter distribution of $0.10 per share, or approximately $831,000, which will be paid in August.

Looking ahead to closing the merger, in order to maintain compliance with REIT taxation requirements, we will need to declare and pay a special distribution to shareholders of at least 90% of TRMT’s taxable income prior to the closing of the merger. Our Board will determine the amount necessary based on TRMT’s financial performance.

Turning now to our balance sheet, at the end of the second quarter we had $8.3 million in cash, which is intended to meet our liquidity requirements and fund future loan obligations.

Our loans held for investment net totaled approximately $238 million, a decrease of $22 million from last quarter, driven by our net repayments during the second quarter. As of June 30, we had an outstanding principal balance on our master repurchase facility of $156 million and unused capacity of $57 million.

During the quarter, we paid down $38 million of outstanding balances and borrowed $14 million to fund our new loan originations. Operator, this concludes our prepared remarks. We will now take questions from sell-side analysts..

Operator:.

Thank you, operator. Thanks, everyone, for joining us today. This concludes our call..

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect..