What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-12 compared with 2020-08-10 · 463 added, 403 removed, 1423 unchanged (38% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Cash and cash equivalents $ 65,729,695 $ 29,609,484

12 unchanged sentences

Liabilities and Equity

Term loan payable, net of deferred financing fees $ 103,451,342 $ —

Obligations under participation agreements ( Note 7 )

12 unchanged sentences

Unearned income 650,340 624,021

Distributions payable 3,906 —

Other liabilities 853,126 1,684,106

5 unchanged sentences

preference, 125 shares authorized and 125 shares issued and outstanding at

both June 30, 2020 and December 31, 2019 125,000 125,000

both September 30, 2020 and December 31, 2019 125,000 125,000

Common stock, $0.01 par value, 450,000,000 shares authorized and

19,487,460 and 15,125,681 shares issued and outstanding at

June 30, 2020 and December 31, 2019, respectively 194,875 151,257

September 30, 2020 and December 31, 2019, respectively 194,875 151,257

Additional paid-in capital 373,443,672 301,727,297

5 unchanged sentences

Consolidated Statements of Operations

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

13 unchanged sentences

Professional fees (1)

407,444 333,203 1,075,303 3,051,310

Directors fees 36,250 83,750 153,750 251,250

5 unchanged sentences

participation agreements ( 2,211,901 ) ( 3,022,202 ) ( 6,805,402 ) ( 8,921,349 )

Interest expense on repurchase agreement payable ( 1,469,669 ) ( 1,366,562 ) ( 3,020,939 ) ( 2,300,535 )

Interest expense on repurchase agreement

payable ( 706,527 ) ( 1,407,889 ) ( 3,727,466 ) ( 3,708,424 )

Interest expense on mortgage loan payable ( 756,509 ) ( 770,446 ) ( 2,256,898 ) ( 2,333,067 )

Interest expense on revolving credit facility ( 463,333 ) ( 74,794 ) ( 1,238,311 ) ( 74,794 )

Net loss on extinguishment of obligations under

participation agreements — — ( 319,453 ) —

Interest expense on term loan payable ( 476,411 ) — ( 476,411 ) —

Net loss on extinguishment of obligations

under participation agreements — — ( 319,453 ) —

Realized gains on marketable securities 75,055 — 1,160,162 —

Unrealized gains on marketable securities 67,522 — 67,522 —

Unrealized (losses) gains on marketable

securities ( 38,527 ) — 28,995 —

( 4,578,153 ) ( 5,275,331 ) ( 13,634,784 ) ( 15,037,634 )

Net income (loss) $ 2,646,042 $ ( 153,485 ) $ 3,225,005 $ 3,769,390

Net income $ 2,143,130 $ 3,147,634 $ 5,368,135 $ 6,917,024

Preferred stock dividend declared ( 3,906 ) ( 3,906 ) ( 11,718 ) ( 11,718 )

Net income (loss) allocable to common stock $ 2,642,136 $ ( 157,391 ) $ 3,217,193 $ 3,761,578

Earnings (loss) per share — basic and diluted

Net income allocable to common stock $ 2,139,224 $ 3,143,728 $ 5,356,417 $ 6,905,306

Earnings per share — basic and diluted

$ 0.11 $ 0.21 $ 0.29 $ 0.46

Weighted-average shares — basic and diluted

Weighted-average shares — basic and

19,487,461 14,915,302 18,586,627 14,913,769

Distributions declared per common share $ 0.20 $ 0.51 $ 0.96 $ 1.53

_______________

(1) Amount for the nine months ended September 30, 2019 included $ 2.4 million of professional fees directly incurred, and which were previously deferred, in contemplation of the Company becoming a public entity.

In the second quarter of 2019, Management decided to postpone indefinitely the Company’s public offering.

See notes to unaudited consolidated financial statements.

1 unchanged sentence

Consolidated Statements of Comprehensive Income

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Comprehensive income, net of tax

Net income (loss) $ 2,646,042 $ ( 153,485 ) $ 3,225,005 $ 3,769,390

Other comprehensive income (loss)

Net income $ 2,143,130 $ 3,147,634 $ 5,368,135 $ 6,917,024

Other comprehensive income

Net unrealized gains on marketable securities — — 192,919 —

Reclassification of net realized gains on marketable

securities into earnings ( 184,025 ) — ( 192,919 ) —

( 184,025 ) — — —

Total comprehensive income (loss) $ 2,462,017 $ ( 153,485 ) $ 3,225,005 $ 3,769,390

Reclassification of net realized gains on

marketable securities into earnings — — ( 192,919 ) —

Total comprehensive income $ 2,143,130 $ 3,147,634 $ 5,368,135 $ 6,917,024

Preferred stock dividend declared ( 3,906 ) ( 3,906 ) ( 11,718 ) ( 11,718 )

Comprehensive income (loss) attributable to

common shares $ 2,458,111 $ ( 157,391 ) $ 3,217,193 $ 3,761,578

Comprehensive income attributable to common

shares $ 2,139,224 $ 3,143,728 $ 5,356,417 $ 6,905,306

See notes to unaudited consolidated financial statements.

1 unchanged sentence

Consolidated Statements of Changes in Equity

Three Months Ended June 30, 2020 and 2019

Preferred Stock 12.5% Series A Cumulative Non-Voting Preferred Stock Common Stock Additional

2 unchanged sentences

Shares Amount Shares Amount Total equity

Balance at April 1, 2020 $ — 125 $ 125,000 19,700,151 197,002 377,061,545 ( 62,716,835 ) $ 184,025 $ 314,850,737

Balance at December 31, 2019 $ — 125 $ 125,000 15,125,681 $ 151,257 $ 301,727,297 $ ( 54,459,821 ) $ — $ 247,543,733

Issuance of common stock ( Note 3 )

— — — 4,574,470 45,745 75,334,248 — 75,379,993

Repurchase of common stock — — — ( 212,691 ) ( 2,127 ) ( 3,617,873 ) — — ( 3,620,000 )

Distributions declared on common

share ($0.23 per share) — — — — — — — ( 4,459,975 ) — ( 4,459,975 )

Distributions declared on preferred

shares — — — — — — — ( 3,906 ) — ( 3,906 )

Distributions declared on common shares ($0.53 per share) — — — — — — ( 8,832,071 ) — ( 8,832,071 )

Distributions declared on preferred shares — — — — — — ( 3,906 ) — ( 3,906 )

Comprehensive income:

Net income — — — — — — 578,963 — 578,963

Net unrealized gains on marketable

securities — — — — — — — — —

Reclassification of net realized

gains on marketable securities

into earnings — — — — — — — ( 184,025 ) ( 184,025 )

Balance at June 30, 2020 $ — 125 $ 125,000 19,487,460 $ 194,875 $ 373,443,672 $ ( 64,534,674 ) $ — $ 309,228,873

See notes to unaudited consolidated financial statements .

Terra Property Trust, Inc.

Consolidated Statements of Changes in Equity

Three Months Ended June 30, 2020 and 2019 (Continued)

Preferred Stock 12.5% Series A Cumulative Non-Voting Preferred Stock Common Stock Additional

Capital Accumulated Deficit Accumulated Other Comprehensive Income

$0.01 Par Value

Shares Amount Shares Amount Total equity

Balance at April 1, 2019 $ — 125 $ 125,000 14,912,990 $ 149,130 $ 298,109,424 $ ( 36,728,639 ) $ — $ 261,654,915

Distributions declared on common

share ($0.51 per share) — — — — — — ( 7,626,503 ) — ( 7,626,503 )

Distributions declared on preferred

shares — — — — — — ( 3,906 ) — ( 3,906 )

Comprehensive income:

Net loss — — — — — — ( 153,485 ) — ( 153,485 )

Net unrealized gains on marketable

securities — — — — — — — — —

Reclassification of net realized

gains on marketable securities

Net unrealized gains on marketable securities — — — — — — — 192,919 192,919

Reclassification of net realized gains on marketable securities

into earnings — — — — — — — ( 8,894 ) ( 8,894 )

Balance at June 30, 2019 $ — 125 $ 125,000 14,912,990 $ 149,130 $ 298,109,424 $ ( 44,512,533 ) $ — $ 253,871,021

See notes to unaudited consolidated financial statements .

Terra Property Trust, Inc.

Consolidated Statements of Changes in Equity

Six Months Ended June 30, 2020 and 2019

Preferred Stock 12.5% Series A Cumulative Non-Voting Preferred Stock Common Stock Additional

Capital Accumulated Deficit Accumulated Other Comprehensive Income

$0.01 Par Value

Shares Amount Shares Amount Total equity

Balance at January 1, 2020 $ — 125 $ 125,000 15,125,681 $ 151,257 $ 301,727,297 $ ( 54,459,821 ) $ — $ 247,543,733

Issuance of common stock ( Note 3 )

— — — 4,574,470 45,745 75,334,248 — — 75,379,993

Balance at March 31, 2020 — 125 125,000 19,700,151 197,002 377,061,545 ( 62,716,835 ) 184,025 314,850,737

Repurchase of common stock — — — ( 212,691 ) ( 2,127 ) ( 3,617,873 ) — — ( 3,620,000 )

Distributions declared on common

share ($0.76 per share) — — — — — — ( 13,292,046 ) — ( 13,292,046 )

Distributions declared on preferred

shares — — — — — — ( 7,812 ) — ( 7,812 )

Distributions declared on common share ($0.23 per share) — — — — — — ( 4,459,975 ) — ( 4,459,975 )

Distributions declared on preferred shares — — — — — — ( 3,906 ) — ( 3,906 )

Comprehensive income:

Net income — — — — — — 2,646,042 — 2,646,042

Net unrealized gains on marketable

securities — — — — — — — 192,919 192,919

Reclassification of net realized

gains on marketable securities

Reclassification of net realized gains on marketable securities

into earnings — — — — — — — ( 184,025 ) ( 184,025 )

Balance at June 30, 2020 — 125 125,000 19,487,460 194,875 373,443,672 ( 64,534,674 ) — 309,228,873

Distributions declared on common share ($0.20 per share) — — — — — — ( 4,033,127 ) — ( 4,033,127 )

Distributions declared on preferred shares — — — — — — ( 3,906 ) — ( 3,906 )

Comprehensive income:

Net income — — — — — — 2,143,130 — 2,143,130

Balance at September 30, 2020 $ — 125 $ 125,000 19,487,460 $ 194,875 $ 373,443,672 $ ( 66,428,577 ) $ — $ 307,334,970

See notes to unaudited consolidated financial statements .

Terra Property Trust, Inc.

Consolidated Statements of Changes in Equity

Six Months Ended June 30, 2020 and 2019 (Continued)

Consolidated Statements of Changes in Equity (Continued)

Preferred Stock 12.5% Series A Cumulative Non-Voting Preferred Stock Common Stock Additional

2 unchanged sentences

Shares Amount Shares Amount Total equity

Balance at January 1, 2019 $ — 125 $ 125,000 14,912,990 $ 149,130 $ 298,109,424 $ ( 33,091,195 ) $ — $ 265,292,359

Distributions declared on common

share ($1.02 per share) — — — — — — ( 15,182,916 ) — ( 15,182,916 )

Distributions declared on preferred

shares — — — — — — ( 7,812 ) — ( 7,812 )

Balance at December 31, 2018 $ — 125 $ 125,000 14,912,990 $ 149,130 $ 298,109,424 $ ( 33,091,195 ) $ — $ 265,292,359

Distributions declared on common shares ($0.51 per share) — — — — — — ( 7,556,413 ) — ( 7,556,413 )

Distributions declared on preferred shares — — — — — — ( 3,906 ) — ( 3,906 )

Comprehensive income:

Net income — — — — — — 3,922,875 — 3,922,875

Net unrealized gains on marketable

securities — — — — — — — — —

Reclassification of net realized

gains on marketable securities

Net unrealized gains on marketable securities — — — — — — — — —

Reclassification of net realized gains on marketable securities

into earnings — — — — — — — — —

Balance at March 31, 2019 — 125 125,000 14,912,990 149,130 298,109,424 ( 36,728,639 ) — 261,654,915

Distributions declared on common share ($0.51 per share) — — — — — — ( 7,626,503 ) — ( 7,626,503 )

Distributions declared on preferred shares — — — — — — ( 3,906 ) — ( 3,906 )

Comprehensive income:

Net loss — — — — — — ( 153,485 ) — ( 153,485 )

Reclassification of net realized gains on marketable securities

into earnings — — — — — — — — —

Balance at June 30, 2019 — 125 125,000 14,912,990 149,130 298,109,424 ( 44,512,533 ) — 253,871,021

Issuance of common stock — — — 212,691 2,127 3,617,873 — 3,620,000

Distributions declared on common share ($0.51 per share) — — — — — — ( 7,568,342 ) — ( 7,568,342 )

Distributions declared on preferred shares — — — — — — ( 3,906 ) — ( 3,906 )

Comprehensive income:

Net income — — — — — — 3,147,634 — 3,147,634

Balance at September 30, 2019 $ — 125 $ 125,000 15,125,681 $ 151,257 $ 301,727,297 $ ( 48,937,147 ) $ — $ 253,066,407

See notes to unaudited consolidated financial statements .

Terra Property Trust, Inc.

Consolidated Statements of Cash Flows

Six Months Ended June 30,

Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended September 30,

Cash flows from operating activities:

5 unchanged sentences

Impairment charge — 1,550,000

Lease termination fee income ( 236,000 ) —

Amortization of net purchase premiums on loans 41,807 71,990

1 unchanged sentence

Amortization of deferred financing costs 1,484,995 1,490,182

Net loss on extinguishment of obligations under

participation agreements 319,453 —

Net loss on extinguishment of obligations under participation agreements 319,453 —

Amortization of above- and below-market rent intangibles ( 942,574 ) ( 335,248 )

18 unchanged sentences

Capital expenditures on real estate — ( 242,071 )

Net cash used in investing activities ( 34,435,769 ) ( 15,439,922 )

Net cash (used in) provided by investing activities ( 57,084,192 ) 32,841,524

Cash flows from financing activities:

Proceeds from borrowings under the term loan 105,888,747 —

Proceeds from borrowings under revolving credit facility 35,000,000 4,000,000

1 unchanged sentence

Proceeds from issuance of common stock in the Merger 16,897,074 —

Proceeds from issuance of common stock to TIF3 REIT 8,600,000 —

Proceeds from issuance of common stock to Terra Offshore Funds 8,600,000 —

Distributions paid ( 17,332,985 ) ( 22,759,070 )

2 unchanged sentences

Payment for repurchase of common stock ( 3,620,000 ) —

Repayment of borrowings under revolving credit facility ( 10,000,000 ) ( 4,000,000 )

Proceeds from issuance of common stock — 3,620,000

Change in interest reserve and other deposits held on investments 7,475,137 5,160,013

2 unchanged sentences

Repayments of obligations under participation agreements ( 557,778 ) ( 31,252,803 )

Net cash provided by financing activities 81,856,714 18,787,746

Net cash provided by (used in) financing activities 93,920,352 ( 13,653,193 )

Net increase in cash, cash equivalents and restricted cash 43,061,646 32,147,286

4 unchanged sentences

Consolidated Statements of Cash Flows (Continued)

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental Disclosure of Cash Flows Information:

15 unchanged sentences

Due to Manager ( 50,694 )

Non-cash Proceeds from Issuance of Common Stock to TIF3 REIT

In addition, on March 2, 2020, the Company entered into two separate contribution agreements, one by and among the Company, Terra International Fund 3 REIT, LLC (“TIF3 REIT”) and Terra Income Fund International, and another by and among the Company, TIF3 REIT and Terra Secured Income Fund 5 International, pursuant to which the Company issued an aggregate of 2,457,684.59 shares of common stock in exchange for the settlement of $ 32.1 million of participation interests in loans held by the Company, $ 8.6 million in cash, and other net working capital (“Issuance of Common Stock to TIF3 REIT”) ( Note 3 ).

The following table presents a summary of the consideration exchanged and settlement of the Company’s obligations under participation agreements as a result of the Issuance of Common Stock to TIF3 REIT:

Non-cash Proceeds from Issuance of Common Stock to Terra Offshore Funds

In addition, on March 2, 2020, the Company entered into two separate contribution agreements, one by and among the Company, Terra Offshore Funds REIT, LLC (formerly known as Terra International Fund 3 REIT, LLC) (the “Terra Offshore Funds”) and Terra Income Fund International, and another by and among the Company, Terra Offshore Funds and Terra Secured Income Fund 5 International, pursuant to which the Company issued an aggregate of 2,457,684.59 shares of common stock in exchange for the settlement of $ 32.1 million of participation interests in loans held by the Company, $ 8.6 million in cash, and other net working capital (“Issuance of Common Stock to Terra Offshore Funds”) ( Note 3 ).

Total Consideration

Equity issued to TIF3 REIT $ 40,749,378

Proceeds from equity issued to TIF3 REIT 8,600,000

Equity issued to Terra Offshore Funds $ 40,749,378

Proceeds from equity issued to Terra Offshore Funds 8,600,000

Net Assets exchanged

6 unchanged sentences

Supplemental Non-Cash Investing Activities:

Lease Termination

In June 2020, the Company received a notice from a tenant occupying a portion of the office building that the Company acquired in July 2018 via foreclosure of their intention to terminate the lease ( Note 5 ).

The following table presents a summary of assets received and written off in connection with the lease termination effective September 4, 2020:

Lease Termination Fees:

Cash $ 142,620

Furniture & Fixture 236,000

Assets and Liabilities Write-offs:

In-place lease intangible assets $ 869,694

Below-market rent liabilities ( 616,392 )

Rent receivable 125,318

Deed in Lieu of Foreclosure

10 unchanged sentences

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2020

September 30, 2020

Terra Property Trust, Inc.

7 unchanged sentences

On March 2, 2020, the Company engaged in a series of transactions pursuant to which the Company issued an aggregate of 4,574,470.35 shares of our common stock in exchange for the settlement of an aggregate of $ 49.8 million of participation interests in loans held by the Company, cash of $ 25.5 million and other working capital.

As of June 30, 2020, Terra JV, LLC (“Terra JV”) held 87.4 % of the issued and outstanding shares of the Company's common stock with the remainder held by TIF3 REIT ( Note 3 ).

As of September 30, 2020, Terra JV, LLC (“Terra JV”) held 87.4 % of the issued and outstanding shares of the Company's common stock with the remainder held by Terra Offshore Funds ( Note 3 ).

The Company has elected to be taxed, and to qualify annually thereafter, as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), commencing with the taxable year ended December 31, 2016.

81 unchanged sentences

Discounts and premiums on investments purchased are accreted or amortized over the expected life of the respective loan using the effective yield method, and are included in interest income in the consolidated statements of operations.

Loan origination fees and exit fees, net of portions attributable to obligations under participation agreements, are capitalized and amortized or accreted to interest income over the life of the investment using the effective interest method.

Income accrual is generally suspended for loans at the earlier of the date at which payments become 90 days past due or when, in the opinion of the Manager, recovery of income and principal becomes doubtful.

23 unchanged sentences

The following table provides a reconciliation of cash, cash equivalents and restricted cash in the Company’s consolidated balance sheets to the total amount shown in its consolidated statements of cash flows:

June 30, 2020 June 30, 2019

September 30, 2020 September 30, 2019

Cash and cash equivalents $ 65,729,695 $ 36,360,811

8 unchanged sentences

See “ Obligations under Participation Agreements ” in Note 8 for additional information.

The Company finances certain of its senior loans through borrowings under an indenture and credit agreement.

The Company accounts for the borrowings as a term loan, which is carried at the contractual amount (cost), net of unamortized deferred financing fees.

Repurchase Agreement

The Company finances certain of its senior loans through repurchase transactions under a master repurchase agreement.

The Company accounts for the repurchase transactions as secured borrowing transactions, which are carried at their contractual amounts (cost), net of unamortized deferred financing fees.

The Company financed certain of its senior loans through repurchase transactions under a master repurchase agreement.

The Company accounted for the repurchase transactions as secured borrowing transactions, which are carried at their contractual amounts (cost), net of unamortized deferred financing fees.

Fair Value Measurements

3 unchanged sentences

Marketable securities are financial instruments that are reported at fair value.

Notes to Unaudited Consolidated Financial Statements

Deferred Financing Costs

2 unchanged sentences

These costs are amortized using the effective interest method and are included in interest expense on the applicable borrowings in the consolidated statements of operations over the life of the borrowings.

Notes to Unaudited Consolidated Financial Statements

The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with the taxable year ended December 31, 2016.

5 unchanged sentences

federal and state income taxes at regular corporate rates.

As of June 30, 2020, the Company has satisfied all the requirements for a REIT.

No provision for federal income taxes has been included in the consolidated financial statements for the three and six months ended June 30, 2020 and 2019.

As of September 30, 2020, the Company has satisfied all the requirements for a REIT.

No provision for federal income taxes has been included in the consolidated financial statements for the three and nine months ended September 30, 2020 and 2019.

The Company did not have any uncertain tax positions that met the recognition or measurement criteria of Accounting Standards Codification (“ASC”) 740-10-25, Income Taxes , nor did the Company have any unrecognized tax benefits as of the periods presented herein.

The Company recognizes interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in its consolidated statements of operations.

For the three and six months ended June 30, 2020 and 2019, the Company did not incur any interest or penalties.

For the three and nine months ended September 30, 2020 and 2019, the Company did not incur any interest or penalties.

Although the Company files federal and state tax returns, its major tax jurisdiction is federal.

7 unchanged sentences

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

During the first half of 2020, there was a global outbreak of a novel coronavirus (“COVID-19”), which has spread to over 200 countries and territories, including the United States, and has spread to every state in the United States.

As of September 30, 2020, there has been an ongoing global outbreak of a novel coronavirus (“COVID-19”), which has spread to over 200 countries and territories, including the United States, and has spread to every state in the United States.

The World Health Organization has designated COVID-19 as a pandemic, and numerous countries, including the United States, have declared national emergencies with respect to COVID-19.

3 unchanged sentences

The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions.

The Company believes the estimates and assumptions underlying its consolidated financial statements are reasonable and supportable based on the information available as of June 30, 2020, however uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of June 30, 2020 inherently less certain than they would be absent the current and potential impacts of COVID-19.

Actual results may ultimately differ from those estimates.

The Company believes the estimates and assumptions underlying its consolidated financial statements are reasonable and supportable based on the information available as of September 30, 2020, however uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of September 30, 2020 inherently less

Notes to Unaudited Consolidated Financial Statements

certain than they would be absent the current and potential impacts of COVID-19.

Actual results may ultimately differ from those estimates.

Segment Information

35 unchanged sentences

The Company is currently evaluating the impact of the reference rate reform and ASU 2020-04 on its consolidated financial statements and disclosures.

Merger and Issuance of Common Stock to TIF3 REIT

Merger and Issuance of Common Stock to Terra Offshore Funds

On February 28, 2020, the Company entered into the Merger Agreement pursuant to which TPT2 was merged with and into the Company, with the Company continuing as the surviving corporation, effective March 1, 2020.

In connection with the Merger, each share of common stock, par value $ 0.01 per share, of TPT2 issued and outstanding immediately prior to the effective time of the Merger was converted into the right to receive from the Company a number of shares of common stock, par value $ 0.01 per share, of the Company equal to an exchange ratio, which was 1.2031 .

The exchange ratio was based on the

In connection with the

Notes to Unaudited Consolidated Financial Statements

relative net asset values of the Company and TPT2 as of December 31, 2019 as adjusted to reflect changes in the net working capital of each of the Company and TPT2 during the period from January 1, 2020 through March 1, 2020, the effective time for the Merger.

Merger, each share of common stock, par value $ 0.01 per share, of TPT2 issued and outstanding immediately prior to the effective time of the Merger was converted into the right to receive from the Company a number of shares of common stock, par value $ 0.01 per share, of the Company equal to an exchange ratio, which was 1.2031 .

The exchange ratio was based on the relative net asset values of the Company and TPT2 as of December 31, 2019 as adjusted to reflect changes in the net working capital of each of the Company and TPT2 during the period from January 1, 2020 through March 1, 2020, the effective time for the Merger.

For purposes of determining the respective fair values of the Company and TPT2, the value of the loans (or participation interests therein) held by each of the Company and TPT2 was the value of such loans (or participation interests) as set forth in the audited financial statements of the Company as of and for the year ended December 31, 2019.

18 unchanged sentences

Evans continuing as directors of the Company.

Issuance of Common Stock to TIF3 REIT

In addition, on March 2, 2020, the Company entered into two separate contribution agreements, one by and among the Company, TIF3 REIT and Terra Income Fund International, and another by and among the Company, TIF3 REIT and Terra Secured Income Fund 5 International, pursuant to which the Company issued 2,457,684.59 shares of common stock of the Company to TIF3 REIT in exchange for the settlement of $ 32.1 million of participation interests in loans also held by the Company, $ 8.6 million in cash and other net working capital.

Issuance of Common Stock to Terra Offshore Funds

In addition, on March 2, 2020, the Company entered into two separate contribution agreements, one by and among the Company, Terra Offshore Funds and Terra Income Fund International, and another by and among the Company, Terra Offshore Funds and Terra Secured Income Fund 5 International, pursuant to which the Company issued 2,457,684.59 shares of common stock of the Company to Terra Offshore Funds in exchange for the settlement of $ 32.1 million of participation interests in loans also held by the Company, $ 8.6 million in cash and other net working capital.

The shares of common stock were issued in a private placement in reliance on Section 4(a)(2) under the Securities Act and the rules and regulations promulgated thereunder.

The fair value of the 2,457,684.59 shares of the Company’s stock issued in the transaction as consideration paid for TIF3 REIT was derived from the fair value per share of the Company as of December 31, 2019, which was the most recently determined fair value per share of the Company.

The fair value of the 2,457,684.59 shares of the Company’s stock issued in the transaction as consideration paid for Terra Offshore Funds was derived from the fair value per share of the Company as of December 31, 2019, which was the most recently determined fair value per share of the Company.

Notes to Unaudited Consolidated Financial Statements

Total Consideration

Equity issued to TIF3 REIT $ 40,749,378

Net Assets of TIF3 REIT Received

Equity issued to Terra Offshore Funds $ 40,749,378

Net Assets of Terra Offshore Funds Received

Investments through participation interest, at fair value $ 32,112,257

3 unchanged sentences

Total identifiable net assets $ 40,749,378

On April 29, 2020, the Company repurchased 212,691 shares of common stock that the Company had previously sold to TIF3 REIT on September 30, 2019.

On April 29, 2020, the Company repurchased 212,691 shares of common stock that the Company had previously sold to Terra Offshore Funds on September 30, 2019.

Terra JV, LLC

Prior to the completion of the Merger and the Issuance of Common Stock to TIF3 REIT transactions described above, Terra Fund 5 owned approximately 98.6 % of the issued and outstanding shares of the Company’s common stock indirectly through its wholly owned subsidiary, Terra JV, of which Terra Fund 5 was the sole managing member, and the remaining issued and outstanding shares of the Company’s common stock were owned by TIF3 REIT.

Prior to the completion of the Merger and the Issuance of Common Stock to Terra Offshore Funds transactions described above, Terra Fund 5 owned approximately 98.6 % of the issued and outstanding shares of the Company’s common stock indirectly through its wholly owned subsidiary, Terra JV, of which Terra Fund 5 was the sole managing member, and the remaining issued and outstanding shares of the Company’s common stock were owned by Terra Offshore Funds.

As described above, the Company acquired TPT2 in the Merger and, in connection with such transaction, Terra Fund 7 contributed the shares of the Company’s common stock received as consideration in the Merger to Terra JV and became a co-managing member of Terra JV pursuant to the amended and restated operating agreement of Terra JV, dated March 2, 2020 (the “JV Agreement”).

2 unchanged sentences

Consistent with the original voting agreement dated February 8, 2018, for the period that Terra REIT Advisors remains the external manager of the Company, Terra REIT Advisors will have the right to nominate two individuals to serve as directors of the Company and, until Terra JV no longer holds at least 10 % of the outstanding shares of the Company’s common stock, Terra JV will have the right to nominate one individual to serve as a director of the Company.

As of June 30, 2020, Terra JV owns 87.4 % of the issued and outstanding shares of the Company’s common stock with the remainder held by TIF3 REIT, and Terra Fund 5 and Terra Fund 7 own an 87.6 % and 12.4 % interest, respectively, in Terra JV.

As of September 30, 2020, Terra JV owns 87.4 % of the issued and outstanding shares of the Company’s common stock with the remainder held by Terra Offshore Funds, and Terra Fund 5 and Terra Fund 7 own an 87.6 % and 12.4 % interest, respectively, in Terra JV.

Net Loss on Extinguishment of Obligations Under Participation Agreements

As discussed in Note 7 , in the normal course of business, the Company may enter into participation agreements with related parties, primarily other affiliated funds managed by the Manager, and to a lesser extent, unrelated parties.

The obligations under participation agreements were released as a result of the Merger and the Issuance of Common Stock to TIF3 REIT.

The obligations under participation agreements were released as a result of the Merger and the Issuance of Common Stock to Terra Offshore Funds.

In connection with these transactions, the Company recognized a net loss of $ 0.3 million for the three months ended March 31, 2020, which was primarily related to transaction costs incurred in connection with both transactions.

2 unchanged sentences

Portfolio Summary

The following table provides a summary of the Company’s loan portfolio as of June 30, 2020 and December 31, 2019:

June 30, 2020 December 31, 2019

Fixed Rate Floating Rate (1)(2)(3)

Total Fixed Rate Floating Rate (1)(2)(3)

The following table provides a summary of the Company’s loan portfolio as of September 30, 2020 and December 31, 2019:

September 30, 2020 December 31, 2019

Fixed Rate Floating

Rate (1)(2)(3)

Total Fixed Rate Floating

Rate (1)(2)(3)

Number of loans 8 13 21 8 15 23

7 unchanged sentences

(1) These loans pay a coupon rate of LIBOR plus a fixed spread.

Coupon rate shown was determined using LIBOR of 0.16 % and 1.76 % as of June 30, 2020 and December 31, 2019, respectively.

(2) As of June 30, 2020 and December 31, 2019, amounts included $ 142.8 million and $ 114.8 million, respectively, of senior mortgages used as collateral for $ 95.4 million and $ 81.1 million, respectively, of borrowings under a repurchase agreement ( Note 8 ).

These borrowings bear interest at an annual rate of LIBOR plus a spread ranging from 2.00 % to 2.50 % as of June 30, 2020 and LIBOR plus a spread ranging from 2.25 % to 2.50 % as of December 31, 2019.

(3) As of June 30, 2020 and December 31, 2019, eleven and twelve of these loans, respectively, are subject to a LIBOR floor.

Coupon rate shown was determined using LIBOR of 0.15 % and 1.76 % as of September 30, 2020 and December 31, 2019, respectively.

(2) As of September 30, 2020, amounts included $ 181.0 million of senior mortgages used as collateral for $ 105.9 million of borrowings under a term loan ( Note 8 ).

These borrowings bear interest at an annual rate of LIBOR plus 4.25 % with a LIBOR floor of 1.00 % as of September 30, 2020.

As of December 31, 2019, amounts included $ 114.8 million of senior mortgages used as collateral for $ 81.1 million of borrowings under a repurchase agreement ( Note 8 ).

These borrowings bore interest at an annual rate of LIBOR plus a spread ranging from 2.25 % to 2.50 % as of December 31, 2019.

The repurchase agreement was terminated in September 2020.

(3) As of September 30, 2020 and December 31, 2019, eleven and twelve of these loans, respectively, are subject to a LIBOR floor.

Lending Activities

The following table presents the activities of the Company’s loan portfolio for the six months ended June 30, 2020 and 2019:

The following table presents the activities of the Company’s loan portfolio for the nine months ended September 30, 2020 and 2019:

Loans Held for Investment Loans Held for Investment through Participation Interests Total

8 unchanged sentences

Provision for loan losses ( 1,356,737 ) — ( 1,356,737 )

Balance, June 30, 2020 $ 410,150,293 $ 4,297,989 $ 414,448,282

Balance, September 30, 2020 $ 433,684,904 $ 4,296,001 $ 437,980,905

Notes to Unaudited Consolidated Financial Statements

10 unchanged sentences

( 2,132,701 ) 7,952 ( 2,124,749 )

Balance, June 30, 2019 $ 389,057,359 $ 730,449 $ 389,787,808

Balance, September 30, 2019 $ 338,908,630 $ 1,975,543 $ 340,884,173

_______________

1 unchanged sentence

The PIK interest represents contractually deferred interest that is added to the principal balance.

PIK interest related to obligations under participation agreements amounted to $ 0.6 million and $ 0.4 million for the six months ended June 30, 2020 and 2019, respectively.

PIK interest related to obligations under participation agreements amounted to $ 1.1 million and $ 0.5 million for the nine months ended September 30, 2020 and 2019, respectively.

(2) On January 9, 2019, the Company acquired 4.9 acres of adjacent land encumbering a $ 14.3 million first mortgage via deed in lieu of foreclosure in exchange for the relief of the first mortgage and related fees and expenses ( Note 5 ).

(3) Amount for the six months ended June 30, 2019 included $ 0.5 million of deferred origination fees that were previously recorded as unearned income.

(3) Amount for the nine months ended September 30, 2019 included $ 0.5 million of deferred origination fees that were previously recorded as unearned income.

Portfolio Information

The tables below detail the types of loans in the Company’s loan portfolio, as well as the property type and geographic location of the properties securing these loans as of June 30, 2020 and December 31, 2019:

June 30, 2020 December 31, 2019

The tables below detail the types of loans in the Company’s loan portfolio, as well as the property type and geographic location of the properties securing these loans as of September 30, 2020 and December 31, 2019:

September 30, 2020 December 31, 2019

Loan Structure Principal Balance Carrying Value % of Total Principal Balance Carrying Value % of Total

4 unchanged sentences

Total $ 437,350,287 $ 437,980,905 100.0 % $ 377,388,317 $ 378,612,768 100.0 %

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Property Type Principal Balance Carrying Value % of Total Principal Balance Carrying Value % of Total

1 unchanged sentence

Multifamily 112,789,601 113,420,246 25.9 % 76,640,369 77,136,016 20.4 %

Student housing 45,920,115 46,343,726 11.2 % 58,049,717 58,553,496 15.5 %

Hotel 62,340,215 62,724,439 14.3 % 46,598,011 46,731,939 12.3 %

Student housing 46,970,724 47,395,804 10.8 % 58,049,717 58,553,496 15.5 %

Infill land 32,850,494 33,020,494 7.6 % 36,444,375 36,624,375 9.7 %

4 unchanged sentences

Notes to Unaudited Consolidated Financial Statements

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Geographic Location Principal Balance Carrying Value % of Total Principal Balance Carrying Value % of Total

13 unchanged sentences

_______________

(1) Other includes $ 8.5 million and $ 1.1 million of the unused portion of a credit facility at June 30, 2020 and December 31, 2019, respectively.

Other also includes a $ 3.0 million loan with collateral located in South Carolina at both June 30, 2020 and December 31, 2019.

(1) Other includes $ 9.0 million and $ 1.1 million of the unused portion of a credit facility at September 30, 2020 and December 31, 2019, respectively.

Other also includes a $ 3.0 million loan with collateral located in South Carolina at both September 30, 2020 and December 31, 2019.

Loan Risk Rating

1 unchanged sentence

In conjunction with the quarterly review of the Company’s loan portfolio, the Manager assesses the risk factors of each loan, and assigns a risk rating based on a five-point scale with “1” being the lowest risk and “5” being the greatest risk.

The following table allocates the principal balance and the carrying value of the Company’s loans based on the loan risk rating as of June 30, 2020 and December 31, 2019:

June 30, 2020 December 31, 2019

The following table allocates the principal balance and the carrying value of the Company’s loans based on the loan risk rating as of September 30, 2020 and December 31, 2019:

September 30, 2020 December 31, 2019

Loan Risk Rating Number of Loans Principal Balance Carrying Value % of Total Number of Loans Principal Balance Carrying Value % of Total

13 unchanged sentences

In March 2020, this loan was repaid in full.

As of June 30, 2020, the Company had five loans with a loan risk rating of “4” and recorded a general allowance for loan losses of $ 1.3 million.

As of September 30, 2020, the Company had five loans with a loan risk rating of “4” and recorded a general allowance for loan losses of $ 1.4 million.

Notes to Unaudited Consolidated Financial Statements

The following table presents the activity in the Company’s allowance for loan losses for the six months ended June 30, 2020 and 2019:

Six Months Ended June 30,

The following table presents the activity in the Company’s allowance for loan losses for the nine months ended September 30, 2020 and 2019:

Nine Months Ended September 30,

Allowance for loan losses, beginning of period $ — $ —

7 unchanged sentences

Real Estate Owned, Net

Acquisition of Real Estate

Real Estate Activities

2020 — In June 2020, the Company received a notice from a tenant occupying a portion of the office building that the Company acquired in July 2018 via foreclosure of their intention to terminate the lease.

In connection with the lease termination effective September 4, 2020, the Company received from the tenant lease termination fee of $ 0.4 million, which included approximately $ 0.2 million of cash and $ 0.2 million of the furniture and fixtures in the office space.

The furniture and fixtures have a remaining useful life of 2.5 year life and is being depreciated on a straight-line basis over the remaining useful life.

Additionally, the Company wrote off the related unamortized in-place lease intangible assets of $ 0.9 million, unamortized below-market rent intangible liabilities of $ 0.6 million and rent receivable of $ 0.1 million.

There was no gain or loss recognized on the lease termination.

2019 — On January 9, 2019, the Company acquired 4.9 acres of adjacent land encumbering a first mortgage via deed in lieu of foreclosure in exchange for the payment of the first mortgage and related fees and expenses.

9 unchanged sentences

The Company capitalized transaction costs of approximately $ 0.2 million to land.

For the three and six months ended June 30, 2019, the Company recorded an impairment charge of $ 1.6 million on the land in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost of sale.

For the nine months ended September 30, 2019, the Company recorded an impairment charge of $ 1.6 million on the land in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost of sale.

Notes to Unaudited Consolidated Financial Statements

2 unchanged sentences

The following table presents the components of real estate owned, net:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Cost Accumulated Depreciation/Amortization Net Cost Accumulated Depreciation/Amortization Net

3 unchanged sentences

Tenant improvements 1,854,640 ( 600,771 ) 1,253,869 1,854,640 ( 392,812 ) 1,461,828

Furniture and fixtures 236,000 ( 7,867 ) 228,133 — — —

Total real estate 67,212,039 ( 3,410,490 ) 63,801,549 66,976,039 ( 2,224,792 ) 64,751,247

10 unchanged sentences

The following table presents the components of real estate operating revenues and expenses that are included in the consolidated statements of operations:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

12 unchanged sentences

On July 30, 2018, the Company foreclosed on a multi-tenant office building in full satisfaction of a first mortgage and related fees and expenses.

In connection with the foreclosure, the Company assumed four leases whereby the Company is the lessor to the leases.

These four tenant leases had remaining lease terms ranging from 6.3 years to 8.8 years as of July 30, 2018

In connection with the foreclosure, the Company assumed four leases whereby the Company is the

Notes to Unaudited Consolidated Financial Statements

and provide for annual fixed rent increase.

lessor to the leases.

These four tenant leases had remaining lease terms ranging from 6.3 years to 8.8 years as of July 30, 2018 and provide for annual fixed rent increase.

Three of the tenant leases each provides two options to renew the lease for five years each and the remaining tenant lease provides one option to renew the lease for five years.

1 unchanged sentence

The ground lease had a remaining lease term of 68.3 years and provides for a new base rent every 5 years based on the greater of the annual base rent for the prior lease year or 9 % of the fair market value of the land.

The next rent reset on the ground lease is scheduled for November 1, 2020.

The next rent reset on the ground lease was scheduled for November 1, 2020, however the Company is currently negotiating with the landlord to determine the fair value of the land, on which the ground rent is based.

Since future rent increase on the ground lease is unknown, the Company did not include the future rent increase in calculating the present value of future rent payments.

11 unchanged sentences

Scheduled Future Minimum Rent Income

Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants, under non-cancelable operating leases at June 30, 2020 are as follows:

Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants, under non-cancelable operating leases at September 30, 2020 are as follows:

Years Ending December 31, Total

2020 (July 1 through December 31) $ 3,305,851

2020 (October 1 through December 31) $ 1,709,310

2021 6,628,573

5 unchanged sentences

Scheduled Annual Net Amortization of Intangibles

Based on the intangible assets and liabilities recorded at June 30, 2020, scheduled annual net amortization of intangibles for each of the next five calendar years and thereafter is as follows:

Based on the intangible assets and liabilities recorded at September 30, 2020, scheduled annual net amortization of intangibles for each of the next five calendar years and thereafter is as follows:

Years Ending December 31, Net Decrease in Real Estate Operating Revenue (1)

1 unchanged sentence

Decrease in Rent Expense (1)

2020 (July 1 through December 31) $ ( 223,499 ) $ 1,107,768 $ ( 65,174 ) $ 819,095

2020 (October 1 through December 31) $ ( 84,555 ) $ 515,515 $ ( 32,587 ) $ 398,373

2021 ( 338,220 ) 2,062,060 ( 130,348 ) 1,593,492

4 unchanged sentences

Total $ ( 1,638,954 ) $ 10,195,000 $ ( 8,613,849 ) $ ( 57,803 )

_______________

Notes to Unaudited Consolidated Financial Statements

_______________

(1) Amortization of below-market rent and above-market rent intangibles is recorded as an adjustment to lease revenues;

3 unchanged sentences

Supplemental balance sheet information related to the ground lease was as follows:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Operating lease

4 unchanged sentences

The component of lease expense for the ground lease was as follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

1 unchanged sentence

Supplemental non-cash information related to the ground lease was as follows:

Six Months Ended June 30,

Nine Months Ended September 30,

Cash paid for amounts included in the measurement of lease liabilities:

4 unchanged sentences

Years Ending December 31, Operating Lease

2020 (July 1 through December 31) (Year of rent reset) $ 632,250

2020 (October 1 through December 31) (Year of rent reset) $ 316,125

2021 1,264,500

9 unchanged sentences

ASC 820 established a fair value hierarchy that prioritizes and ranks the level of market price observability used in measuring investments at fair value.

Market price observability is impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the existence and transparency of transactions between market participants).

Investments with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree

Notes to Unaudited Consolidated Financial Statements

of judgment used in measuring fair value.

market participants).

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

8 unchanged sentences

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

As of June 30, 2020 and December 31, 2019, the Company has not elected the fair value option for its financial instruments, including loans held for investment, loans held for investment acquired through participation, obligations under participation agreements, mortgage loan payable, repurchase agreement payable and revolving credit facility payable.

Such financial instruments are carried at cost, less impairment, where applicable.

As of September 30, 2020 and December 31, 2019, the Company has not elected the fair value option for its financial instruments, including loans held for investment, loans held for investment acquired through participation, obligations under participation agreements, term loan payable, mortgage loan payable, repurchase agreement payable and revolving credit facility payable.

Such financial instruments are carried at cost, less impairment or less net deferred costs , where applicable.

Marketable securities are financial instruments that are reported at fair value.

3 unchanged sentences

Changes in the fair value of debt securities are reported in other comprehensive income until the securities are realized.

The following tables present fair value measurements of marketable securities, by major class, as of June 30, 2020, according to the fair value hierarchy:

June 30, 2020

The following tables present fair value measurements of marketable securities, by major class, as of September 30, 2020, according to the fair value hierarchy:

September 30, 2020

Fair Value Measurements

6 unchanged sentences

The following table presents the activities of the marketable securities for the periods presented.

Six Months Ended June 30,

Nine Months Ended September 30,

Beginning balance $ — $ —

6 unchanged sentences

The following table presents the carrying value, which represents the principal amount outstanding, adjusted for the accretion of purchase discounts on loans and exit fees, and the amortization of purchase premiums on loans and origination fees, and estimated fair value of the Company’s financial instruments that are not carried at fair value on the consolidated balance sheets:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Level Principal Amount Carrying Value Fair Value Principal Amount Carrying Value Fair Value

5 unchanged sentences

Total loans $ 437,350,287 $ 437,980,905 $ 436,663,049 $ 377,388,317 $ 378,612,768 $ 379,160,415

Term loan payable 3 $ 105,888,747 $ 103,451,342 $ 105,888,747 $ — $ — $ —

Obligations under participation

5 unchanged sentences

Total liabilities $ 264,128,750 $ 262,011,530 $ 264,366,029 $ 228,313,711 $ 227,548,397 $ 229,270,597

The Company estimated that its other financial assets and liabilities, not included in the tables above, had fair values that approximated their carrying values at both June 30, 2020 and December 31, 2019 due to their short-term nature.

The Company estimated that its other financial assets and liabilities, not included in the tables above, had fair values that approximated their carrying values at both September 30, 2020 and December 31, 2019 due to their short-term nature.

Valuation Process for Fair Value Measurement

7 unchanged sentences

the portfolio company’s ability to make payments, net operating income and debt-service coverage ratio;

construction progress reports and construction budget analysis;

the nature, quality and realizable value of any collateral (and loan-to-value ratio);

the forces that influence the

construction progress reports and construction

Notes to Unaudited Consolidated Financial Statements

local markets in which the asset (the collateral) is purchased and sold, such as capitalization rates, occupancy rates, rental rates and replacement costs;

budget analysis;

the nature, quality and realizable value of any collateral (and loan-to-value ratio);

the forces that influence the local markets in which the asset (the collateral) is purchased and sold, such as capitalization rates, occupancy rates, rental rates and replacement costs;

and the anticipated duration of each real estate-related loan investment.

3 unchanged sentences

Because there is no readily available market for these investments, the fair values of these investments are approved in good faith by the Manager pursuant to the Company’s valuation policy.

The fair values of the Company’s mortgage loan payable, repurchase agreement payable and revolving credit facility payable are determined by discounting the contractual cash flows at the interest rate the Company estimates such arrangements would bear if executed in the current market.

The following table summarizes the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 loans as of June 30, 2020 and December 31, 2019.

The fair values of the Company’s mortgage loan payable, repurchase agreement payable, term loan payable and revolving credit facility payable are determined by discounting the contractual cash flows at the interest rate the Company estimates such arrangements would bear if executed in the current market.

The following table summarizes the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 loans as of September 30, 2020 and December 31, 2019.

The tables are not intended to be all-inclusive, but instead identify the significant unobservable inputs relevant to the determination of fair values.

Fair Value at June 30, 2020 Primary Valuation Technique Unobservable Inputs June 30, 2020

Fair Value at September 30, 2020 Primary Valuation Technique Unobservable Inputs September 30, 2020

Asset Category Minimum Maximum Weighted Average

3 unchanged sentences

Total Level 3 Assets $ 436,663,049

Term loan payable $ 105,888,747 Discounted cash flow Discount rate 5.25 % 5.25 % 5.25 %

Obligations under Participation Agreements 88,937,172 Discounted cash flow Discount rate 9.74 % 19.05 % 12.97 %

Mortgage loan payable 44,540,110 Discounted cash flow Discount rate 6.08 % 6.08 % 6.08 %

Repurchase agreement payable 95,356,360 Discounted cash flow Discount rate 2.51 % 5.80 % 3.79 %

Revolving credit facility payable 25,000,000 Discounted cash flow Discount rate 6.00 % 6.00 % 6.00 %

16 unchanged sentences

Notes to Unaudited Consolidated Financial Statements

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

21 unchanged sentences

In the event that the Company receives any “breakup fees,” “busted-deal fees,” termination fees, or similar fees or liquidated damages from a third-party in connection with the termination or non-consummation of any loan or disposition transaction, the Manager will be entitled to receive one-half of such amounts, in addition to the reimbursement of all out-of-pocket fees and expenses incurred by the Manager with respect to its evaluation and pursuit of such transactions.

As of June 30, 2020, the Company has not received any breakup fees.

As of September 30, 2020 and 2019, the Company has not received any breakup fees.

Operating Expenses

6 unchanged sentences

Distributions Paid

For the three and six months ended June 30, 2020, the Company made distributions to Terra Fund 5, Terra JV and TIF3 REIT in the aggregate of $ 4.5 million and $ 13.3 million, respectively, of which $ 1.8 million and $ 10.1 million were returns of capital, respectively ( Note 10 ).

For the three and six months ended June 30, 2019, the Company made distributions to Terra Fund 5 totaling $ 7.6 million and $ 15.2 million, respectively, of which $ 7.6 million and $ 11.3 million were returns of capital, respectively ( Note 10 ).

For the three and nine months ended September 30, 2020, the Company made distributions to Terra Fund 5, Terra JV and Terra Offshore Funds in the aggregate of $ 4.0 million and $ 17.3 million, respectively, of which $ 1.9 million and $ 12.0 million were returns of capital, respectively ( Note 10 ).

For the three and nine months ended September 30, 2019, the Company made distributions to Terra Fund 5 totaling $ 7.6 million and $ 22.8 million, respectively, of which $ 4.6 million and $ 15.8 million were returns of capital, respectively ( Note 10 ).

Due to Manager

As of June 30, 2020 and December 31, 2019, approximately $ 1.9 million and $ 1.0 million was due to the Manager, respectively, as reflected on the consolidated balance sheets, primarily related to the present value of the disposition fees on individual loans due to the Manager.

Merger and Issuance of Common Stock to TIF3 REIT

As of September 30, 2020 and December 31, 2019, approximately $ 1.5 million and $ 1.0 million was due to the Manager, respectively, as reflected on the consolidated balance sheets, primarily related to the present value of the disposition fees on individual loans due to the Manager.

Merger and Issuance of Common Stock to Terra Offshore Funds

As discussed in Note 3 , on March 1, 2020, TPT2 merged with and into the Company with the Company continuing as the surviving company.

In connection with the Merger, the Company issued 2,116,785.76 shares of common stock of the Company to Terra Fund 7, the sole stockholder of TPT2, as consideration in the Merger.

In addition, on March 2, 2020, TIF3 REIT contributed cash and released obligations under the participation agreements to the Company ( Note 3 ) in exchange for the issuance of 2,457,684.59 shares of common stock of the Company.

In addition, on March 2, 2020, Terra Offshore Funds contributed cash and released obligations under the participation agreements to the Company ( Note 3 ) in exchange for the issuance of 2,457,684.59 shares of common stock of the Company.

As described in Note 3 , Terra Fund 7 contributed the shares of the Company’s common stock received as consideration in the Merger to Terra JV and became a co-managing member of Terra JV pursuant to the JV Agreement.

The JV Agreement and related stockholders agreement between Terra JV and the Company, dated March 2, 2020, provide for the joint approval of Terra Fund 5 and Terra Fund 7 with respect to certain major decisions that are taken by Terra JV and the Company.

Terra International 3

Terra Real Estate Credit Opportunities Fund, L.P.

On August 3, 2020, the Company entered into a subscription agreement with Terra Real Estate Credit Opportunities Fund, L.P.

(“Terra Opportunities Fund”) whereby the Company committed to fund up to $ 50.0 million to purchase limited partnership interests in Terra Opportunities Fund.

Terra Opportunities F und’s primary investment objective is to generate attractive risk-adjusted returns by purchasing secondary performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets.

Terra Opportunities Fund may also opportunistically originate high-yield mortgages or loans in real estate special situations including rescue financings, bridge loans, restructurings and bankruptcies (including debtor-in-possession loans).

The general partner of Terra Opportunities Fund is Terra Real Estate Credit Opportunities Fund GP, LLC , which is a subsidiary of the Company’s sponsor, Terra Capital Partners, LLC .

As of September 30, 2020, none of the commitment has been drawn.

On November 5, 2020, the Company funded $ 3.6 million of the commitment.

Terra International Fund 3, L.P.

On September 30, 2019, the Company entered into a Contribution and Repurchase Agreement with Terra International Fund 3, L.P.

(“Terra International 3”) and TIF3 REIT, a wholly-owned subsidiary of Terra International 3.

Pursuant to this agreement, Terra International 3, through TIF3 REIT, contributed cash in the amount of $ 3.6 million to the Company in exchange for 212,691 shares of common stock, at a price of $ 17.02 per share.

(“Terra International 3”) and Terra Offshore Funds, a wholly-owned subsidiary of Terra International 3.

Pursuant to this agreement, Terra International 3, through Terra Offshore Funds, contributed cash in the amount of $ 3.6 million to the Company in exchange for 212,691 shares of common stock, at a price of $ 17.02 per share.

In addition, Terra International 3 agreed to contribute to the Company future cash proceeds, if any, raised from time to time by it, and the Company agreed to issue shares of common stock to International Fund 3 in exchange for any such future cash proceeds, in each case pursuant to and in accordance with the terms and conditions specified in the agreement.

1 unchanged sentence

Under Cayman securities law, when there is a change in the terms of the offering, previously admitted partners have rights to rescind their subscription.

On September 24, 2019, Terra International 3 amended its private placement memorandum to change its term from finite life to perpetual life with limited opportunity for liquidity, as well as to change the selling commission structure and to provide for a dividend reinvestment plan.

Notes to Unaudited Consolidated Financial Statements

commission structure and to provide for a dividend reinvestment plan.

As a result of the change in the terms of the offering, Terra International 3 received requests to rescind all of the units of its limited partnership interest at a price of $ 100,000 per unit.

On April 29, 2020, the Company repurchased, at a price of $ 17.02 per share, the 212,691 shares of common stock that the Company had previously sold to TIF3 REIT on September 30, 2019.

On April 29, 2020, the Company repurchased, at a price of $ 17.02 per share, the 212,691 shares of common stock that the Company had previously sold to Terra Offshore Funds on September 30, 2019.

Terra International 3 honored all of the rescission requests that it had received with proceeds from the repurchase.

3 unchanged sentences

The Company may transfer portions of its investments to other Participants or it may be a Participant to a loan held by another entity.

Notes to Unaudited Consolidated Financial Statements

ASC 860, Transfers and Servicing (“ASC 860”) , establishes accounting and reporting standards for transfers of financial assets.

2 unchanged sentences

Participation Interests Purchased by the Company

The below table lists the loan interests participated in by the Company via PAs as of June 30, 2020 and December 31, 2019.

The below table lists the loan interests participated in by the Company via PAs as of September 30, 2020 and December 31, 2019.

In accordance with the terms of each PA, each Participant’s rights and obligations, as well as the proceeds received from the related borrower/issuer of the loan, are based upon their respective pro rata participation interest in the loan.

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Participating Interests Principal Balance Carrying Value Participating Interests Principal Balance Carrying Value

4 unchanged sentences

(“Terra Fund 6”) to purchase a 25 % participation interest, or $ 4.3 million, in a $ 17.0 million mezzanine loan.

As of June 30, 2020, all of the commitment has been funded.

As of September 30, 2020, all of the commitment has been funded.

Transfers of Participation Interest by the Company

The following tables summarize the loans that were subject to PAs with affiliated entities as of June 30, 2020 and December 31, 2019:

The following tables summarize the loans that were subject to PAs with affiliated entities as of September 30, 2020 and December 31, 2019:

Transfers Treated as Obligations Under Participation Agreements as of

June 30, 2020

September 30, 2020

Principal Balance Carrying Value % Transferred Principal Balance (6)

60 unchanged sentences

(6) Amounts transferred may not agree to the proportionate share of the principal balance and fair value due to the rounding of percentage transferred.

(7) As discussed in Note 3 , in March 2020, the Company settled an aggregate of $ 49.8 million of participation interests in loans held by the Company with TPT2 and TIF3 REIT, which TIF3 REIT received from Terra Secured Income Fund 5 International and Terra Income Fund International.

In connection with the Merger and the Issuance of Common Stock to TIF3 REIT, the related participation obligations were settled.

(7) As discussed in Note 3 , in March 2020, the Company settled an aggregate of $ 49.8 million of participation interests in loans held by the Company with TPT2 and Terra Offshore Funds, which Terra Offshore Funds received from Terra Secured Income Fund 5 International and Terra Income Fund International.

In connection with the Merger and the Issuance of Common Stock to Terra Offshore Funds, the related participation obligations were settled.

These investments are held in the name of the Company, but each of the Participant’s rights and obligations, including interest income and other income ( e.g.

11 unchanged sentences

Notes to Unaudited Consolidated Financial Statements

On September 3, 2020, Terra Mortgage Capital I, LLC (the “Issuer” or the “Seller” ), a special-purpose indirect wholly-owned subsidiary of the Company, entered into an Indenture and Credit Agreement (the “Indenture and Credit Agreement”) with Goldman Sachs Bank USA, as initial lender (“Goldman”) and Wells Fargo Bank, National Association, as the trustee, custodian, collateral agent, loan agent and note administrator (“Wells Fargo”).

The Indenture and Credit Agreement provides for (A) the borrowing by the Issuer from Goldman of approximately $ 103.0 million under a floating rate loan (the “Term Loan”) and (B) the issuance by the Issuer to Terra Mortgage Portfolio I, LLC (the “Class B Holder”) of an aggregate of approximately $ 76.7 million principal amount of Class B Income Notes due 2025 (the “Class B Notes” and, together with the Term Loan, the “Debt”).

The Class B Holder is the parent of the Issuer and a wholly-owned subsidiary of the Company, and the sole holder of the Class B Notes.

The Class B Holder is consolidated by the Company and the Term Loan represents amount due to Goldman under the Indenture and Credit Agreement.

In addition, pursuant to the terms and conditions of the Indenture and Credit Agreement, Goldman has agreed to provide $ 3.6 million of additional future advances (the “Committed Advances”), and may provide up to $ 11.6 million of additional future discretionary advances, in connection with certain outstanding funding commitments under mortgage assets owned by the Issuer and financed under the Indenture and Credit Agreement (the “Mortgage Assets”).

The stated maturity date of the Debt is March 14, 2025 .

The Term Loan bears interest at a variable rate initially equal to LIBOR (the “Benchmark Rate”) (but not less than 1.0 % per annum), plus a margin of 4.25 % per annum (plus 0.50 % on and after the payment date in October 2022, plus 0.25 % on and after the payment date in October 2023), payable each month, on the day specified in the Indenture and Credit Agreement beginning in September 2020 (each a “Payment Date”).

The Benchmark Rate will convert to an alternate index rate following the occurrence of certain transition events (the “Alternate Benchmark Rate”).

Except as described below, and provided there is no default under the Indenture and Credit Agreement, the Class B Notes are entitled to residual amounts collected by the Issuer in respect of Mortgage Assets, after payment of debt service on the Term Loan.

The Indenture and Credit Agreement is a term loan and does not contain any mark-to-market or margin provisions.

Within a specified period following a monetary or material non-monetary default under a Mortgage Asset, the Class B Holder is required to prepay the portion of the Term Loan that is allocable to such Mortgage Asset (such prepayment is without premium, yield maintenance or other penalty).

In connection with entering into the Indenture and Credit Agreement, the Company incurred $ 2.4 million of deferred financing costs, including a $ 1.3 million upfront fee paid to Goldman, which are being amortized to interest expense over the term of the facility.

The Issuer also pays, with respect to the Committed Advances, an annual fee, payable monthly, equal to the Benchmark Rate or Alternate Benchmark Rate, as applicable, subject to a floor of 1.0 % per annum, plus 4.25 %.

In connection with the Indenture and Credit Agreement, the Company entered into a non-recourse carveout Guaranty (the "Guaranty") in favor of Goldman, pursuant to which the Company guarantees the payment of certain losses, damages, costs, expenses, and other obligations incurred by Goldman in connection with the occurrence of fraud, intentional misrepresentation, or willful misconduct by the Issuer, Class B Holder or the Company, and certain other occurrences including breaches of certain provisions under the Indenture and Credit Agreement.

The Company also guarantees the payment of the aggregate outstanding amount of the Term Loan upon the occurrence of certain bankruptcy events.

Under the Guaranty, the Company is required to maintain (a) a minimum tangible net worth in an amount not less than seventy-five percent ( 75 %) of its tangible net worth as of September 3, 2020, (b) a minimum liquidity of $ 10 million, and (c) an EBITDA to interest expense ratio of not less than 1.5 to 1.0.

Failure to satisfy such maintenance covenants would constitute an event of default under the Indenture and Credit Agreement.

As of September 30, 2020, the Company is in compliance with these covenants.

The Term Loan is secured by first-priority security interests in substantially all of the assets of the Issuer, including all of the Mortgage Assets (other than excluded property and subject to certain permitted liens), including specified cash accounts that include the accounts into which Mortgage Asset proceeds are or will be paid.

The Mortgage Assets are serviced and administered by an independent third-party servicer.

The principal and interest on the Term Loan are repaid before repayment of the principal on the Class B Notes on each payment date of each month in accordance with the priority of payments as set forth in the Indenture and Credit Agreement, beginning in September 2020.

Such payments are subject to certain fees for taxes, filings and administrative expenses.

Upon the occurrence of a Term Loan Principal Trigger Event (as defined below), 100% of the payment of the principal proceeds are applied to the Term Loan principal after payment of certain fees and other amounts as described in the Indenture and Credit Agreement.

A “Term Loan Principal Trigger Event” means as of any date of determination, an event that will be deemed to

Notes to Unaudited Consolidated Financial Statements

have occurred on the first date on which the aggregate principal balance of the Mortgage Assets is less than or equal to the product of (x) 75% multiplied by (y) the aggregate principal balance of the Mortgage Assets as of the closing date, plus any future advances made on such Mortgage Assets prior to such date of determination.

As of September 30, 2020, there was no Term Loan Principal Trigger Event.

The Class B Notes and the Term Loan are redeemable by the Issuer upon the occurrence of certain tax events in accordance with the terms and provisions of the Indenture and Credit Agreement.

The following tables present detailed information with respect to each borrowing under the Term Loan as of September 30, 2020:

September 30, 2020

Mortgage Assets Borrowings Under the Term Loan (1)(2)

Principal Amount Carrying Value Fair

330 Tryon DE LLC $ 22,800,000 $ 22,898,718 $ 22,810,937 13,680,000

1389 Peachtree St, LP;

1401 Peachtree St, LP;

1409 Peachtree St, LP 48,973,981 49,206,919 49,138,842 29,293,059

AGRE DCP Palm Springs, LLC 44,136,105 44,346,025 44,334,772 24,180,687

MSC Fields Peachtree Retreat, LLC 23,308,334 23,439,777 23,398,194 13,985,001

Patrick Henry Recovery Acquisition, LLC 18,000,000 18,039,014 17,922,482 10,800,000

University Park Berkeley, LLC 23,741,994 23,773,961 23,798,728 13,950,000

$ 180,960,414 $ 181,704,414 $ 181,403,955 $ 105,888,747

_______________

(1) Borrowings under the Term Loan bear interest at LIBOR plus 4.25 % with a LIBOR floor of 1.00 %, or 5.25 % as of September 30, 2020 using LIBOR of 0.15 %.

(2) The maturity of the Term Loan is March 14, 2025 , however the maturity of each borrowing under the Term Loan matches the maturity of the respective Mortgage Asset.

Repurchase Agreement

On December 12, 2018, Terra Mortgage Capital I, LLC (the “Seller”), a special-purpose indirect wholly-owned subsidiary of the Company, entered into an Uncommitted Master Repurchase Agreement (the “Master Repurchase Agreement”) with Goldman Sachs Bank USA (the “Buyer”).

The Master Repurchase Agreement provides for advances of up to $ 150.0 million in the aggregate, which the Company expects to use to finance certain secured performing commercial real estate loans.

Advances under the Master Repurchase Agreement accrue interest at a per annum pricing rate equal to the sum of (i) the 30-day LIBOR and (ii) the applicable spread, and have a maturity date of December 12, 2020 .

The actual terms of financing for each asset will be determined at the time of financing in accordance with the Master Repurchase Agreement.

Subject to satisfaction of certain conditions, the Seller may extend the maturity date of the Master Repurchase Agreement for a period of one year.

The Master Repurchase Agreement contains margin call provisions that provide the Buyer with certain rights in the event of a decline in the market value of the assets purchased under the Master Repurchase Agreement.

Upon the occurrence of a margin deficit event, the Buyer may require the Seller to make a payment to reduce the outstanding obligation to eliminate any margin deficit.

During the six months ended June 30, 2020, the Company received a margin call on one of the borrowings and as a result, made a repayment of $ 3.4 million to reduce the outstanding obligation under the Master Repurchase Agreement.

In connection with the Master Repurchase Agreement, the Company entered into a Guarantee Agreement in favor of the Buyer (the “Guarantee Agreement”), pursuant to which the Company will guarantee the obligations of the Seller under the Master Repurchase Agreement.

Subject to certain exceptions, the maximum liability under the Master Repurchase Agreement will not exceed 50 % of the then currently outstanding repurchase obligations under the Master Repurchase Agreement.

Under the Master Repurchase Agreement, on the second anniversary of the closing date and on each anniversary thereafter, the Company is required to pay the Buyer the difference, if positive, between $ 4.2 million and the interest paid during the immediately preceding 12-month period.

The Company currently expects the actual interest paid in calendar year 2020 on borrowings under the Master Repurchase Agreement to be less than $ 4.2 million.

As a result, the Company accrued approximately $ 0.3 million for the six months ended June 30, 2020 to make up for the difference between the actual interest paid and the $ 4.2 million.

The Master Repurchase Agreement and the Guarantee Agreement contain various representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types.

In addition, the Guarantee Agreement contains financial covenants, which require the Company to maintain:

On December 12, 2018, Terra Mortgage Capital I, LLC entered into an Uncommitted Master Repurchase Agreement (the “Master Repurchase Agreement”) with Goldman Sachs Bank USA.

The Master Repurchase Agreement provided for advances of up to $ 150.0 million in the aggregate, which the Company used to finance certain secured performing commercial real estate loans.

Advances under the Master Repurchase Agreement accrued interest at a per annum pricing rate equal to the sum of (i) the 30-day LIBOR and (ii) the applicable spread, and had a maturity date of December 12, 2020 .

The actual terms of financing for each asset was determined at the time of financing in accordance with the Master Repurchase Agreement.

The Master Repurchase Agreement contained margin call provisions that provide Goldman with certain rights in the event of a decline in the market value of the assets purchased under the Master Repurchase Agreement.

Upon the occurrence of a margin deficit event, Goldman required the Seller to make a payment to reduce the outstanding obligation to eliminate any margin deficit.

For the period from January 1, 2020 to the date of the termination of the Master Repurchase Agreement on September 3, 2020, the Company received a margin call on one of the borrowings and as a result, made a repayment of $ 3.4 million to reduce the outstanding obligation under the Master Repurchase Agreement.

In connection with the Master Repurchase Agreement, the Company entered into a Guarantee Agreement in favor of Goldman (the “Guarantee Agreement”), pursuant to which the Company would guarantee the obligations of the Seller under the Master Repurchase Agreement.

Subject to certain exceptions, the maximum liability under the Master Repurchase Agreement would not exceed 50 % of the then currently outstanding repurchase obligations under the Master Repurchase Agreement.

On September 3, 2020, the Company terminated the Master Repurchase Agreement and replaced it with the Term Loan as described above.

In connection with the termination of the Master Repurchase Agreement, the Issuer repurchased all of its assets sold to Goldman pursuant to the Master Repurchase Agreement with the proceeds from the Term Loan, and Goldman released all security interests in such assets.

In addition, Goldman unconditionally released the Company from, and terminated, the Guarantee Agreement in favor of Goldman, dated as of December 12, 2018, which provided for the guarantee by the Company of the obligations of the Issuer under the Master Repurchase Agreement, subject to certain exceptions and limitations.

Notes to Unaudited Consolidated Financial Statements

The Master Repurchase Agreement and the Guarantee Agreement contained various representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types.

In addition, the Guarantee Agreement contained financial covenants, which required the Company to maintain:

(i) liquidity of at least 10 % of the then-current outstanding amount under the Master Repurchase Agreement;

3 unchanged sentences

and (v) a total indebtedness to tangible net worth ratio of not more than 3.00 to 1.00.

As of June 30, 2020 and December 31, 2019, the Company is in compliance with these covenants.

In connection with entering into the Master Repurchase Agreement, the Company incurred $ 2.8 million of deferred financing costs, which are being amortized to interest expense over the term of the facility.

As of June 30, 2020 and December 31, 2019, unamortized deferred financing costs were $ 0.8 million and $ 1.5 million, respectively.

The following tables present summary information with respect to the Company’s outstanding borrowing under the Master Repurchase Agreement as of June 30, 2020 and December 31, 2019:

June 30, 2020

Arrangement Weighted Average Rate (1)

Amount Outstanding Amount

Available Weighted Average Term (2)

Master Repurchase Agreement 3.8 % $ 95,356,360 $ 54,643,640 1.47 years

Notes to Unaudited Consolidated Financial Statements

As of December 31, 2019, the Company was in compliance with these covenants.

In connection with entering into the Master Repurchase Agreement, the Company incurred $ 2.8 million of deferred financing costs, which were being amortized to interest expense over the term of the facility.

In connection with the termination of the Master Repurchase Agreement, the remaining $ 0.5 million of unamortized deferred financing costs were carried over to the Term Loan to be amortized over the term of the Term Loan.

As of December 31, 2019, unamortized deferred financing costs were $ 1.5 million.

The following table presents summary information with respect to the Company’s outstanding borrowing under the Master Repurchase Agreement as of December 31, 2019:

December 31, 2019

Arrangement Weighted Average Rate (1)

Arrangement Weighted

Amount Outstanding Amount

Available Weighted Average Term (2)

Available Weighted

Master Repurchase Agreement 4.3 % $ 81,134,436 $ 68,865,564 1.55 years

_______________

(1) Amount is calculated using LIBOR of 0.16 % and 1.76 % as of June 30, 2020 and December 31, 2019, respectively.

(1) Amount is calculated using LIBOR of 1.76 % as of December 31, 2019.

(2) The weighted average term is determined based on the current maturity of the corresponding loan.

1 unchanged sentence

The Company may extend the maturity date of the Master Repurchase Agreement for a period of one year, subject to satisfaction of certain conditions.

The following tables present detailed information with respect to each borrowing under the Master Repurchase Agreement as of June 30, 2020 and December 31, 2019:

June 30, 2020

Collateral Borrowings Under Master Repurchase Agreement

Principal Amount Carrying Value Fair

Value Borrowing Date Principal Amount Interest

330 Tryon DE LLC $ 22,800,000 $ 22,896,169 $ 22,898,866 02/15/2019 $ 17,100,000 LIBOR+2.25% (LIBOR floor of 2.52%)

1389 Peachtree St, LP;

1401 Peachtree St, LP;

1409 Peachtree St, LP 45,671,947 45,853,379 45,821,197 3/7/2019 24,448,101 LIBOR+2.35%

2,489,416 LIBOR+3.85%

AGRE DCP Palm Springs, LLC 32,975,680 33,030,797 33,084,469 12/23/2019 19,242,798 LIBOR+2.50% (LIBOR floor of 1.8%)

320,145 LIBOR+4.00% (LIBOR floor of 1.8%)

MSC Fields Peachtree Retreat, LLC 23,308,335 23,442,092 23,108,448 3/25/2019 17,355,900 LIBOR+2.25% (LIBOR floor of 2.00%)

Patrick Henry Recovery

Acquisition, LLC 18,000,000 18,038,578 17,845,715 1/6/2020 14,400,000 LIBOR + 2.00% (1.5% Floor)

$ 142,755,962 $ 143,261,015 $ 142,758,695 $ 95,356,360

The following table presents detailed information with respect to each borrowing under the Master Repurchase Agreement as of December 31, 2019:

December 31, 2019

9 unchanged sentences

$ 114,757,121 $ 115,023,047 $ 115,306,279 $ 81,134,436

For the nine months ended September 30, 2020 and 2019, the Company borrowed $ 22.9 million and $ 51.3 million under the Master Repurchase Agreement, respectively, for the financing of new and follow-on investments, and made repayments of $ 104.0 million and $ 34.2 million, respectively.

Notes to Unaudited Consolidated Financial Statements

For the six months ended June 30, 2020 and 2019, the Company borrowed $ 17.6 million and $ 47.9 million under the Master Repurchase Agreement, respectively, for the financing of new and follow-on investments.

For the six months ended June 30, 2020, the Company made a repayment of $ 3.4 million as a result of a margin call described above.

For the six months ended June 30, 2019, there was no repayment on borrowings under the Master Repurchase Agreement and no margin call.

Revolving Credit Facility

3 unchanged sentences

The Revolving Credit Facility was scheduled to mature on June 20, 2020 .

In June and July 2020, the Company amended the Credit Facility twice to extend the maturity of the Credit Facility to September 3, 2020.

In connection with obtaining the Revolving Credit Facility, the Company incurred deferred financing costs of $ 0.3 million, which are being amortized to interest expense over the term of the facility.

As of June 30, 2020, the amount outstanding under the Revolving Credit Facility was $ 35.0 million.

The Revolving Credit Facility was amended to extend the maturity to September 3, 2020.

The Company is currently negotiating with the lender to extend the maturity of the Revolving Credit Facility by a year and the lender has waived the maturity default.

In connection with obtaining the Revolving Credit Facility, the Company incurred deferred financing costs of $ 0.3 million, which was amortized over the original term of the facility.

As of September 30, 2020, the amount outstanding under the Revolving Credit Facility was $ 25.0 million.

The Revolving Credit Facility requires the Company to maintain:

4 unchanged sentences

Additionally, the Revolving Credit Facility requires Terra LOC Portfolio I, LLC to maintain a tangible net worth of at least $ 100.0 million.

As of June 30, 2020 and December 31, 2019, both the Company and Terra LOC Portfolio I, LLC are in compliance with these covenants.

For the six months ended June 30, 2020, the Company borrowed $ 35.0 million under the Revolving Credit Facility.

There was no outstanding balance on the Revolving Credit Facility for the six months ended June 30, 2019.

As of September 30, 2020 and December 31, 2019, both the Company and Terra LOC Portfolio I, LLC are in compliance with these covenants.

For the nine months ended September 30, 2020 and 2019, the Company borrowed $ 35.0 million and $ 4.0 million under the Revolving Credit Facility, respectively, and made repayments of $ 10.0 million and $ 4.0 million, respectively.

Mortgage Loan Payable

As of June 30, 2020, the Company had a $ 44.5 million mortgage loan payable collateralized by a multi-tenant office building that the Company acquired through foreclosure.

The following table presents certain information about the mortgage loan payable as of June 30, 2020 and December 31, 2019:

June 30, 2020 December 31, 2019

As of September 30, 2020, the Company had a $ 44.2 million mortgage loan payable collateralized by a multi-tenant office building that the Company acquired through foreclosure.

The following table presents certain information about the mortgage loan payable as of September 30, 2020 and December 31, 2019:

September 30, 2020 December 31, 2019

Lender Current

5 unchanged sentences

_______________

(1) The Company has an option to extend the maturity of the mortgage loan payable by two years subject to certain conditions provided in the credit and security agreement.

Notes to Unaudited Consolidated Financial Statements

(1) In September 2020, the Company exercised the option to extend the maturity of the mortgage loan payable by two years.

Scheduled Debt Principal Payments

Scheduled debt principal payments for each of the five calendar years following June 30, 2020 are as follows:

Scheduled debt principal payments for each of the five calendar years following September 30, 2020 are as follows:

Years Ending December 31, Total

2020 (July 1 through December 31) $ 174,838,215

2020 (October 1 through December 31) $ 25,000,000

2022 44,210,228

Thereafter 105,888,747

Unamortized deferred financing costs ( 2,320,035 )

Total $ 172,778,940

At June 30, 2020 and December 31, 2019, the unamortized deferred financing costs were $ 0.5 million and $ 1.4 million, respectively.

At September 30, 2020 and December 31, 2019, the unamortized deferred financing costs were $ 2.3 million and $ 1.4 million, respectively.

Notes to Unaudited Consolidated Financial Statements

Obligations Under Participation Agreements

2 unchanged sentences

Loan participations from the Company which do not qualify for sale treatment remain on the Company’s consolidated balance sheets and the proceeds are recorded as obligations under participation agreements.

As of June 30, 2020 and December 31, 2019, obligations under participation agreements had a carrying value of approximately $ 78.2 million and $ 103.2 million, respectively, and the carrying value of the loans that are associated with these obligations under participation agreements was approximately $ 207.5 million and $ 203.0 million, respectively, (see “ Participation Agreements ” in Note 7 ).

The weighted-average interest rate on the obligations under participation agreements was approximately 10.8 % and 11.8 % as of June 30, 2020 and December 31, 2019, respectively.

As of September 30, 2020 and December 31, 2019, obligations under participation agreements had a carrying value of approximately $ 89.2 million and $ 103.2 million, respectively, and the carrying value of the loans that are associated with these obligations under participation agreements was approximately $ 223.5 million and $ 203.0 million, respectively, (see “ Participation Agreements ” in Note 7 ).

The weighted-average interest rate on the obligations under participation agreements was approximately 10.6 % and 11.8 % as of September 30, 2020 and December 31, 2019, respectively.

Commitments and Contingencies

1 unchanged sentence

As further discussed in Note 2 , the full extent of the impact of COVID-19 on the global economy generally, and the Company’s business in particular, is uncertain.

As of June 30, 2020, no contingencies have been recorded on the Company’s consolidated balance sheet as a result of COVID-19, however as the global pandemic continues and the economic implications worsen, it may have long-term impacts on the Company’s financial condition, results of operations, and cash flows.

As of September 30, 2020, no contingencies have been recorded on the Company’s consolidated balance sheet as a result of COVID-19, however as the global pandemic continues and the economic implications worsen, it may have long-term impacts on the Company’s financial condition, results of operations, and cash flows.

Refer to Note 2 for further discussion of COVID-19.

1 unchanged sentence

Certain of the Company’s loans contain provisions for future fundings, which are subject to the borrower meeting certain performance-related metrics that are monitored by the Company.

These fundings amounted to approximately $ 92.7 million and $ 116.7 million as of June 30, 2020 and December 31, 2019, respectively.

These fundings amounted to approximately $ 64.2 million and $ 116.7 million as of September 30, 2020 and December 31, 2019, respectively.

The Company expects to maintain sufficient cash on hand to fund such unfunded commitments, primarily through matching these commitments with principal repayments on outstanding loans and proceeds from the Revolving Credit Facility.

Unfunded Investment Commitment

As discussed in N ote 7 , On August 3, 2020, the Company entered into a subscription agreement with Terra Opportunities Fund whereby the Company committed to fund up to $ 50.0 million to purchase limited partnership interests in Terra Opportunities Fund.

As of September 30, 2020, none of the commitment has been funded.

The Company enters into contracts that contain a variety of indemnification provisions.

3 unchanged sentences

The Company is not currently subject to any material legal proceedings and, to the Company’s knowledge, no material legal proceedings are threatened against the Company.

From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company’s rights

Notes to Unaudited Consolidated Financial Statements

under contracts with its portfolio companies.

From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company’s rights under contracts with its portfolio companies.

While the outcome of any legal proceedings cannot be predicted with certainty, the Company does not expect that any such proceedings will have a material adverse effect upon its financial condition or results of operations.

See Note 7 for a discussion of the Company’s commitments to the Manager.

Notes to Unaudited Consolidated Financial Statements

Earnings Per Share

The following table presents earnings per share for the three and six months ended June 30, 2020 and June 30, 2019:

Three Months Ended June 30, Six Months Ended June 30,

The following table presents earnings per share for the three and nine months ended September 30, 2020 and September 30, 2019:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Net income (loss) $ 2,646,042 $ ( 153,485 ) $ 3,225,005 $ 3,769,390

Net income $ 2,143,130 $ 3,147,634 $ 5,368,135 $ 6,917,024

Preferred stock dividend declared ( 3,906 ) ( 3,906 ) ( 11,718 ) ( 11,718 )

Net income (loss) allocable to common stock $ 2,642,136 $ ( 157,391 ) $ 3,217,193 $ 3,761,578

Net income allocable to common stock $ 2,139,224 $ 3,143,728 $ 5,356,417 $ 6,905,306

Weighted-average shares outstanding - basic

and diluted 19,487,461 14,915,302 18,586,627 14,913,769

Earnings (loss) per share - basic and diluted $ 0.14 $ ( 0.01 ) $ 0.18 $ 0.25

Earnings per share - basic and diluted $ 0.11 $ 0.21 $ 0.29 $ 0.46

Preferred Stock Classes

2 unchanged sentences

The Company’s board of directors may classify any unissued shares of Preferred Stock and reclassify any previously classified but unissued shares of Preferred Stock of any series from time to time, into one or more classes or series of stock.

As of June 30, 2020 and December 31, 2019, there were no Preferred Stock issued or outstanding.

As of September 30, 2020 and December 31, 2019, there were no Preferred Stock issued or outstanding.

Series A Preferred Stock

14 unchanged sentences

Notes to Unaudited Consolidated Financial Statements

Terra JV and the Company.

On September 30, 2019, the Company issued 212,691 shares of its common stock to TIF3 REIT at a price of $ 17.02 per share for total proceeds of $ 3.6 million.

On April 29, 2020, the Company repurchased, at a price of $ 17.02 per share, the 212,691 shares it previously sold to TIF3 REIT ( Note 7 ).

On September 30, 2019, the Company issued 212,691 shares of its common stock to Terra Offshore Funds at a price of $ 17.02 per share for total proceeds of $ 3.6 million.

On April 29, 2020, the Company repurchased, at a price of $ 17.02 per share, the 212,691 shares it previously sold to Terra Offshore Funds ( Note 7 ).

Distributions

2 unchanged sentences

All distributions will be made at the discretion of the Company’s board of directors and will depend upon its taxable income, financial condition, maintenance of REIT status, applicable law, and other factors as its board of directors deems relevant.

Additionally, for both the six months ended June 30, 2020 and 2019, the Company made distributions to preferred stockholders of $ 7,812 .

Additionally, for both the nine months ended September 30, 2020 and 2019, the Company made distributions to preferred stockholders of $ 11,718 .

Subsequent Events

34 unchanged sentences

(“Terra International 3”);

Terra International Fund 3 REIT, LLC (“TIF3 REIT”);

Terra Offshore Funds REIT, LLC (formerly known as Terra International Fund 3 REIT, LLC) (“Terra Offshore Funds”);

Terra Real Estate Credit Opportunities Fund, L.P.

(“Terra Opportunities Fund”);

Terra Capital Advisors, LLC;

28 unchanged sentences

There can be no assurances that we will be successful in meeting our objective.

As of June 30, 2020, we held a net investment portfolio (gross investments less obligations under participation agreements) comprised of 22 investments in 10 states with an aggregate net principal balance of $336.0 million, a weighted average coupon rate of 8.9%, a weighted average loan-to-value ratio of 81.6% and a weighted average remaining term to maturity of 1.9 years.

As of September 30, 2020, we held a net investment portfolio (gross investments less obligations under participation agreements) comprised of 21 investments in 10 states with an aggregate net principal balance of $348.3 million, a weighted average coupon rate of 8.7%, a weighted average loan-to-value ratio of 82.1% and a weighted average remaining term to maturity of 1.7 years.

Each of our loans was originated by Terra Capital Partners or its affiliates.

6 unchanged sentences

At the beginning of 2016, we completed the merger of these private partnerships into a single entity as part of our plan to reorganize our business as a REIT for federal income tax purposes (the “REIT formation transaction”).

Following the REIT formation transaction, Terra Fund 5 contributed the consolidated portfolio of net assets of Terra Secured Income Fund, LLC, Terra Secured Income Fund 2,

LLC, Terra Secured Income Fund 3, LLC, Terra Secured Income Fund 4, LLC and Terra Fund 5 to us in exchange for all of the shares of common stock of our company.

Following the REIT formation transaction, Terra Fund 5 contributed the consolidated portfolio of net assets of Terra Secured Income Fund, LLC, Terra Secured Income Fund 2, LLC, Terra Secured Income Fund 3, LLC, Terra Secured Income Fund 4, LLC and Terra Fund 5 to us in exchange for all of the shares of common stock of our company.

On March 1, 2020, Terra Property Trust 2, Inc.

1 unchanged sentence

In connection with the Merger, we issued 2,116,785.76 shares of our common stock to Terra Fund 7, the sole stockholder of Terra Property Trust 2, in exchange for the settlement of $17.7 million of participation interests in loans held by us, cash of $16.9 million and other working capital.

In addition, on March 2, 2020, we issued 2,457,684.59 shares of our common stock to TIF3 REIT in exchange for the settlement of $32.1 million of participation interests in loans also held by us, $8.6 million in cash and other net working capital (“Issuance of Common Stock To TIF3 REIT”).

In addition, on March 2, 2020, we issued 2,457,684.59 shares of our common stock to Terra Offshore Funds in exchange for the settlement of $32.1 million of participation interests in loans also held by us, $8.6 million in cash and other net working capital (“Issuance of Common Stock to Terra Offshore Funds”).

The shares of common stock were issued in private placements in reliance on Section 4(a)(2) under the U.S.

1 unchanged sentence

We consummated these transactions with the objective of increasing the size and scale of our loan portfolio, further strengthening our balance sheet and positioning us for future growth.

On April 29, 2020, we repurchased the 212,691 shares of common stock we had previously sold to TIF3 REIT on September 30, 2019.

As of June 30, 2020, Terra JV held 87.4% of the issued and outstanding shares of our common stock with the remainder held by TIF3 REIT, and Terra Fund 5 and TIF7 owned an 87.6% and 12.4% interest, respectively, in Terra JV.

On April 29, 2020, we repurchased the 212,691 shares of common stock we had previously sold to Terra Offshore Funds on September 30, 2019.

As of September 30, 2020, Terra JV held 87.4% of the issued and outstanding shares of our common stock with the remainder held by Terra Offshore Funds, and Terra Fund 5 and TIF7 owned an 87.6% and 12.4% interest, respectively, in Terra JV.

We have elected to be taxed as a REIT for U.S.

3 unchanged sentences

Recent Developments

During the first half of 2020, there was a global outbreak of a novel coronavirus, or COVID-19, which has spread to over 200 countries and territories, including the United States, and has spread to every state in the United States.

As of September 30, 2020, there has been an ongoing global outbreak of a novel coronavirus, or COVID-19, which has spread to over 200 countries and territories, including the United States, and has spread to every state in the United States.

The World Health Organization has designated COVID-19 as a pandemic, and numerous countries, including the United States, have declared national emergencies with respect to COVID-19.

2 unchanged sentences

The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown.

While we believe that compelling opportunities for us will emerge as a result of the economic downtown caused by the COVID-19 pandemic, we are in the early stages of assessing its full impact on the commercial real estate market.

We believe that compelling opportunities for us will emerge as a result of the economic downtown caused by the COVID-19 pandemic.

While it has had a demonstrable effect on employment, the economy and the national psyche, the impact of the pandemic on property values has yet to be fully realized.

2 unchanged sentences

Portfolio Summary

The following tables provide a summary of our net loan portfolio as of June 30, 2020 and December 31, 2019:

June 30, 2020

Fixed Rate Floating Rate (1)(2)(3)

The following tables provide a summary of our net loan portfolio as of September 30, 2020 and December 31, 2019:

September 30, 2020

Fixed Rate Floating

Rate (1)(2)(3)

Total Gross Loans Obligations under Participation Agreements Total Net Loans

6 unchanged sentences

December 31, 2019

Fixed Rate Floating Rate (1)(2)(3)

Fixed Rate Floating

Rate (1)(2)(3)

Total Gross Loans Obligations under Participation Agreements Total Net Loans

7 unchanged sentences

(1) These loans pay a coupon rate of London Interbank Offered Rate ( “ LIBOR ” ) plus a fixed spread.

Coupon rate shown was determined using LIBOR of 0.16% and 1.76% as of June 30, 2020 and December 31, 2019.

(2) As of June 30, 2020 and December 31, 2019, amounts included $142.8 million and $114.8 million, respectively, of senior mortgages used as collateral for $95.4 million and $81.1 million, respectively, of borrowings under a repurchase agreement.

These borrowings bear interest at an annual rate of LIBOR plus a spread ranging from 2.00% to 2.50% as of June 30, 2020 and LIBOR plus a spread ranging from 2.25% to 2.50% as of December 31, 2019.

(3) As of June 30, 2020 and December 31, 2019, eleven and twelve of these loans, respectively, are subject to a LIBOR floor.

In addition to our net loan portfolio, as of June 30, 2020 and December 31, 2019, we own 4.9 acres of adjacent land acquired via deed in lieu of foreclosure and a multi-tenant office building acquired via foreclosure.

The land and building and related lease intangible assets and liabilities had a net carrying value of $64.6 million and $66.2 million as of June 30, 2020 and December 31, 2019, respectively.

The mortgage loan payable encumbering the office building had an outstanding principal amount of $44.5 million and $44.6 million as of June 30, 2020 and December 31, 2019, respectively.

Coupon rate shown was determined using LIBOR of 0.15% and 1.76% as of September 30, 2020 and December 31, 2019.

(2) As of September 30, 2020, amounts included $181.0 million of senior mortgages used as collateral for $105.9 million of borrowings under a term loan ( Note 8 ).

These borrowings bear interest at an annual rate of LIBOR plus 4.25% with a LIBOR floor of 1.00% as of September 30, 2020.

As of December 31, 2019, amount included $114.8 million of senior mortgages used as collateral for $81.1 million of borrowings under a repurchase agreement ( Note 8 ).

These borrowings bore interest at an annual rate of LIBOR plus a spread ranging from 2.25% to 2.50% as of December 31, 2019.

The repurchase agreement was terminated in September 2020.

(3) As of September 30, 2020 and December 31, 2019, eleven and twelve of these loans, respectively, are subject to a LIBOR floor.

In addition to our net loan portfolio, as of September 30, 2020 and December 31, 2019, we own 4.9 acres of adjacent land acquired via deed in lieu of foreclosure and a multi-tenant office building acquired via foreclosure.

The land and building and related lease intangible assets and liabilities had a net carrying value of $63.7 million and $66.2 million as of September 30, 2020 and December 31, 2019, respectively.

The mortgage loan payable encumbering the office building had an outstanding principal amount of $44.2 million and $44.6 million as of September 30, 2020 and December 31, 2019, respectively.

Portfolio Investment Activity

For the three months ended June 30, 2020 and 2019, we invested $2.6 million and $8.6 million in new and/or add-on loans, respectively, and had $5.2 million and $9.8 million of repayments, respectively, resulting in net repayments of $2.5 million and $1.2 million, respectively.

Amounts are net of obligations under participation agreements and borrowings under the master repurchase agreement.

For the six months ended June 30, 2020 and 2019, we invested $11.9 million and $28.3 million in new and/or add-on loans, respectively, and had $15.1 million and $45.2 million of repayments, respectively, resulting in net repayments of $3.2 million and $16.9 million, respectively.

Amounts are net of obligations under participation agreements and borrowings under the master repurchase agreement.

For the three months ended September 30, 2020 and 2019, we invested $10.3 million and $20.2 million in new and/or add-on loans, respectively, and had $9.6 million and $37.2 million of repayments, respectively, resulting in net investments of $0.7 million and repayments of $17.0 million, respectively.

Amounts are net of obligations under participation agreements and borrowings under the master repurchase agreement and the term loan.

For the nine months ended September 30, 2020 and 2019, we invested $22.2 million and $48.5 million in new and/or add-on loans, respectively, and had $24.7 million and $82.4 million of repayments, respectively, resulting in net repayments of $2.5 million and $33.9 million, respectively.

Amounts are net of obligations under participation agreements and borrowings under the master repurchase agreement and the term loan.

In addition, in March 2020, we issued 4,574,470.35 shares of our common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans that we owned, cash of $25.5 million and other working capital.

In connection with the Merger and Issuance of Common Stock to TIF3 REIT, the related participation obligations were settled.

For each of the three and six months ended June 30, 2020, we sold $5.8 million of marketable securities and recognized net gains on sale of marketable securities of $1.1 million.

In connection with the Merger and Issuance of Common Stock to Terra Offshore Funds, the related participation obligations were settled.

For the three and nine months ended September 30, 2020, we sold $0.2 million and $6.0 million of marketable securities, respectively, and recognized net gains on sale of marketable securities of $0.1 million and $1.2 million, respectively.

In January 2019, we acquired 4.9 acres of adjacent land encumbering a $14.3 million first mortgage via deed in lieu of foreclosure in exchange for the release of the first mortgage and related fees and expenses.

1 unchanged sentence

The tables below set forth the types of loans in our loan portfolio, as well as the property type and geographic location of the properties securing these loans, on a net loan basis, which represents our proportionate share of the loans, based on our economic ownership of these loans.

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Loan Structure Principal Balance Carrying

6 unchanged sentences

Total $ 348,320,512 $ 348,748,315 100.0 % $ 274,823,522 $ 275,426,441 100.0 %

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Property Type Principal Balance Carrying

2 unchanged sentences

Office $ 130,839,098 $ 131,259,038 37.7 % $ 119,331,369 $ 119,145,879 43.3 %

Student housing 42,637,550 43,033,299 12.8 % 26,470,740 26,725,148 9.7 %

Multifamily 75,959,088 76,411,701 21.9 % 49,017,844 49,331,885 17.9 %

Hotel 57,841,452 58,186,134 16.7 % 41,239,194 41,327,772 15.0 %

Student housing 43,599,269 43,995,342 12.6 % 26,470,740 26,725,148 9.7 %

Infill land 30,961,605 31,112,716 8.9 % 29,644,375 29,756,375 10.8 %

3 unchanged sentences

Total $ 348,320,512 $ 348,748,315 100.0 % $ 274,823,522 $ 275,426,441 100.0 %

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Geographic Location Principal Balance Carrying

14 unchanged sentences

_______________

(1) Other includes $7.1 million and $0.3 million of unused portion of a credit facility, $2.6 million and a $1.7 million of loans with collateral located in Kansas, and $3.0 million and $1.9 million of loans with collateral located in South Carolina at June 30, 2020 and December 31, 2019, respectively.

(1) Other includes $7.5 million and $0.3 million of unused portion of a credit facility, $2.6 million and a $1.7 million of loans with collateral located in Kansas, and $3.0 million and $1.9 million of loans with collateral located in South Carolina at September 30, 2020 and December 31, 2019, respectively.

Factors Impacting Operating Results

5 unchanged sentences

Additionally, our Manager employs an asset management approach and monitors the portfolio of investments, through, at a minimum, quarterly financial review of property performance including net operating income, loan-to-value, debt service coverage ratio and the debt yield.

Our Manager also requires certain borrowers to establish a cash reserve, as a form of additional collateral, for the purpose of providing for future interest or property-related operating payments.

Our Manager also requires certain borrowers to establish an interest reserve, as a form of additional collateral, for the purpose of providing for future interest or property-related operating payments.

The performance and value of our loans depends upon the sponsors’ ability to operate or manage the development of the respective properties that serve as collateral so that each property’s value ultimately supports the repayment of the loan balance.

43 unchanged sentences

Use of Leverage

We deploy moderate amounts of leverage as part of our operating strategy, which may consist of borrowings under first mortgage financings, warehouse facilities, repurchase agreements and other credit facilities.

We deploy moderate amounts of leverage as part of our operating strategy, which may consist of borrowings under first mortgage financings, warehouse facilities, term loan, repurchase agreements and other credit facilities.

While borrowing and leverage present opportunities for increasing total return, they may have the effect of potentially creating or increasing losses.

4 unchanged sentences

In reaction to these tumultuous and unpredictable market conditions, banks and other lenders have generally restricted lending activity and requested margin posting or repayments where applicable for secured loans collateralized by assets with depressed valuations.

Our repurchase agreement contains margin call provisions that provide the lender with certain rights in the event of a decline in the market value of the assets purchased under the repurchase agreement.

Upon the occurrence of a margin deficit event, the lender may require us to make a payment to reduce the outstanding obligation to eliminate any margin deficit.

Results of Operations

The following table presents the comparative results of our operations for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30, Six Months Ended June 30,

The following table presents the comparative results of our operations for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 Change 2020 2019 Change

18 unchanged sentences

Operating income 6,721,283 8,422,965 (1,701,682) 19,002,919 21,954,658 (2,951,739)

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 Change 2020 2019 Change

Other income and expenses

7 unchanged sentences

credit facility (463,333) (74,794) (388,539) (1,238,311) (74,794) (1,163,517)

Interest expense on term loan

payable (476,411) — (476,411) (476,411) — (476,411)

Net loss on extinguishment of

3 unchanged sentences

securities 75,055 — 75,055 1,160,162 — 1,160,162

Unrealized gains on marketable

securities 67,522 — 67,522 67,522 — 67,522

Unrealized (losses) gains on

marketable securities (38,527) — (38,527) 28,995 — 28,995

(4,578,153) (5,275,331) 697,178 (13,634,784) (15,037,634) 1,402,850

Net income (loss) $ 2,646,042 $ (153,485) $ 2,799,527 $ 3,225,005 $ 3,769,390 $ (544,385)

Net income $ 2,143,130 $ 3,147,634 $ (1,004,504) $ 5,368,135 $ 6,917,024 $ (1,548,889)

Net Loan Portfolio

In assessing the performance of our loans, we believe it is appropriate to evaluate the loans on an economic basis, that is, gross loans net of obligations under participation agreements and repurchase agreement payable.

The following tables presents a reconciliation of our loan portfolio from a gross basis to net basis for the three and six months ended June 30, 2020 and 2019 :

Three Months Ended June 30, 2020 Three Months Ended June 30, 2019

The following tables presents a reconciliation of our loan portfolio from a gross basis to net basis for the three and nine months ended September 30, 2020 and 2019 :

Three Months Ended September 30, 2020 Three Months Ended September 30, 2019

Weighted Average Principal Amount (1)

6 unchanged sentences

Repurchase agreement payable (68,952,665) 3.9% (72,591,206) 4.5%

Term loan payable (31,997,627) 5.3% — —%

Revolving credit facility — —% (347,826) 6.4%

Net loans (3)

3 unchanged sentences

Repurchase agreement payable (68,952,665) 3.9% (72,591,206) 4.5%

Term loan payable (31,997,627) 5.3% — —%

Net loans (3)

3 unchanged sentences

Obligations under participation agreements (46,838,794) 12.0% (90,076,184) 12.1%

Revolving credit facility — — (347,826) 0.1

Net loans (3)

$ 138,061,841 12.2% $ 140,676,241 12.4%

Six Months Ended June 30, 2020 Six Months Ended June 30, 2019

Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019

Weighted Average Principal Amount (1)

6 unchanged sentences

Repurchase agreement payable (85,999,794) 3.9 % (66,824,004) 4.7 %

Term loan payable (10,743,729) 5.3 % — — %

Revolving credit facility — — % (117,216) 6.4 %

Net loans (3)

3 unchanged sentences

Repurchase agreement payable (85,999,794) 3.9 % (66,824,004) 4.5 %

Term loan payable (10,743,729) 5.3 % — — %

Net loans (3)

3 unchanged sentences

Obligations under participation agreements (54,149,273) 12.1 % (88,179,505) 12.2 %

Revolving credit facility — — % (117,216) 6.4 %

Net loans (3)

5 unchanged sentences

(4) Subordinated loans include mezzanine loans, preferred equity investments and credit facilities.

For the three and six months ended June 30, 2020 as compared to the same periods in 2019, the decrease in weighted average coupon rate was primarily due to a higher volume of loan originations with lower coupon rates.

For the three and nine months ended September 30, 2020 as compared to the same periods in 2019, the decrease in weighted average coupon rate was primarily due to a higher volume of loan originations with lower coupon rates.

Interest Income

For the three and six months ended June 30, 2020 as compared to the same periods in 2019, interest income decreased by approximately $1.2 million and $1.8 million, respectively, primarily due to a decrease in contractual interest income as a result of a decrease in the weighted average interest rate on gross loans driven by new loan originations having lower coupon rates than those of the loans that were repaid, partially offset by an increase in the weighted average principal balance of gross loans driven by higher volume of new loan originations than repayments.

For the three and nine months ended September 30, 2020 as compared to the same periods in 2019, interest income decreased by $0.7 million and $2.5 million, respectively, primarily due to a decrease in contractual interest income as a result of a decrease in the weighted average interest rate on gross loans driven by new loan originations having lower coupon rates than those of the loans that were repaid, partially offset by an increase in the weighted average principal balance of gross loans driven by higher volume of new loan originations than repayments.

Real Estate Operating Revenue

For each of the three and six months ended June 30, 2020 as compared to the same periods in 2019, real estate operating revenue decreased by $0.3 million, primarily due to a decrease in parking fee income.

For the three and nine months ended September 30, 2020 as compared to the same periods in 2019, real estate operating revenue increased by $0.6 million and $0.3 million, primarily due to lease termination fee income received and the write-off of the unamortized below-market rent intangible liabilities in connection with a lease termination, partially offset by a decrease in parking fee income.

Prepayment Fee Income

Prepayment fee income represents prepayment fees charged to borrowers for the early repayment of loans.

For the six months ended June 30, 2019, we received prepayment fee income of $0.1 million on the early repayment of a loan.

There was no prepayment fee income for the three months ended June 30, 2020 and 2019 and the six months ended June 30, 2020.

For the nine months ended September 30, 2019, we received prepayment fee income of $0.1 million on the early repayment of a loan.

There was no prepayment fee income for the three months ended September 30, 2020 and 2019 and the nine months ended September 30, 2020.

Other Operating Income

Other operating income includes loan processing fee, administrative fee, application fee and non-refundable deal deposits.

For each of the three and six months ended June 30, 2020 as compared to the same periods in 2019, other operating income increased by $0.2 million, primarily due to an increase in non-refundable deal deposits.

For the three months ended September 30, 2020 as compared to the same period in 2019, other operating income was substantially the same.

For the nine months ended September 30, 2020 as compared to the same period in 2019, other operating income increased by $0.3 million, primarily due to an increase in non-refundable deal deposits.

Operating Expenses Reimbursed to Manager

Under the terms of the management agreement with the Manager, we reimburse the Manager for operating expenses incurred in connection with services provided to us, including our allocable share of the Manager’s overhead, such as rent, employee costs, utilities, and technology costs.

For the three and six months ended June 30, 2020 as compared to the same periods in 2019, operating expenses reimbursed to Manager increased by $0.5 million and $0.7 million, respectively, primarily due to an increase in our allocation ratio in relation to affiliated funds managed by our Manager and its affiliates as a result of the Merger and issuance of Common Stock to TIF3 REIT transactions.

For the three and nine months ended September 30, 2020 as compared to the same periods in 2019, operating expenses reimbursed to Manager increased by $0.4 million and $1.1 million, respectively, primarily due to an increase in our allocation ratio in relation to affiliated funds managed by our Manager and its affiliates as a result of the Merger and issuance of Common Stock to Terra Offshore Funds transactions.

Asset Management Fee

Under the terms of the management agreement with the Manager, we paid the Manager a monthly asset management fee at an annual rate of 1% of the aggregate funds under management, which included the aggregate gross acquisition price for each real estate-related investment and cash held by us.

For the three and six months ended June 30, 2020 as compared to the same periods in 2019, asset management fee increased by $0.2 million and $0.3 million, respectively, primarily due to an increase in total funds under management.

For the three and nine months ended September 30, 2020 as compared to the same periods in 2019, asset management fee increased by $0.2 million and $0.5 million, respectively, primarily due to an increase in total funds under management.

Provision for Loan Losses

1 unchanged sentence

We record an allowance for loan losses equal to (i) 1.5% of the aggregate carrying amount of loans rated as a “4”, plus (ii) 5% of the aggregate carrying amount of loans rated as a “5”, plus (iii) impaired loan reserves, if any.

As of June 30, 2020, we had five loans with a loan risk rating of “4” and recorded a provision for loan losses of $1.3 million for the six months ended June 30, 2020.

For the three months ended June 30, 2020, we recorded a provision for loan losses of $0.2 million as a result of an increase in loans with a risk rating of “4” in the second quarter of 2020.

There was no provision for loan losses for the three and six months ended June 30, 2019 because we didn't have any loans with a loan risk rating of “4” or “5” as of June 30, 2019.

For both the three and six months ended June 30, 2020 and 2019, we did not record any specific allowance for loan losses.

As of September 30, 2020, we had five loans with a loan risk rating of “4” and recorded a provision for loan losses of $1.4 million for the nine months ended September 30, 2020.

For the three months ended September 30, 2020, we recorded a provision for loan losses of $0.04 million as a result of an increase in the principal balance on loans with a risk rating of “4” in the third quarter of 2020.

There was no provision for loan losses for the three and nine months ended September 30, 2019 because we didn't have any loans with a loan risk rating of “4” or “5” as of September 30, 2019.

For the three and nine months ended September 30, 2020 and 2019, we did not record any specific allowance for loan losses.

Real Estate Operating Expenses

Real estate operating expenses represent expenses incurred by the multi-tenant office building and the land, which include repairs and maintenances, utilities, real estate taxes, management fees and other operating expenses incurred in connection with the operation of the office building and the maintenance of the land.

For the three and six months ended June 30, 2020 as compared to the same periods in 2019, real estate operating expenses increased by $0.1 million and $0.3 million, respectively, primarily due to an increase in real estate taxes.

For the three months ended September 30, 2020 as compared to the same period in 2019, real estate operating expenses were substantially the same.

For the nine months ended September 30, 2020 as compared to the same period in 2019, real estate operating expenses increased by $0.3 million, primarily due to an increase in real estate taxes, partially offset by a decrease in repairs and maintenances.

Depreciation and Amortization

For both the three and nine months ended September 30, 2020, depreciation and amortization expense increased by $0.9 million, as a result of the write off of in-place lease intangible assets in connection with a lease termination.

Impairment Charge

We did not record any impairment charge for the three and six months ended June 30, 2020.

For the three and six months ended June 30, 2019, we recorded an impairment charge of $1.6 million on the 4.9 acres of adjacent land that we acquired via deed in lieu of foreclosure in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost of sale.

We did not record any impairment charge for the three and nine months ended September 30, 2020 and the three months ended September 30, 2019.

For the nine months ended September 30, 2019, we recorded an impairment charge of $1.6 million on the 4.9 acres of adjacent land that we acquired via deed in lieu of foreclosure in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost of sale.

Professional Fees

For the three and six months ended June 30, 2020 as compared to the same periods in 2019, professional fees decreased by $2.2 million and $2.1 million, respectively, primarily due to $2.4 million of professional fees directly incurred in the second quarter of 2019, and which were previously deferred, in contemplation of Terra Property Trust becoming a public entity, partially offset by additional professional fees incurred in connection with financial reporting compliance since becoming a public reporting entity in December 2019.

For both the three and six months ended June 30, 2020 as compared to the same periods in 2019, other operating expenses increased by $0.2 million, primarily due to an increase in un-reimbursed transaction-related costs.

For the three months ended September 30, 2020 as compared to the same period in 2019, professional fees were substantially the same.

For the nine months ended September 30, 2020 as compared to the same period in 2019, professional fees decreased by $2.0 million, primarily due to $2.4 million of professional fees directly incurred in the second quarter of 2019, and which were previously deferred, in contemplation of Terra Property Trust becoming a public entity, partially offset by additional professional fees incurred in connection with financial reporting compliance since becoming a public reporting entity in December 2019.

For the three months ended September 30, 2020 as compared to the same period in 2019, other operating expenses were substantially the same.

For the nine months ended September 30, 2020 as compared to the same period in 2019, other operating expenses increased by $0.3 million, primarily due to an increase in un-reimbursed transaction-related costs.

Interest Expense from Obligations under Participation Agreements

For the three and six months ended June 30, 2020 as compared to the same periods in 2019, interest expense from obligations under participation agreements decreased by $1.0 million and $1.3 million, respectively, primarily due to a decrease in weighted average outstanding principal balance on obligations under participation agreements as a result of the Merger and Issuance of Common Stock to TIF3 REIT as well as a decrease in the weighted average coupon rate on obligations under participation agreements.

For the three and nine months ended September 30, 2020 as compared to the same periods in 2019, interest expense from obligations under participation agreements decreased by $0.8 million and $2.1 million, respectively, primarily due to a decrease in weighted average outstanding principal balance on obligations under participation agreements as a result of the Merger and Issuance of Common Stock to Terra Offshore Funds as well as a decrease in the weighted average coupon rate on obligations under participation agreements.

Interest Expense on Repurchase Agreement Payable

1 unchanged sentence

Advances under the master repurchase agreement accrue interest at a per annum pricing rate equal to the sum of (i) the 30-day LIBOR and (ii) the applicable spread.

For the three and six months ended June 30, 2020 as compared to the same periods in 2019, interest expense on repurchase agreement payable increased by $0.1 million and $0.7 million, respectively, due to an increase in the weighted average amount outstanding, partially offset by a decrease in the weighted average interest rate, as well as an accrual for the minimum interest provision under the master repurchase agreement.

On September 3, 2020, we terminated the master repurchase agreement and replaced it with the indenture and credit agreement.

For the three months ended September 30, 2020 as compared to the same period in 2019, interest expense on repurchase agreement payable decreased by $0.7 million, primarily due to the termination of the master repurchase agreement on September 3, 2020.

For the nine months ended September 30, 2020 as compared to the same period in 2019, interest expense on repurchase agreement payable was the same because the increase in the weighted average amount outstanding was substantially offset by a decrease in the weighted average interest rate.

Interest Expense on Revolving Credit Facility

On June 20, 2019, we entered into a credit agreement to provide for revolving credit loans of up to $35.0 million in the aggregate, which we use for short term financing needed to bridge the timing of anticipated loans repayments and funding obligations.

For the three and six months ended June 30, 2020, we recorded interest expense on revolving credit facility of $0.6 million and $0.8 million, respectively.

We entered into the credit facility agreement in June 2019 and there was no balance outstanding for the three and six months ended June 30, 2019.

For the three and nine months ended September 30, 2020 as compared to the same periods in 2019, interest expense on revolving credit facility increased by $0.4 million and $1.2 million, as a result of an increase in outstanding principal balance.

Interest Expense on Term Loan Payable

On September 3, 2020, we entered into an indenture and credit agreement that provides for a floating rate loan of $103.0 million, $3.6 million of additional future advances, and may provide up to $11.6 million of additional future discretionary advances, in connection with certain outstanding funding commitments under the mortgage assets owned by us

and financed under the indenture and credit agreement.

The loan currently bears interest at LIBOR plus 4.25% with a LIBOR floor of 1.0%.

For both the three and nine months ended September 30, 2020, interest expense on term loan payable was $0.5 million.

There was no interest expense on term loan payable for the three and nine months ended September 30, 2019 because the indenture and credit agreement was entered into on September 3, 2020.

Net Loss on Extinguishment of Obligations under Participation Agreements

In March 2020, as a result of the Merger and Issuance of Common Stock to TIF3 REIT, we settled an aggregate of $49.8 million of participation interests in loans that we owned with affiliates and recognized a net loss on extinguishment of obligations under participation agreements of $0.3 million.

In March 2020, as a result of the Merger and Issuance of Common Stock to Terra Offshore Funds, we settled an aggregate of $49.8 million of participation interests in loans that we owned with affiliates and recognized a net loss on extinguishment of obligations under participation agreements of $0.3 million.

Realized Gains on Marketable Securities

For each of the three and six months ended June 30, 2020, we sold $5.8 million of marketable securities and recognized realized gains on marketable securities of $1.1 million.

There were no sales of marketable securities for the three and six months ended June 30, 2019.

Unrealized Gains on Marketable Securities

As of June 30, 2020, we owned $0.2 million of marketable securities and recorded unrealized gains on marketable securities of $0.1 million for each of the three and six months ended June 30, 2020, representing the change in the fair value of the marketable securities.

For the three months ended June 30, 2020, the resulting net income was $2.6 million, compared to a resulting net loss of $0.2 million for the same period in 2019.

For the six months ended June 30, 2020 as compared to the same period in 2019, the resulting net income decreased by $0.5 million.

For the three and nine months ended September 30, 2020, we sold $0.2 million and $6.0 million of marketable securities, respectively, and recognized realized gains on marketable securities of $0.1 million and $1.2 million, respectively.

There were no sales of marketable securities for the three and nine months ended September 30, 2019.

For the three and nine months ended September 30, 2020 as compared to the same periods in 2019, the resulting net income decreased by $1.0 million and $1.5 million, respectively.

Financial Condition, Liquidity and Capital Resources

2 unchanged sentences

Our primary sources of cash generally consist of payments of principal and interest we receive on our portfolio of investments, cash generated from our operating results and unused borrowing capacity under our financing sources.

We deploy moderate amounts of leverage as part of our operating strategy and use a number of sources to finance our target assets, including our master repurchase agreement and the revolving credit facility.

We deploy moderate amounts of leverage as part of our operating strategy and use a number of sources to finance our target assets, including our term loan, the master repurchase agreement and the revolving credit facility.

We may use other sources to finance our target assets, including bank financing and arranged financing facilities with domestic or international financing providers.

6 unchanged sentences

During the three months ended June 30, 2020, we paid distributions of $0.0805, $0.0738 and $0.0738 per share of common stock for each of the months of April, May and June, respectively, which translated to a distribution rate of approximately 5.5% of the fair value per share.

Going forward, we intend to target a distribution rate of approximately 5.0% of the fair value per share, which we believe is more closely aligned with our earnings per share.

Going forward, we target a distribution rate of approximately 5.0% of the fair value per share, which we believe is more closely aligned with our earnings per share.

Distributions are made at the discretion of our board and will depend upon, among other things, our actual results of operations and liquidity.

2 unchanged sentences

Additionally, we expect to fund approximately $60.6 million of the unfunded commitments to borrowers during the next twelve months.

We expect to maintain sufficient cash on hand to fund such commitments through matching these commitments with principal repayments on outstanding loans as well as from proceeds from the unused portion of borrowing facilities.

We expect to maintain sufficient cash on hand to fund such commitments through matching these commitments with principal repayments on outstanding loans.

Additionally, we had $44.2 million of borrowings outstanding under a mortgage loan payable that bear interest at an annual rate of LIBOR plus 3.85% with a LIBOR floor of 2.23%, that is collateralized by an office building.

The mortgage loan payable matures on September 27, 2022.

We expect to extend the maturity of the loan payable for another year.

On December 12, 2018, we entered into a master repurchase agreement that provides for advances of up to $150 million in the aggregate, which we expect to use to finance certain secured performing commercial real estate loans, including senior mortgage loans.

Advances under the master repurchase agreement accrue interest at an annual rate equal to the sum of (i) the 30-day LIBOR and (ii) the applicable spread, and have a maturity date of December 12, 2020.

We expect to extend the maturity of the master repurchase agreement for another year or refinance it with a different facility.

As of June 30, 2020, the weighted average interest rate on borrowings outstanding under the master repurchase agreement was approximately 3.8%, calculated

using the 30-day LIBOR of 0.16% as of June 30, 2020.

As of June 30, 2020, the amount remaining available under the repurchase agreement was $54.6 million.

Under the master repurchase agreement, on the second anniversary of the closing date and on each anniversary thereafter, we are required to pay the buyer the difference, if positive, between $4.2 million and the interest paid during the immediately preceding 12-month period.

We currently expect the actual interest paid in calendar year 2020 on borrowings under the master repurchase agreement to be less than $4.2 million.

As a result, we accrued approximately $0.3 million for the six months ended June 30, 2020 to make up for the difference between the actual interest paid and the $4.2 million.

The master repurchase agreement contains margin call provisions that provide the buyer with certain rights in the event of a decline in the market value of the assets purchased under the master repurchase agreement.

Upon the occurrence of a margin deficit event, the buyer may require the seller to make a payment to reduce the outstanding obligation to eliminate any margin deficit.

During the six months ended June 30, 2020, we received a margin call on one of the borrowings and as a result, made a repayment of $3.4 million to reduce the outstanding obligation under the master repurchase agreement.

On September 3, 2020, we entered into an indenture and credit agreement that provides for a floating rate term loan of $103.0 million, $3.6 million of additional future advances, and may provide up to $11.6 million of additional future discretionary advances, in connection with certain outstanding funding commitments under mortgage assets owned by us and financed under the indenture and credit agreement.

The floating rate term loan bears interest at a rate equal to LIBOR plus 4.25% with a LIBOR floor of 1.0%, and matures on March 14, 2025.

As of September 30, 2020, the amount outstanding under the indenture and credit agreement was $105.9 million.

The indenture and credit agreement is a term loan and does not contain any mark-to-market or margin provisions.

The indenture and credit agreement replaces the master repurchase agreement, which has been terminated on the same date.

On June 20, 2019, we entered into a credit agreement that provides for revolving credit loans of up to $35.0 million in the aggregate, which we expect to use for short term financing needed to bridge the timing of anticipated loans repayments and funding obligations.

Borrowings under the revolving credit facility can be either prime rate loans or LIBOR rate loans and accrue interest at an annual rate of prime rate plus 1% or LIBOR plus 4% with a floor of 6%.

In June and July 2020, we amended the revolving credit facility twice to extend the maturity to September 3, 2020.

As of June 30, 2020, the revolving credit facility was fully utilized.

We amended the revolving credit facility to extend the maturity to September 3, 2020.

We are currently negotiating with the lender to extend the maturity of the revolving credit facility by a year and the lender has waived the maturity default.

As of September 30, 2020, the revolving credit facility had an outstanding balance of $25.0 million.

We have sufficient cash on hand to repay the amount outstanding under the revolving credit facility.

Cash Flows From Operating Activities

For the six months ended June 30, 2020 as compared to the same period in 2019, cash flows from operating activities decreased by $3.2 million, primarily due to a decrease in contractual interest income.

Cash Flows used in Investing Activities

For the six months ended June 30, 2020, cash flows used in investing activities were $34.4 million, primarily related to origination and purchase of loans of $54.3 million and the purchase of marketable securities of $4.9 million, partially offset by proceeds from repayments of loans of $19.0 million and proceeds from sale of marketable securities of $5.8 million.

For the six months ended June 30, 2019, cash flows used in investing activities were $15.4 million, primarily related to origination and purchase of loans of $85.3 million, partially offset by proceeds from repayments of loans of $70.1 million.

Cash Flows from Financing Activities

For the six months ended June 30, 2020, cash flows from financing activities were $81.9 million, primarily due to proceeds from borrowings under revolving credit facility of $35.0 million, proceeds from borrowings under our repurchase agreement of $17.6 million, cash acquired from Terra Property Trust 2 of $16.9 million, cash contributed by TIF3 REIT of $8.6 million and proceeds from obligations under participation agreements of $24.8 million, partially offset by distributions paid of $13.3 million, repayment of borrowings under repurchase agreement of $3.4 million, payment for repurchase of common stock of $3.6 million and repayments on obligations under participation agreements of $0.4 million.

For the six months ended June 30, 2019, cash flows from financing activities were $18.8 million, primarily due to proceeds from borrowings under repurchase agreement of $47.9 million, proceeds from obligations under participation agreements of $9.2 million and an increase in interest reserve and other deposits hold on investments of $2.3 million, partially offset by repayments on obligations under participation agreements of $24.9 million and distributions paid of $15.2 million.

For the nine months ended September 30, 2020 as compared to the same period in 2019, cash flows from operating activities decreased by $6.7 million, primarily due to a decrease in contractual interest income.

Cash Flows (Used In) From Investing Activities

For the nine months ended September 30, 2020, cash flows used in investing activities were $57.1 million, primarily related to origination and purchase of loans of $85.8 million and the purchase of marketable securities of $6.0 million, partially offset by proceeds from repayments of loans of $28.7 million and proceeds from sale of marketable securities of $6.0 million.

For the nine months ended September 30, 2019, cash flows from investing activities were $32.8 million, primarily related to proceeds from repayments of loans of $147.9 million, partially offset by origination and purchase of loans of $114.8 million.

Cash Flows From (Used In) Financing Activities

For the nine months ended September 30, 2020, cash flows from financing activities were $93.9 million, primarily due to proceeds from borrowings under revolving credit facility of $35.0 million, proceeds from obligations under participation agreements of $35.4 million, proceeds from borrowings under our repurchase agreement of $22.9 million, cash acquired from Terra Property Trust 2 of $16.9 million, cash contributed by Terra Offshore Funds of $8.6 million and an increase in interest reserve and other deposits held on investments of $7.5 million, partially offset by distributions paid of $17.3 million, repayment of borrowings under revolving credit facility of $10.0 million, payment for repurchase of common stock of $3.6 million and repayments on obligations under participation agreements of $0.6 million.

Additionally, we replaced the repurchase agreement with an indenture and credit agreement, and received proceeds from borrowings under the indenture and credit agreement of $105.9 million and made repayments for borrowings under the repurchase agreement of $104.0 million, and made payments for financing costs of $2.3 million.

For the nine months ended September 30, 2019, cash flows used in financing activities were $13.7 million, primarily due to repayments of borrowings under our repurchase agreement of $34.2 million, repayments on obligations under participation agreements of $31.3 million and distributions paid of $22.8 million, partially offset by proceeds from borrowings under repurchase agreement of $51.3 million, proceeds from obligations under participation agreements of $15.0 million, an increase in interest reserve and other deposits held on investments of $5.2 million and proceeds from issuance of common stock of $3.6 million.

Additionally, we received proceeds of $4.0 million from borrowings under revolving credit facility which we repaid in the same period.

Critical Accounting Policies and Use of Estimates

1 unchanged sentence

GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods.

In preparing the consolidated financial statements, management has made estimates and

assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

Critical accounting policies are those that require the application of management’s most difficult, subjective

or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods.

In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

In preparing the consolidated financial statements, management has utilized available information, including industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality.

37 unchanged sentences

We did not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10-25, Income Taxes, nor did we have any unrecognized tax benefits as of the periods presented herein.

We recognize interest and penalties, if

any, related to unrecognized tax liabilities as income tax expense in our consolidated statements of operations.

For the three and six months ended June 30, 2020 and 2019, we did not incur any interest or penalties.

We recognize interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in our consolidated statements of operations.

For the three and nine months ended September 30, 2020 and 2019, we did not incur any interest or penalties.

Our inception-to-date tax return remains subject to examination and consequently, the taxability of the distributions and other tax positions taken by us may be subject to change.

3 unchanged sentences

Contractual Obligations

The following table provides a summary of our contractual obligations at June 30, 2020:

The following table provides a summary of our contractual obligations at September 30, 2020:

Total Less than

5 unchanged sentences

44,210,228 777,606 43,432,622 — —

Repurchase agreement payable —

principal (3)

Term loan payable — principal (3)

105,888,747 — — 105,888,747 —

15 unchanged sentences

We have no direct liability to a participant under our participation agreements with respect to the underlying loan, and the participants’ share of the loan is repayable only from the proceeds received from the related borrower/issuer of the loans.

(2) We have an option to extend the maturity of the loan by two years subject to certain conditions provided in the loan agreement.

(2) Amount excludes unamortized origination and exit fees of $0.1 million.

(3) We may extend the maturity date of the master repurchase agreement for a period of one year.

(3) Amount excludes unamortized deferred financing costs of $2.4 million.

(4) Our revolving credit facility was scheduled to mature on June 20, 2020.

In June 2020 and July 2020, we amended the credit agreement twice to extend the maturity date to September 3, 2020.

We amended the credit agreement to extend the maturity to September 3, 2020.

We are currently negotiating with the lender to extend the maturity of the revolving credit facility by a year and the lender has waived the maturity default.

We have sufficient cash on hand to repay the amount outstanding under the revolving credit facility.

(5) Interest was calculated using the applicable annual variable interest rate and balance outstanding at June 30, 2020.

(5) Interest was calculated using the applicable annual variable interest rate and balance outstanding at September 30, 2020.

Amount represents interest expense through maturity plus exit fee as application.

(6) Certain of our loans provide for a commitment to fund the borrower at a future date.

As of June 30, 2020, we had eight of such loans with total funding commitments of $305.6 million, of which $212.9 million had been funded.

As of September 30, 2020, we had seven of such loans with total funding commitments of $262.1 million, of which $197.9 million had been funded.

(7) Represents rental obligation under the ground lease, inclusive of imputed interest, for our office building that it acquired through foreclosure.

The table above does not include our commitment under a subscription agreement with Terra Opportunities Fund to fund up to $50.0 million to purchase the limited partnership interests in Terra Opportunities Fund as the subscription agreement does not have fixed or determinable payments.

On November 5, 2020, we funded $3.6 million of the commitment.

Management Agreement with Terra REIT Advisors

14 unchanged sentences

The following table presents a summary of fees paid and costs reimbursed to our Manager in connection with providing services to us:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

14 unchanged sentences

In March 2020, we settled an aggregate of $49.8 million of participation interests in loans held by us with affiliates.

In connection with the Merger and Issuance of Common Stock to TIF3 REIT, the related participation obligations were settled.

As of June 30, 2020, the principal balance of our participation obligations totaled $78.1 million, consisting of $44.0 million in participation obligations to Terra Fund 6 and $34.1 million in participation obligations to third-parties.

In connection with the Merger and Issuance of Common Stock to Terra Offshore Funds, the related participation obligations were settled.

As of September 30, 2020, the principal balance of our participation obligations totaled $89.0 million, consisting of $44.6 million in participation obligations to Terra Fund 6 and $44.4 million in participation obligations to third-parties.

Terra Fund 6 is managed by Terra Income Advisors, LLC, an affiliate of our Manager.

9 unchanged sentences

Similarly, interest earned on the entire loan balance is recorded within “Interest income” and the interest related to the participation interest is recorded within “Interest expense from obligations under participation agreements” in the consolidated statements of operations.

For the three months ended June 30, 2020, the weighted average outstanding principal balance on obligations under participation agreements was approximately $73.1 million, and the weighted average interest rate was approximately 10.9%, compared to weighted average outstanding principal balance of approximately $95.3 million, and weighted average interest rate of approximately 12.2% for the three months ended June 30, 2019.

For the six months ended June 30, 2020, the weighted average outstanding principal balance on obligations under participation agreements was approximately $81.2 million, and the weighted average interest rate was approximately 11.5%, compared to weighted average outstanding principal balance of approximately $96.4 million, and weighted average interest rate of approximately 12.2% for the six months ended June 30, 2019.

For the three months ended September 30, 2020, the weighted average outstanding principal balance on obligations under participation agreements was approximately $81.5 million, and the weighted average interest rate was approximately 10.7%, compared to weighted average outstanding principal balance of approximately $96.9 million, and weighted average interest rate of approximately 12.1% for the three months ended September 30, 2019.

For the nine months ended September 30, 2020, the weighted average outstanding principal balance on obligations under participation agreements was approximately $81.3 million, and the weighted average interest rate was approximately 11.1%, compared to weighted average outstanding principal balance of approximately $96.6 million, and weighted average interest rate of approximately 12.2% for the nine months ended September 30, 2019.

Off-Balance Sheet Arrangements

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements