What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2021-03-19 compared with 2020-03-02 · 253 added, 154 removed, 332 unchanged (55% of the section changed)

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Prior to September 30, 2019, all of the outstanding shares of our common stock were held by Terra Fund 5 and our distribution policy, including the amount and frequency of distributions, was determined by our board of directors in part based on Terra Fund 5’s cash requirements, including cash required to fund regular monthly distributions to Terra Fund 5’s unitholders and additional distribution amounts which were used to allow the repurchase of units from such unitholders.

In connection with the Merger and the Issuance of Common Stock to Terra Offshore REIT described in “— Business” above, our board of directors has adopted a distribution policy to better match earnings with distributions.

The following tables summarize the regular per share distributions declared by our board of directors during the years ended December 31, 2020 and 2019 with the additional distribution amounts to allow repurchase of units being set forth in the footnotes below the table.

Year Ended December 31, 2020

Distributions Per Share of Common Stock

Payment Date Distributions Per Share of Common Stock

January 29, 2020 $ 0.17

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April 28, 2020 $ 0.08

May 27, 2020 $ 0.07

June 26, 2020 $ 0.07

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Year Ended December 31, 2019

Distributions Per Share of Common Stock

Payment Date Distributions Per Share of Common Stock

January 31, 2019 $ 0.17

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December 26, 2019 0.17

_______________

An additional $0.03 per share was distributed each on April 30, 2018, May 31, 2018, June 30, 2018 and August 31, 2018 to allow for the repurchase of units in Terra Fund 5.

The dividends that will be made in the future are at the discretion of our board of directors and will depend upon, among other things, our actual results of operations and liquidity.

Unregistered Sales of Equity Securities

Sales of Unregistered Securities

O n December 22, 2016, we sold 125 shares of our Series A Cumulative Redeemable Preferred Stock, or the Series A Preferred Shares, for $1,000 per share to a select group of investors who are “accredited investors” within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act.

Such issuance was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof and Regulation D promulgated thereunder.

The Series A Preferred Shares were sold through Iroquis Capital Advisors, LLC or such other registered broker-dealers as selected by REIT Investment Group.

In exchange for providing such services, we paid a fee of $21,950 to REIT Investment Group.

From this fee, REIT Investment Group was responsible for paying the brokerage or placement fees of $10,000.

On September 30, 2019, we entered into a Contribution and Repurchase Agreement, which we amended and restated on November 13, 2019, with Terra International 3 and Terra International Fund 3 REIT, a wholly-owned subsidiary of Terra International 3.

Pursuant to this agreement, Terra International 3, through Terra International Fund 3 REIT, contributed cash in the amount of $3,620,000 to us in exchange for 212,690.95 shares of common stock, at a price of $17.02 per share.

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

On March 1, 2020, Terra Property Trust 2 merged with and into us with us continuing as the surviving company.

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, as consideration in the merger.

In addition, on March 2, 2020, Terra Offshore REIT contributed cash and released the obligations under certain participation agreements to us in exchange for the issuance of 2,457,684.59 shares of our common stock.

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

Selected Financial Data.

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Operating Data:

Interest related income

Real estate operating revenue (1)

Total revenues $ 50,320,888 $ 51,399,525

Operating expenses:

Lending operating expenses

Real estate operating expenses (1)

Other operating expenses (2)

Total operating expenses 26,667,214 22,607,397

Other income and (expenses) (18,397,944) (19,749,353)

Net income $ 5,255,730 $ 9,042,775

Net income allocable to common stock $ 5,240,106 $ 9,027,151

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Loans held for investment, net $ 422,280,515 $ 378,612,768

Equity investment in a limited partnership 36,259,959 —

Real estate owned, net 73,178,939 77,596,475

Other assets 56,757,768 71,133,835

Total assets 588,477,181 527,343,078

Debt 239,132,654 227,548,397

Lease intangible liabilities 10,249,776 11,424,809

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Total liabilities 285,152,116 279,799,345

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Amount represents the operating revenue and expenses of a multi-tenant office building acquired through foreclosure and 4.9 acres of adjacent land acquired through deed in lieu of foreclosure where the borrowers conveyed their interest in the properties in satisfaction of the underlying loans.

Amount represents professional fees directly incurred, and which were previously deferred, in contemplation of us becoming a public entity.

In the second quarter of 2019, management decided to postpone indefinitely our public offering.

Equity $ 303,325,065 $ 247,543,733

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations.

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

As of December 31, 2019 , we held a net investment portfolio (gross investments less obligations under participation agreements) comprised of 23 investments in 10 states with an aggregate net principal balance of $274.8 million , a weighted average coupon rate of 8.9% , a weighted average loan-to-value ratio of 73.5% and a weighted average remaining term to maturity of 2.3 years.

As of December 31, 2020, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 20 loans in eight states with an aggregate net principal balance of $334.6 million, a weighted average coupon rate of 8.1%, a weighted average loan-to-value ratio of 76.0% and a weighted average remaining term to maturity of 1.59 years.

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

Our portfolio is diversified geographically with underlying properties located in 23 markets across 10 states and by loan structure and property type.

Our portfolio is diversified geographically with underlying properties located in 20 markets across eight states and by loan structure and property type.

The portfolio includes diverse property types such as multifamily housing, condominiums, hotels, student housing, commercial offices, medical offices and mixed-use properties.

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Our loans are structured across mezzanine debt, first mortgages, and preferred equity investments.

We believe there are compelling opportunities available to us in the commercial real estate lending market as a result of high demand for property financing, constraints on the availability of credit from banks and other traditional commercial mortgage lenders due to the regulatory environment, and a generally conservative real estate credit culture that evolved in response to the 2008 financial crisis.

Demand for property acquisition and development financing continues to be fueled by healthy economic conditions, population growth and the adaptive re-use of properties to accommodate new technologies and lifestyles.

In addition, there continues to be a large volume of commercial real estate loans that mature each year that require refinancing proceeds.

The confluence of these conditions — reduced lending by traditional lenders and strong demand for commercial real estate financing — has created opportunities for experienced alternative lenders such as us, particularly those with a focus on providing commercial real estate loans to creditworthy borrowers.

On January 1, 2016, the Terra Funds completed the REIT formation transaction.

Following the REIT formation transaction, Terra Fund 5 contributed the consolidated portfolio of net assets of the Terra Funds to us in exchange for all of the shares of common stock of our company.

We were incorporated under the general corporation laws of the State of Maryland on December 31, 2015.

Through December 31, 2015, our business was conducted through a series of predecessor private partnerships.

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.

Following the REIT formation transaction, Terra Fund 5 contributed the consolidated portfolio of net assets of the Terra Funds to our company in exchange for all of the shares of our common stock.

On March 1, 2020, Terra Property Trust 2 merged with and into our company and we continued as the surviving corporation.

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 Terra Offshore 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.

The shares of common stock were issued in private placements in

reliance on Section 4(a)(2) under the Securities Act and the rules and regulations promulgated thereunder.

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 Terra Offshore REIT on September 30, 2019.

As of December 31, 2020, Terra JV held 87.4% of the issued and outstanding shares of our common stock with the remainder held by Terra Offshore REIT;

and Terra Fund 5 and Terra Fund 7 owned an 87.6% and 12.4% interest, respectively, in Terra JV.

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

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federal income tax on our net taxable income to the extent that we annually distribute all of our net taxable income to our stockholders.

Recent Developments

As of December 31, 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.

The global impact of the pandemic has been rapidly evolving, and as cases of COVID-19 have continued to be identified in additional countries, many countries have reacted by instituting quarantines and restrictions on travel, closing financial markets and/or restricting trading, and limiting operations of non-essential offices and retail centers.

Such actions are creating disruption in global supply chains, increasing rates of unemployment and adversely impacting many industries.

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

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.

The reason is that property values are the result of slow moving forces, including consumer behavior, supply and demand for space, availability and pricing of mortgage financing and investor demand for property.

As these factors become clear and commercial real estate is repriced accordingly, we believe there will be abundant opportunities available to experienced alternative lenders such as us to provide financing for property acquisition, refinancing, development and redevelopment on attractive terms that reflect the new realities of the economy.

Portfolio Summary

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December 31, 2020

Fixed Rate Floating

Rate (1)(2)(3)

Total Gross Loans

Obligations under Participation Agreements

Total Net Loans

Total Gross Loans Obligations under Participation Agreements and Secured Borrowing Total Net Loans

Number of loans 6 14 20 8 20

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Amortized cost 56,464,310 365,816,205 422,280,515 89,769,560 332,510,955

Fair value 56,284,334 363,122,860 419,407,194 87,730,239 331,676,955

Weighted average coupon rate 12.17 % 7.95 % 8.51 % 10.16 % 8.07 %

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December 31, 2019

Fixed Rate Floating

Rate (1)(2)(3)

Total Gross Loans

Obligations under Participation Agreements

Total Net Loans

Total Gross Loans Obligations under Participation Agreements Total Net Loans

Number of loans 8 15 23 13 23

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Amortized cost 71,469,137 307,143,631 378,612,768 103,186,327 275,426,441

Fair value 71,516,432 307,643,983 379,160,415 103,188,783 275,971,632

Weighted average coupon rate 11.93 % 9.13 % 9.65 % 11.77 % 8.87 %

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Coupon rate shown was determined using LIBOR of 0.14% and 1.76% as of December 31, 2020 and 2019.

As of December 31, 2019 and 2018 , amounts included $114.8 million and $57.3 million, respectively, of first mortgages used as collateral for $81.1 million and $34.2 million, respectively, of borrowings under a repurchase agreement.

These borrowings bear interest at an annual rate of LIBOR plus a spread ranging from 2.25% to 2.50% as of December 31, 2019 and LIBOR plus 2.5% as of December 31, 2018 .

As of December 31, 2019 and 2018 , twelve and eight of these loans, respectively, are subject to a LIBOR floor.

In addition to our net loan portfolio, as of 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.

(2) As of December 31, 2020, amounts included $184.2 million of senior mortgages used as collateral for $107.6 million of borrowings under a term loan ( Note 9 ).

These borrowings bear interest at an annual rate of LIBOR plus 4.25% with a LIBOR floor of 1.00% as of December 31, 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 9 ).

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 both December 31, 2020 and 2019, twelve of these loans are subject to a LIBOR floor.

In addition to our net loan portfolio, as of December 31, 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 $62.9 million and $66.2 million as of December 31, 2020 and 2019, respectively.

The mortgage loan payable encumbering the office building had an outstanding principal amount of $44.0 million and $44.6 million as of December 31, 2020 and 2019, respectively.

Additionally, as of December 31, 2020, we owned a 90.3%, or $36.3 million, equity interest in a limited partnership that invests in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets.

Portfolio Investment Activity

For the year ended December 31, 2019 and 2018 , we invested $53.5 million and $123.2 million in new and add-on loans, respectively, and had $84.3 million and $111.6 million of repayments, respectively, resulting in net repayments of $30.8 million and net investments of $11.6 million , respectively.

Amounts are net of obligations under participation agreements, mortgage loan payable and borrowings under the master repurchase agreement and the revolving credit facility.

In addition, on January 9, 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.

Portfolio Information

For the years ended December 31, 2020 and 2019, we invested $37.9 million and $53.5 million in new and/or add-on loans, respectively, and had $21.0 million and $84.3 million of repayments, respectively, resulting in net investments of $16.8 million and net repayment of $30.8 million, respectively.

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

Additionally, for the year ended December 31, 2020, we used $35.9 million to purchase equity interest in a limited partnership.

There was no such purchase for the year ended December 31, 2019.

In addition, in March 2020, we issued an aggregate of 4,574,470.35 shares of our common stock in exchange for the obligation relief of an aggregate of $49.8 million of participation interests in loans that we owed, cash of $25.5 million and other working capital, in connection with the Merger and Issuance of Common Stock to Terra Offshore REIT transactions described under “Item 1.

For the year ended December 31, 2020, we sold $6.0 million of marketable securities, and recognized net gains on sale of marketable securities of $1.2 million.

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.

Net Loan Portfolio Information

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.

December 31, 2019

December 31, 2018

Loan Structure

Principal Balance

December 31, 2020 December 31, 2019

Loan Structure Principal Balance Carrying

Value % of Total Principal Balance Carrying

Value % of Total

First mortgages $ 209,660,270 $ 210,694,778 63.3 % $ 160,984,996 $ 160,948,585 58.4 %

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Mezzanine loans 23,946,549 24,287,203 7.3 % 29,636,382 29,992,795 10.9 %

December 31, 2019

December 31, 2018

Property Type

Principal Balance

Allowance for loan losses — (3,738,758) (1.1) % — — — %

Total $ 334,626,607 $ 332,510,955 100.0 % $ 274,823,522 $ 275,426,441 100.0 %

December 31, 2020 December 31, 2019

Property Type Principal Balance Carrying

Value % of Total Principal Balance Carrying

Value % of Total

Office $ 145,560,299 $ 146,010,011 44.0 % $ 119,331,369 $ 119,145,879 43.3 %

Hotel 53,392,809 53,687,304 16.1 % 41,239,194 41,327,772 15.0 %

Multifamily 52,605,773 53,061,857 16.0 % 49,017,844 49,331,885 17.9 %

Student housing 51,331,905 51,680,581 15.5 % 26,470,740 26,725,148 9.7 %

December 31, 2019

December 31, 2018

Geographic Location

Principal Balance

Infill land 22,615,821 22,669,559 6.8 % 29,644,375 29,756,375 10.8 %

Industrial 7,000,000 7,000,000 2.1 % 7,000,000 7,000,000 2.5 %

Condominium 2,120,000 2,140,401 0.6 % 2,120,000 2,139,382 0.8 %

Allowance for loan losses — (3,738,758) (1.1) % — — — %

Total $ 334,626,607 $ 332,510,955 100.0 % $ 274,823,522 $ 275,426,441 100.0 %

December 31, 2020 December 31, 2019

Geographic Location Principal Balance Carrying

Value % of Total Principal Balance Carrying

Value % of Total

United States

California $ 143,454,602 $ 144,066,584 43.3 % $ 102,774,905 $ 102,622,718 37.3 %

Georgia 74,116,787 74,505,752 22.4 % 61,772,764 61,957,443 22.5 %

New York 56,058,669 56,139,234 16.9 % 52,909,847 53,029,923 19.3 %

North Carolina 28,647,837 28,802,869 8.7 % 28,283,950 28,421,676 10.3 %

Washington 18,500,000 18,643,699 5.5 % 13,525,556 13,618,636 4.9 %

Massachusetts 7,000,000 7,000,000 2.1 % 7,000,000 7,000,000 2.5 %

Texas 3,848,712 3,887,200 1.2 % 2,450,000 2,472,244 0.9 %

Illinois — — — % 2,209,189 2,227,593 0.8 %

3,000,000 3,204,375 1.0 % 3,897,311 4,076,208 1.5 %

Other includes $0.3 million of unused portion of a credit facility and a $1.7 million loan with collateral located in Kansas at December 31, 2019 .

Other also includes a $1.9 million loan with collateral located in South Carolina at December 31, 2019 and 2018 .

Allowance for loan losses — (3,738,758) (1.1) % — — — %

Total $ 334,626,607 $ 332,510,955 100.0 % $ 274,823,522 $ 275,426,441 100.0 %

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(1) As of December 31, 2020, Other includes $3.0 million of loans with collateral located in South Carolina.

As of December 31, 2019, Other includes $0.3 million of unused portion of a credit facility, a $1.7 million of loans with collateral located in Kansas, and $1.9 million of loans with collateral located in South Carolina.

Factors Impacting Operating Results

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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.

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We seek to manage these risks through our Manager's underwriting and asset management processes.

The COVID-19 pandemic has significantly impacted the commercial real estate markets, causing reduced occupancy, requests from tenants for rent deferral or abatement, and delays in construction and development projects currently planned or underway.

These negative conditions may persist into the future and impair our borrowers’ ability to pay principal and interest due to us under our loan agreements.

We maintain all of our cash at financial institutions which, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation.

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Prepayments can either positively or adversely affect the yields on our loans.

Prepayments on debt instruments, where permitted under the debt documents, are influenced by changes in current interest rates and a variety of economic, geographic and other

factors beyond our control, and consequently, such prepayment rates cannot be predicted with certainty.

Prepayments on debt instruments, where permitted under the debt documents, are influenced by changes in current interest rates and a variety of economic, geographic and other factors beyond our control, and consequently, such prepayment rates cannot be predicted with certainty.

If we do not collect a prepayment fee in connection with a prepayment or are unable to invest the proceeds of such prepayments received, the yield on the portfolio will decline.

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and retroactive changes to building or similar codes;

natural disasters and other acts of god.

In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans, which could also cause us to suffer losses.

Market volatility has been particularly heightened due to the COVID-19 global pandemic.

COVID-19 has disrupted economic activities and could have a continued significant adverse effect on economic and market conditions including limited lending from financial institutions, depressed asset values, and limited market liquidity.

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 loans, 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.

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Due to the illiquidity of the loans, valuation of our loans may be difficult, as there generally will be no established markets for these loans.

The COVID-19 pandemic has resulted in extreme volatility in a variety of global markets, including the real estate-related debt markets.

financial markets, in particular, are experiencing limited liquidity and forced selling by certain market participants with insufficient liquidity available to meet current obligations, which puts further downward pressure on asset prices.

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.

Results of Operations

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Years Ended December 31,

2020 2019 Change

Interest income $ 39,392,209 $ 40,888,079 $ (1,495,870)

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Other operating income 505,116 419,101 86,015

50,320,888 51,399,525 (1,078,637)

Operating expenses

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Asset servicing fee 1,008,256 854,096 154,160

Provision for loan losses 3,738,758 — 3,738,758

Real estate operating expenses 4,505,119 3,989,911 515,208

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Directors fees 190,000 335,000 (145,000)

Other 371,444 172,232 199,212

26,667,214 22,607,397 4,059,817

Operating income 23,653,674 28,792,128 (5,138,454)

Years Ended December 31,

2020 2019 Change

Other income and expenses

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Interest expense on revolving credit facility (1,398,103) (169,283) (1,228,820)

Interest expense on term loan payable (2,137,651) — (2,137,651)

Interest expense on secured borrowing (633,850) — (633,850)

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

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

Unrealized gains on marketable securities 111,494 — 111,494

Income from equity investment in a limited partnership 38,640 — 38,640

(18,397,944) (19,749,353) 1,351,409

Net income $ 5,255,730 $ 9,042,775 $ (3,787,045)

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, mortgage loan payable, repurchase agreement payable and revolving credit facility.

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, term loan payable, revolving credit facility and repurchase agreement payable.

The following tables presents a reconciliation of our loan portfolio from a gross basis to net basis for the years ended December 31, 2020 and 2019 :

Year Ended December 31, 2019

Year Ended December 31, 2018

Year Ended December 31, 2020 Year Ended December 31, 2019

Weighted Average Principal Amount (1)

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Total portfolio

Gross loans $ 411,157,772 9.2 % $ 363,970,662 10.6 %

Obligations under participation agreements

Mortgage loan payable

and secured borrowing (83,248,489) 10.9 % (95,809,439) 12.0 %

Repurchase agreement payable (64,382,360) 3.9 % (64,326,187) 4.3 %

Term loan payable (34,923,075) 5.3 % — — %

Revolving credit facility — — % (504,110) 6.1 %

Net loans (3)

$ 228,603,848 10.7 % $ 203,330,926 11.9 %

Gross loans 221,461,896 6.7 % 133,437,181 7.7 %

Obligations under participation agreements

Mortgage loan payable

and secured borrowing (30,779,483) 9.1 % (8,832,644) 11.7 %

Repurchase agreement payable (64,382,360) 3.9 % (64,326,187) 4.3 %

Term loan payable (34,923,075) 5.3 % — — %

Net loans (3)

$ 91,376,978 8.4 % $ 60,278,350 10.7 %

Subordinated loans (4)

Gross loans 189,695,876 12.1 % 230,533,481 12.3 %

Obligations under participation agreements

and secured borrowing (52,469,006) 12.1 % (86,976,795) 12.1 %

Revolving credit facility — — % (504,110) 6.1 %

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$ 137,226,870 12.1 % $ 143,052,576 12.5 %

_______________

(1) Amount is calculated based on the number of days each loan is outstanding.

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Interest Income

For the year ended December 31, 2019 as compared to the same period in 2018 , interest income decreased by approximately $1.3 million , primarily due to a $2.4 million 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.

This decrease in interest income was partially offset by $0.6 million lower in amortization of net purchase premium as a result of the majority of the net purchase premium recognized in connection with the REIT formation transaction in 2016 as well as a senior loan purchased in 2017 having already been amortized prior to the current period and $0.5 million higher in net origination fee income received from the borrowers.

For the year ended December 31, 2020 as compared to the same period in 2019, interest income decreased by $1.5 million, primarily due to a net decrease of $0.7 million in origination and disposition fee income received and a decrease in contractual interest income of $0.9 million.

Contractual interest income decreased 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

Our operating real estate includes a multi-tenant office building that we foreclosed on in July 2018 in exchange for the payment of a first mortgage and related fees and expenses and 4.9 acres of adjacent land that we acquired via deed in lieu of foreclosure in exchange for the payment of a first mortgage and related fees.

Real estate operating revenue represents revenue from a multi-tenant office building.

We are not currently generating any revenue from the land.

For the year ended December 31, 2019 as compared to the same period in 2018 , real estate operating revenue increased by $6.1 million , reflecting twelve months of real estate operating revenue recognized in the current period as compared to five months of real estate operating revenue recognized in the prior year period because the office building was acquired in July 2018.

For the year ended December 31, 2020 as compared to the same period in 2019, real estate operating revenue increased by $0.6 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 year ended December 31, 2019 as compared to the same period in 2018 , prepayment fee income decreased by $2.0 million , primarily due to a $1.6 million prepayment fee received in 2018 on an investment that the borrower repaid four years early.

Other Operating Income

For the year ended December 31, 2019 as compared to the same period in 2018 , other operating income increased by $0.2 million , primarily due to application fees received from borrowers in connection with the origination of new loans.

For the year ended December 31, 2020, there was no prepayment fee income.

For the year ended December 31, 2019, we received prepayment fee income of $0.3 million on the early repayment of a loan.

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 year ended December 31, 2019 as compared to the same period in 2018 , operating expenses reimbursed to Manager increased by $1.2 million , primarily due to an increase in gross allocable costs, mostly related to compensation expense, as well as an increase in our allocation ratio in relation to affiliated funds managed by our Manager and its affiliates.

For the year ended December 31, 2020 as compared to the same period in 2019, operating expenses reimbursed to Manager increased by $1.2 million, 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 REIT transactions described under “Item 1.

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 year ended December 31, 2019 as compared to the same period in 2018 , asset management fee increased by $0.6 million , primarily due to an increase in total funds under management.

For the year ended December 31, 2020 as compared to the same period in 2019, asset management fee increased by $0.8 million, primarily due to an increase in total funds under management resulting from new investments we entered into as well as the Merger and Issuance of Common Stock to Terra Offshore REIT transactions.

Asset Servicing Fee

Under the terms of the management agreement with the Manager, we paid the Manager a monthly servicing fee at an annual rate of 0.25% of the aggregate gross origination or acquisition price for each real estate-related loan held.

For the year ended December 31, 2019 as compared to the same period in 2018 , asset servicing fee increased by $0.1 million , primarily due to an increase in our total funds under management.

Under the terms of the management agreement with the Manager, we paid the Manager a monthly servicing fee at an annual rate of 0.25% of the aggregate gross origination price or acquisition price for each real estate-related loan held by us.

For the year ended December 31, 2020 as compared to the same period in 2019, asset servicing fee increased by $0.2 million, primarily due to an increase in total funds under management.

Provision for Loan Losses

The Manager performs a quarterly evaluation for possible impairment of our portfolio of loans.

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 December 31, 2020, we had three loans with a loan risk rating of “4” and one loan with a loan risk rating of “5” and recorded a general provision for loan losses of $1.3 million for the year ended December 31, 2020.

Additionally, as of December 31, 2020, we had one loan that was deemed impaired and recorded a specific provision for loan losses of $2.5 million for the year ended December 31, 2020, as a result of a decline in the fair value of the collateral.

There was no provision for loan losses for the year ended December 31, 2019 because we didn't have any loans with a loan risk rating of “4” or “5” as of December 31, 2019.

For the years ended December 31, 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 year ended December 31, 2019 as compared to the same period in 2018 , real estate operating expenses increased by $2.7 million , reflecting twelve months of real estate operating expenses recognized in the current period as compared to five months of real estate operating expenses recognized in the prior year period because the office building was acquired in July 2018.

For the year ended December 31, 2020 as compared to the same period in 2019, real estate operating expenses increased by $0.5 million, primarily due to an increase in real estate taxes.

Depreciation and Amortization

Depreciation and amortization includes depreciation expense recorded on building and building improvement and amortization expense recorded on in-place lease intangibles, both are related to the multi-tenant office building that we acquired in July 2018.

For the year ended December 31, 2019 as compared to the same period in 2018 , depreciation and amortization increased by $2.2 million , reflecting twelve months of depreciation and amortization recognized in the current period as compared to five months of depreciation and amortization recognized in the prior year period.

For the year ended December 31, 2020 as compared to the same period in 2019, 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 evaluate our real estate assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the real estate may not be recoverable.

For the year ended December 31, 2019 , we recorded an impairment charge of $1.6 million on 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.

No impairment charge was recorded for the year ended December 31, 2018 .

We did not record any impairment charge for the year ended December 31, 2020.

For the year ended December 31, 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 year ended December 31, 2019 as compared to the same period in 2018 , professional fees increased by $2.5 million , primarily due to $2.4 million of professional fees directly incurred, and which were previously deferred, in contemplation of us becoming a publicly traded entity.

In the second quarter of 2019, management decided to postpone indefinitely our public offering.

Other operating expenses include dead deal costs, state and local franchise taxes and other miscellaneous operating expenses.

For the year ended December 31, 2019 as compared to the same period in 2018 , other operating expenses decreased by $0.2 million , primarily due to a decrease in dead deal costs.

For the year ended December 31, 2020 as compared to the same period in 2019, professional fees decreased by $1.7 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 us 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.

Directors Fees

For the year ended December 31, 2020 as compared to the same period in 2019, directors fees decreased by $0.1 million, reflecting the reduction in the number of independent directors in connection with the Merger and the Issuance of Common Stock to Terra Offshore REIT transactions.

For the year ended December 31, 2020 as compared to the same period in 2019, other operating expenses increased by $0.2 million, primarily due to an increase in un-reimbursed transaction-related costs.

Interest Expense from Obligations under Participation Agreements

For the year ended December 31, 2019 as compared to the same period in 2018 , interest expense from obligations under participation agreements increased by $0.9 million , primarily due to an increase in weighted average outstanding principal balance on obligations under participation agreements driven by higher volume of loans sold to affiliates through participation agreements than repayments on obligations under participation agreements, partially offset by a decrease in weighted average interest rate on obligations under participation agreements driven by new loan sold to affiliates through participation agreements having lower coupon rates than those that were repaid.

For the year ended December 31, 2020 as compared to the same period in 2019, interest expense from obligations under participation agreements decreased by $3.3 million, 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 REIT transactions as well as a decrease in the weighted average coupon rate on obligations under participation agreements.

Interest Expense on Repurchase Agreement Payable

On December 12, 2018, we entered into a master repurchase agreement that provides for advances of up to $150.0 million in the aggregate, which we 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, which ranges from 2.25% to 3.00%

For the year ended December 31, 2019 as compared to the same period in 2018 , interest expense on repurchase agreement payable increased by $4.5 million reflecting an increase in the weighted average amount outstanding under the master repurchase agreement.

Interest Expense on Mortgage Loan Payable

For the year ended December 31, 2019 as compared to the same period in 2018 , interest expense on mortgage loan payable increased by $0.2 million , primarily due to an increase in the weighted average mortgage loan payable partially offset by a decrease in the weighted average interest rate on the mortgage loan payable.

In connection with the foreclosure of the multi-tenant office building in July 2018, we up-sized the floating-rate mortgage loan payable from $34.0 million to $45.0 million and the interest rate on the loan decreased from LIBOR plus 5.25% to LIBOR plus 3.85%.

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.

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

For the year ended December 31, 2020 as compared to the same period in 2019, interest expense on repurchase agreement payable decreased by $1.0 million as a result of a decrease in the weighted average amount outstanding.

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 solely for short term financing needed to bridge the timing of anticipated loans repayments and funding obligations.

For the year ended December 31, 2019 , we recorded interest expense on revolving credit facility of $0.2 million .

There was no credit facility agreement in 2018.

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.

On October 2, 2020, we amended the credit facility and reduced the commitment to $15.0 million.

On March 16, 2021, the credit facility was terminated.

For the year ended December 31, 2020 as compared to the same period in 2019, interest expense on revolving credit facility increased by $1.2 million, as a result of an increase in the weighted average amount outstanding.

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 the year ended December 31, 2020, interest expense on term loan payable was $2.1 million.

There was no interest expense on term loan payable for the year ended December 31, 2019 because the indenture and credit agreement was entered into on September 3, 2020.

Interest Expense on Secured Borrowing

In March 2020, we entered into a financing transaction where a third-party purchased an A-note position.

However, the sale of the A-note position did not qualify for sale accounting treatment and therefore, the gross amount of the loan remains in the consolidated balance sheets.

The portion that was sold is reflected as secured borrowing in the consolidated balance sheet, and the associated interest is reflected as interest expense on secured borrowing in the consolidated statements of operations.

For the year ended December 31, 2020, interest expense on secured borrowing was $0.6 million.

There was no interest expense on secured borrowing for the year ended December 31, 2019.

Net Loss on Extinguishment of Obligations under Participation Agreements

In March 2020, as a result of the Merger and Issuance of Common Stock to Terra Offshore REIT transactions, 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, which was primarily related to transaction costs incurred in connection with both transactions.

Realized Gains on Marketable Securities

For the year ended December 31, 2020, we sold $6.0 million of marketable securities, respectively, and recognized realized gains on marketable securities of $1.2 million.

There were no sales of marketable securities for the year ended December 31, 2019.

For the year ended December 31, 2020 as compared to the same period in 2019, the resulting net income decreased by $3.8 million.

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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 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.

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Additionally, we expect to fund approximately $64.1 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.

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, which ranges from 2.25% to 3.00%, and have a maturity date of December 12, 2020.

As of December 31, 2019 , the weighted average interest rate on borrowings outstanding under the master repurchase agreement was approximately 4.3% , calculated using the 30-day LIBOR of 1.76% as of December 31, 2019 .

As of December 31, 2019 , the amount remaining available under the repurchase agreement was $68.9 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 to utilize the master repurchase agreement in the next twelve months so that the actual interest paid will be in excess of $4.2 million.

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 solely 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%.

The credit facility matures on June 20, 2020.

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 $44.0 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.

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 December 31, 2020, the amount outstanding under the indenture and credit agreement was $107.6 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.

On October 2, 2020, we amended the revolving credit facility, reduced the commitment amount to $15.0 million and extended the maturity to September 2, 2021.

On March 16, 2021, the credit facility was terminated.

Borrowings under the revolving credit facility can be either prime rate loans or LIBOR rate loans and accrued interest at an annual rate of prime rate plus 1% or LIBOR plus 4% with a floor of 4.5%.

As of December 31, 2020, the amount remaining available under the credit facility was $15.0 million.

Cash Flows From Operating Activities

For the year ended December 31, 2019 as compared to the same period in 2018 , cash flows from operating activities decreased by $1.4 million , primarily due to a decrease in contractual interest income.

For the year ended December 31, 2020 as compared to the same period in 2019, cash flows from operating activities decreased by $9.6 million, primarily due to a decrease contractual interest income received in cash, an increase in operating expenses and an increase in interest expense on our borrowings.

Cash Flows Used In Investing Activities

For the year ended December 31, 2019 , cash flows used in investing activities were $4.4 million , primarily related to origination and purchase of loans of $185.3 million , partially offset by proceeds from repayments of loans of $181.1 million .

For the year ended December 31, 2020, cash flows used in investing activities were $78.2 million, primarily related to payments for investments of $150.4 million, partially offset by proceeds from sales and repayments of investments of $72.2 million.

For the year ended December 31, 2019, cash flows used in investing activities were $4.4 million, primarily related to origination and purchase of loans of $185.3 million, partially offset by proceeds from repayments of loans of $181.1 million.

Cash Flows From Financing Activities

For the year ended December 31, 2019 , cash flows from financing activities were $8.9 million , primarily due to proceeds from borrowings under repurchase agreement of $81.1 million , proceeds from obligations under participation agreements of $34.7 million , proceeds from issuance of common stock of $3.6 million and an increase in interest reserve and other deposits held on investments of $1.2 million , partially offset by repayments of obligations under participation agreements of $46.2 million , repayments of borrowings under repurchase agreement of $34.2 million and distributions paid of $30.4 million .

Additionally, we borrowed $16.0 million under the revolving credit facility to fund a preferred equity investment, all of which was repaid in the same period.

For the year ended December 31, 2018 , cash flows from financing activities were $47.9 million , primarily due to proceeds from obligations under participation agreements of $74.9 million , proceeds from borrowings under repurchase agreement of $34.2 million and proceeds from a mortgage loan payable of $11.2 million , partially offset by repayments on obligations under participation agreements of $36.8 million , distributions paid of $32.7 million and payment of financing costs of $3.0 million .

For the year ended December 31, 2020, cash flows from financing activities were $52.7 million, primarily due to proceeds from obligations under participation agreements of $22.5 million, proceeds from borrowings under our repurchase agreement of $22.9 million, cash acquired from Terra Property Trust 2 of $16.9 million and cash contributed by Terra Offshore REIT of $8.6 million, partially offset by distributions paid of $21.2 million, a decrease in interest reserve and other deposits held on investments of $6.4 million, payment for repurchase of common stock of $3.6 million and repayments on obligations under participation agreements of $5.9 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 $107.6 million and made repayments for borrowings under the repurchase agreement of $104.0 million, and made payments for financing costs of $2.4 million.

We also received proceeds of $35.0 million from borrowings under revolving credit facility which we repaid in the same period.

For the year ended December 31, 2019, cash flows from financing activities were $8.9 million, primarily due to proceeds from borrowings under repurchase agreement of $81.1 million, proceeds from obligations under participation agreements of $34.7 million, an increase in interest reserve and other deposits held on investments of $1.2 million and proceeds from issuance of common stock of $3.6 million, partially offset by repayments of borrowings under our repurchase agreement of $34.2 million, repayments on obligations under participation agreements of $46.2 million and distributions paid of $30.4 million.

Additionally, we received proceeds of $16.0 million from borrowings under revolving credit facility which we repaid in the same period.

Critical Accounting Policies and Use of Estimates

Our consolidated financial statements are prepared in conformity with United States generally accepted accounting principles (“U.S.

Our consolidated financial statements are prepared in conformity with U.S.

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.

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(ii) the ability of the borrower to refinance the loan;

and/or (iii) the property’ liquidation value.

and/or (iii) the property’s liquidation value.

We also evaluate the financial wherewithal of the sponsor as well as its competency in managing and operating the real estate property.

In addition, we consider the overall economic environment, real estate sector, and geographic submarket in which the borrower operates.

Such analyses are completed and reviewed by asset management and finance personnel, who utilize various data sources, including (i) periodic financial data such as debt service coverage ratio, property occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, the capitalization and discount rates;

operating expenses, the borrower’s exit plan, the capitalization and discount rates;

(ii) site inspections;

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Loans classified as TDRs are considered impaired loans for reporting and measurement purposes.

We elected to be taxed as a REIT and to comply with the related provisions of the Code.

We elected to be taxed as a REIT and to comply with the related provisions of the Internal Revenue Code.

Accordingly, we generally are not subject to U.S.

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We believe that all of the criteria to maintain our REIT qualification have been met for the applicable period, but there can be no assurance that these criteria will continue to be met in subsequent periods.

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 combined consolidated statements of operations.

We 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 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 years ended December 31, 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.

Our 2017-2019 federal 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.

Distributions to stockholders generally will be taxable as ordinary income or may constitute a return of capital.

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The following table provides a summary of our contractual obligations at December 31, 2020:

More than 5 years

Total Less than

1 year 1-3 years 3-5 years More than 5 years

Obligations under participation

agreements — principal (1)

$ 71,266,303 $ 21,309,495 $ 49,956,808 $ — $ —

Secured borrowing — principal (1)

18,281,848 — 18,281,848 — —

Mortgage loan payable — principal (2)

Repurchase agreement payable —

principal (3)

44,020,225 789,486 43,230,739 — —

Term loan payable — principal (3)

107,584,451 — — 107,584,451 —

Interest on borrowings (4)

39,893,632 14,723,571 17,926,263 7,243,798 —

Unfunded lending commitments (5)

67,904,211 64,129,777 3,774,434 — —

Ground lease commitment (6)

83,193,563 1,264,500 2,529,000 2,529,000 76,871,063

In the normal course of business, we enter into participation agreements with related parties, and to a lesser extent, unrelated parties, whereby we transfers a portion of the loans to them.

These loan participations do not qualify for sale treatment.

As such, the loans remain on our consolidated balance sheets and the proceeds are recorded as obligations under participation agreements.

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.

$ 432,144,233 $ 102,216,829 $ 135,699,092 $ 117,357,249 $ 76,871,063

___________________________

(1) In the normal course of business, we enter into participation agreements with related parties, and to a lesser extent, unrelated parties, whereby we transfer a portion of the loans to them.

Additionally, we may sell a portion of a loan to a third-party.

These loan participations and sale do not qualify for sale treatment.

As such, the loans remain on our consolidated balance sheets and the proceeds are recorded as obligations under participation agreements or secured borrowing, as applicable.

Similarly, interest earned on the entire loan balance is recorded within “Interest income” and the interest related to the participation interest or sold interest is recorded within “Interest expense on obligations under participation agreements” or “Interest expense on secured borrowing”, as applicable, in the consolidated statements of operations.

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.

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.

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 $2.3 million.

(4) Interest was calculated using the applicable annual variable interest rate and balance outstanding at December 31, 2020.

Amount represents interest expense through maturity plus exit fee as application.

Amount represents interest expense through maturity plus exit fee as applicable.

(5) Certain of our loans provide for a commitment to fund the borrower at a future date.

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(6) 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 RECO to fund up to $50.0 million to purchase the limited partnership interests in Terra RECO as the subscription agreement does not have fixed or determinable payments.

As of December 31, 2020, the unfunded commitment was $14.1 million.

Management Agreement with Terra REIT Advisors

As part of the Axar Transaction (as defined in “Item 13.

Certain Relationships and Related Transactions, and Director Independence — Axar Transaction” below), Terra Income Advisors assigned all of its rights, title and interest in and to its current external management agreement with our company to our Manager and immediately thereafter, we and our Manager amended and restated such management agreement.

Such amended and restated management agreement has the same economic terms and is in all material respects otherwise on the same terms as the management agreement between Terra Income Advisors and our company in effect immediately prior to the Axar Transaction, except for the identity of our manager.

We currently pay the following fees to Terra REIT Advisors pursuant to a management agreement:

Origination and Extension Fee .

An origination fee in the amount of 1.0% of the amount used to originate, acquire, fund or structure real estate-related loans, including any third-party expenses related to such loan.

An origination fee in the amount of 1.0% of the amount used to originate, acquire, fund or structure real estate-related investments, including any third-party expenses related to such loan.

In the event that the term of any real estate-related loan is extended, our Manager also receives an origination fee equal to the lesser of (i) 1.0% of the principal amount of the loan being extended or (ii) the amount of fee paid by the borrower in connection with such extension.

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Disposition Fee .

A disposition fee in the amount of 1.0% of the gross sale price received by our company from the disposition of each loan, but not upon the maturity, prepayment, workout, modification or extension of a loan unless there is a corresponding fee paid by the borrower, in which case the disposition fee will be the lesser of (i) 1.0% of the principal amount of the loan and (ii) the amount of the fee paid by the borrower in connection with such transaction.

corresponding fee paid by the borrower, in which case the disposition fee will be the lesser of (i) 1.0% of the principal amount of the loan and (ii) the amount of the fee paid by the borrower in connection with such transaction.

If we take ownership of a property as a result of a workout or foreclosure of a loan, we will pay a disposition fee upon the sale of such property equal to 1.0% of the sales price.

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In addition to the fees described above, we reimburse our Manager for operating expenses incurred in connection with services provided to the operations of our company, including our allocable share of our Manager’s overhead, such as rent, employee costs, utilities, and technology costs.

The following table presents a summary of fees paid and costs reimbursed to the predecessor to our Manager and our Manager in the aggregate in connection with providing services to us:

The following table presents a summary of fees paid and costs reimbursed to our Manager in connection with providing services to us:

Years Ended December 31,

Origination and extension fee expense (1)(2)

$ 1,383,960 $ 1,992,492

Asset management fee 4,480,706 3,671,474

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504,611 1,408,055

Total $ 13,418,608 $ 12,801,270

_______________

(1) Origination and extension fee expense is generally offset with origination and extension fee income.

Any excess is deferred and amortized to interest income over the term of the loan.

(2) Amount for the year ended December 31, 2020 excluded $0.4 million of origination fee paid to the Manager in connection with our equity investment in a limited partnership.

This origination fee was capitalized to the carrying value of the equity investment as transaction cost.

(3) Disposition fee is generally offset with exit fee income and included in interest income on the consolidated statements of operations.

Participation Agreements

Participation Agreements and Secured Borrowing

We have further diversified our exposure to loans and borrowers by entering into participation agreements whereby we transferred a portion of certain of our loans on a pari passu basis to related parties, primarily other affiliated funds managed by our Manager or its affiliates, and to a lesser extent, unrelated parties.

As of December 31, 2019 , the principal balance of our participation obligations totaled $102.6 million , consisting of $43.1 million in participation obligations to Terra Fund 6, $18.3 million in participation obligations to Fund 5 International, $13.4 million in participation obligations to Terra International, $17.4 million in participation obligations to Terra Property Trust 2 and $10.4 million in participation obligations to a third-party.

Terra Fund 6, Fund 5 International, Terra International, Terra International 3, Terra International Fund 3 REIT and Terra Property Trust 2 are managed by our Manager and its affiliates.

If we enter into participation agreements in the future, we generally expect to enter into such agreements only at the time of origination of the investment, except when we enter into participation agreements with certain international vehicles managed by our Manager, as such international vehicles intend to only invest in seasoned mortgages loan, and as a result, they will invest in such participation agreements not less than 90 days after origination of the loans, in which event the valuation of the investment and the participation interest are based upon an independent third party valuation.

Our Manager may also experience conflicts in allocating investments as a result of differing compensation arrangements of the Manager and its affiliates and the other investment vehicles.

The loans that are subject to participation agreements are held in our name, but each of the participant’s rights and obligations, including with respect to interest income and other income (e.g., exit fee, prepayment income) and related fees/expenses (e.g., disposition fees, asset management and asset servicing fees), are based upon their respective pro rata participation interest in such

participated investments, as specified in the respective participation agreements.

We have also sold a portion of a loan to a third-party that did not qualify for sale accounting.

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 Terra Offshore REIT, the related participation obligations were settled.

As of December 31, 2020, the principal balance of our participation obligations totaled $71.3 million, consisting of $40.2 million in participation obligations to Terra Fund 6 and $31.1 million in participation obligations to third-parties.

Additionally, as of December 31, 2020, the principal balance of our secured borrowing was $18.3 million.

Terra Fund 6 is managed by Terra Income Advisors, an affiliate of our Manager.

If we enter into participation agreements in the future, we generally expect to enter into such agreements only at the time of origination of the investment.

Our Manager may experience conflicts in allocating investments as a result of differing compensation arrangements of the Manager and its affiliates and Terra Fund 6.

participation interest in such participated investments, as specified in the respective participation agreements.

We do not have direct liability to a participant with respect to the underlying loan and the participants’ share of the investments is repayable only from the proceeds received from the related borrower/issuer of the investments and, therefore, the participants also are subject to credit risk (i.e., risk of default by the underlying borrower/issuer).

Pursuant to the participation agreement with these entities, we receive and allocate the interest income and other related investment income to the participants based on their respective pro rata participation interest.

The affiliated fund participants pay related expenses also based on their respective pro rata participation interest (i.e., asset management and asset servicing fees, disposition fees) directly to our Manager, as per the terms of each respective affiliate’s management agreement.

The affiliated fund participant pays related expenses also based on their respective pro rata participation interest (i.e., asset management and asset servicing fees, disposition fees) directly to our Manager, as per the terms of each respective affiliate’s management agreement.

Other than for U.S.

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As such, the investments remain on our combined consolidated balance sheets and the proceeds are recorded as obligations under participation agreements.

For the year ended December 31, 2019 , the weighted average outstanding principal balance on obligations under participation agreements was approximately $95.8 million , and the weighted average interest rate was approximately 12.0% , compared to weighted average outstanding principal balance of approximately $85.5 million , and weighted average interest rate of approximately 12.7% for the year ended December 31, 2018 .

Additionally, we have entered into a participation agreement with Terra Fund 6 to purchase a 25% participation interest, or $4.3 million, in a $17.0 million mezzanine loan.

As of December 31, 2019 , the unfunded commitment was $1.2 million.

For the year ended December 31, 2020, the weighted average outstanding principal balance on obligations under participation agreements and secured borrowing was approximately $83.2 million, and the weighted average interest rate was approximately 10.9%, compared to weighted average outstanding principal balance of approximately $95.8 million, and weighted average interest rate of approximately 12% for the year ended December 31, 2019.

Off-Balance Sheet Arrangements

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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-K

Item 5. Market for Registrant’s Common Equity