Good morning, and welcome to the Tremont Mortgage Trust Fourth Quarter 2020 Financial Results Conference Call [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Kevin Barry, 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 fourth quarter of 2020. We will then open the call to a question-and-answer session with sell side analysts. First, I'd like to note that the recording and retransmission of today's conference call is strictly prohibited without the prior written 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 Tremont's beliefs and expectations as of today, Monday, February 22, 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 our website trmtreit.com or the SEC's Web site. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, we will be discussing non-GAAP numbers during this call, including distributable earnings. For a reconciliation of net income determined in accordance with GAAP to distributable earnings, please see our quarterly earnings release, which is available on our Web site. I will now turn the call over to Tom.

Thank you, Kevin. Good morning, everyone, and thank you for joining us. On Friday, we reported solid results for the fourth quarter that reflect our proactive measures over the past year to actively manage our loans, preserve liquidity and enhance the stability of our balance sheet. Tremont's portfolio delivered stable investment performance with 100% of our loans remaining current on debt service. The strength and resiliency of our portfolio during this period of unprecedented economic uncertainty underscores the expertise and experience of our team and the value of our relationship with the RMR Group. Our collective knowledge and resources across Tremont Realty Capital and the depth of RMR's national CRE platform provides our investment program with an enhanced ability to understand market conditions, evaluate our borrowers' business plans and monitor the ongoing repositioning activities of our loan collateral. During the fourth quarter, Tremont's capital remained fully committed, which eliminated our ability to originate new loans. We are focused on managing our portfolio and actively communicating with our borrowers as they continue to execute their business plans. While the ongoing pandemic continues to weigh on some of our borrowers' tenants, our loans continue to perform well with strong support from their sponsors. The weighted average risk rating of our portfolio improved during the fourth quarter. We upgraded the ratings on two loans as a result of better performance of the underlying loan collateral and our borrowers' progress implementing their business plans. We did not have any downgrades during the quarter. On a five point scale, with one representing lowest risk and five representing highest risk, the weighted average risk rating improved from 3.4 in Q3 to 3.2 at year end. None of our loans are rated at five. As we have discussed on prior calls, in early 2020, we reduced Tremont's…

Thank you, Tom, and good morning, everyone. First, I would like to note that beginning this quarter, we have changed our terminology on non-GAAP earnings from core earnings to distributable earnings. This reflects a recent transition across the mortgage REIT industry to adopt terminology that better describes what this metric represents, which is a measure of our results that start with GAAP net income and is adjusted for certain noncash items to be more indicative of our performance in the context of a potential distribution. This is only a change in terminology and does not alter our calculation of this non-GAAP metric. Turning now to our financial results for the fourth quarter. Distributable earnings came in at $2.3 million or $0.28 per weighted average diluted share compared to $0.17 in the prior year period and $0.33 per share last quarter. Our loans continue to benefit from our LIBOR floors in this historically low rate environment. Income from investments net was stable quarter over quarter at $3.4 million during the fourth quarter. This reflects interest income from investments of $4.6 million and interest from related interest and related expenses from borrowings on our master repurchase facility of $1.2 million. As presented in our supplemental financial package, our weighted average all in yield on our investments as of December 31st, was 6.4%. This includes our weighted average LIBOR floor of 210 basis points, a weighted average spread of 360 basis points and amortization of loan fees. All of our investments remain current on debt service and we have had no loan losses at year end. Total expenses were $1.2 million in the fourth quarter compared to $765,000 in the prior quarter. This sequential increase was primarily driven by shared services and state taxes as well as other public company costs. While shared…

[Operator Instructions] The first question is from Steve Delaney from JMP Securities.

Tom, you mentioned an active pipeline. Could you comment on the pipeline that you're seeing relative to Tremont? And also, I think this is just obviously coincidence. You had a pay off in February and I believe that RMR mortgage had made a fairly large loan in January and another. And I'm curious, as part of your pipeline, is it possible under the structure of the two companies where Tremont could actually take a participation in a loan that was primarily targeted for RMR? Thank you.

Regarding pipeline, you're correct in that with RMR, we do have an active pipeline and have been closing transactions inside of that vehicle. I would tell you right now that we have -- our current pipeline is roughly $600 million in transactions that are in various stages from initial diligence through the closing process. 10 of those transactions are in the quoted stage through the application stage or diligence, narrowing that down to a couple of hundred million dollars. So we would have the ability as capital is repaid into TRMT to replace the loans, such as the Rochester, New York loan. Regarding your question about the sharing of loans or a participation of loans, that certainly is something that we could entertain. I'm not sure that we are necessarily going that route, there's some additional documentation that would be required to do that between the two entities. And most likely would prefer to keep the investments whole inside of each of the REITS, but it is certainly something that we could do if we decided to go that route.

Well, I think I'm hearing you say that the pipeline targeted for Tremont, TRMT, is sizable enough that it doesn't sound like you have too much concern about redeploying that $24 million in the matter of a couple of months. Am I hearing you correctly there?

I think that's a fair statement. We certainly have to look to make sure that we have the rightsized loan to go into TRMT. We don't want to do too small of a transaction and be left with some capital that's uninvested or uncommitted. But as additional payoffs come in, that becomes less of an issue for us because we'll have additional capacity. And with Tremont Realty Advisors originating for both entities we should be able to transition pretty smoothly into putting that capital back to work inside of TRMT.

[Operator Instructions] The next question is from Brock Vandervliet from UBS.

Just wondering if you could talk about the expense dynamic in the fourth quarter. I understand the incentive fees has been well telegraphed that starts here in Q1. But in terms of G&A or total expense base, what should we be expecting going forward in those respects? Was there anything one-time related in Q4?

Our expenses in Q4 did run a little bit higher than the full year. So the way I view it, the full year is a good indicator in terms of going forward in terms of G&A, there were some onetime items. And so I think the full year is a best indicator. With regard to shared service expense, our expectation is that we'll continue to reduce at a similar pace as it did from 2019 to 2020.

And at what level do you think you can hold, I guess, total expenses ex any incentive payments at? Should those be relatively flat or could they even be negative on a full year basis?

In terms of G&A, again, I would think that it's a typical year-over-year increase inflation oriented. And again with shared services, our expectation is that they'll decrease. And again, at a similar rate.

And separately, if I can. You mentioned loan yields may be under pressure with these new LIBOR floors. Can you dimension that more for us?

Yes, I think that if you look at our portfolio currently, with weighted average of 5.7% and 2.1% of that is based on the LIBOR floors going forward. Spreads shouldn't dramatically be different. However, the reset of the floors to 50 basis points or less will certainly impact the overall yield on those loans, on new loans.

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Tom Lorenzini for any closing remarks.

Thank you, Jason, and 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.