What changed in this filing

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Item 9A. Controls and Procedures

2021-03-19 compared with 2020-03-02 · 958 added, 681 removed, 975 unchanged (63% of the section changed)

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Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports.

This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our registered accounting firm due to a transition period established by the rules of the SEC for newly public companies.

Evaluation of Internal Controls over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with generally accepted accounting principles.

Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S.

generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our Manager, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements in our consolidated financial statements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including the chief executive officer and chief financial officer of our Manager (performing functions equivalent to those a principal executive officer and principal financial officer of our company would perform if we had any officers), we conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).

Based on its evaluation, our management concluded that our internal control over financial reporting was effective as of the end of the fiscal year covered by this Annual Report on Form 10-K.

This Annual Report on Form 10-K does not include an attestation report of our registered accounting firm due to a transition period established by the rules of the SEC for “emerging growth companies.”

Changes in Internal Control Over Financial Reporting

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Other Information.

On March 12, 2021, Terra Mortgage Portfolio II, LLC, our indirect wholly-owned subsidiary, entered into a Business Loan and Security Agreement (the “Revolving Line of Credit”) with Western Alliance Bank (“WAB”) to provide for advances up to

the lesser of $75.0 million or the amount determined by the borrowing base, which is based on the eligible assets pledged to the lender.

Borrowings under the Revolving Line of Credit bear interest at an annual rate of LIBOR + 3.25% with a combined floor of 4.0% per annum.

The Revolving Line of Credit matures on March 12, 2023 with an annual 12-month extension available at our’s option, which are subject to certain conditions.

In connection with the Revolving Line of Credit, we entered into a limited guaranty (the “Guaranty”) in favor of WAB, pursuant to which we will guarantee the payment of up to 25% of the amount outstanding under the Revolving Line of Credit.

Under the Revolving Line of Credit and the Guaranty, we will be required to maintain (i) a minimum total net worth of $250.0 million;

(ii) a $2.0 million quarterly operating profit;

and (iii) a ratio of total debt to total net worth of no more than 2.50 to 1.00.

The Revolving Line of Credit contains terms, conditions, covenants, and representations and warranties that are customary and typical for a transaction of this nature.

The Revolving Line of Credit contains various affirmative and negative covenants, including maintenance of a debt to total net worth ratio and limitations on the incurrence of liens and indebtedness, loans, distributions, change of management and ownership, changes in the nature of business and transactions with affiliates.

The Revolving Line of Credit also includes customary events of default, including a cross-default provision applicable to our debt obligations or those of Terra Mortgage Portfolio II, LLC.

The occurrence of an event of default may result in termination of the Revolving Line of Credit and acceleration of amounts due under the Revolving Line of Credit.

In connection with the closing of the Revolving Line of Credit, we pledged a $11.5 million first mortgage to the borrowing base and drew down $8.0 million on the Revolving Line of Credit.

The foregoing descriptions of the Revolving Line of Credit and the Guaranty are not complete and are qualified in their entirety by reference to the full text of the Revolving Line of Credit and the Guaranty, copies of which are attached as Exhibits 10.8 and 10.9 of this Annual Report on Form 10-K and are incorporated herein by reference.

Directors, Executive Officers and Corporate Governance.

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Board of Directors

Our board of directors consists of eight members.

Our board of directors consists of four members.

Our board of directors has determined that each of our directors satisfies the listing standards for independence of the New York Stock Exchange (“NYSE”), except for Andrew M.

Axelrod, our Chairman, Bruce D.

Batkin, our Vice Chairman and former chief executive officer and Vikram S.

Axelrod, our Chairman and Vikram S.

Uppal our and our Manager’s Chief Executive Officer.

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The following sets forth certain information with respect to our directors:

Position held

Chairman of the Board of Directors

Vice Chairman of the Board of Directors

Chief Executive Officer, Chief Investment Officer and Director

Axelrod has served as Chairman of our board of directors and as Chairman of the board of directors of Terra Capital Partners and Terra Property Trust 2 since February 8, 2018.

Name Age Position held

Axelrod 38 Chairman of the Board of Directors

Uppal 37 Chief Executive Officer, Chief Investment Officer and Director

Beless 59 Director

Evans 68 Director

Axelrod has served as Chairman of our board of directors and as a member of the board of directors of Terra Capital Partners since February 2018.

Axelrod founded Axar Capital Management in April 2015 and currently serves as its Managing Partner and Portfolio Manager, and is responsible for all investment, risk and business management functions.

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Before founding Axar Capital Management in 2015, Mr.

Axelrod worked at Mount Kellett

Capital Management, a private investment organization from 2009 to 2014.

Axelrod worked at Mount Kellett Capital Management, a private investment organization from 2009 to 2014.

At Mount Kellett Capital Management, he was promoted to Co-Head of North America Investments in 2011 and became a Partner in 2013.

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in Economics from Duke University.

Batkin has served as a one of our directors since January 2016, and as the Vice Chairman of our board of directors since December 2018.

Batkin also serves as the Vice Chairman of the board of directors (or managers, as applicable) of Terra International, Terra Income Advisors, Terra Fund Advisors, Terra Capital Partners, Terra Fund 5 International and Terra Property Trust 2, and as Chairman of the board of directors of Terra Fund 6.

He served as our Chief Executive Officer from January 2016 to November 2018.

He has also served as Chief Executive Officer of Terra Capital Advisors, Terra Capital Advisors 2, Terra Income Advisors 2, Terra Fund Advisors, Terra Fund 2, Terra Fund 3, Terra Fund 4, Fund 5 International, Terra Fund 6, Terra International and Terra Fund 7 since April 2009, September 2012, October 2016, September 2017, May 2011, January 2012, September 2012, June 2014, March 2015, October 2016 and October 2016, respectively, until November 30, 2018.

Batkin has also served as President of Terra Fund 1 since July 2009 until November 30, 2018.

He has also served as Chief Executive Officer and director of Terra Fund 6, from May 2013 to April 2019 and as Chief Executive Officer of Terra Income Advisors from May 2013 to April 2019.

As a co-founder of Terra Capital Partners, he served as its President and Chief Executive Officer from its formation in 2001 and its commencement of operations in 2002 to November 2018, managing its real estate debt and equity investment programs.

Batkin has over 40 years’ experience in real estate acquisition, finance, development, management and investment banking.

Prior to founding Terra Capital Partners, he held senior management positions at Merrill Lynch & Co.

Inc., Donaldson, Lufkin & Jenrette Securities Corporation (now Credit Suisse (USA) Inc.), ABN AMRO Bank N.V.

and several private real estate development partnerships.

Batkin has acquired major commercial properties throughout the United States and has acted as managing partner in over $5 billion of real estate investments for domestic and foreign investors.

He is a member of the Harvard Alumni Real Estate Board and the Cornell Real Estate Council and the Committee for Economic Development;

he sits on the Advisory Board of the Baker Program in Real Estate at Cornell University and the Dean's Advisory Council of the College of Art, Architecture and Planning at Cornell University;

and he is a participant in the semiannual Yale CEO Summit.

Batkin received a Bachelor of Architecture from Cornell University and an M.B.A.

from Harvard Business School.

Uppal has served as one of our directors since February 8, 2018 and as Chief Executive Officer for our company, our Manager, Terra Fund Advisors and Terra Capital Partners since December 1, 2018.

Uppal has served as one of our directors since February 2018 and as Chief Executive Officer for our company, our Manager, Terra Fund Advisors and Terra Capital Partners since December 2018 and as a director of Terra RECO since October 2020.

Uppal has also served as Chief Investment Officer for our company, Terra Capital Partners and our Manager since February 2018.

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from Columbia University.

Altman has served as one of our independent directors since October 2017.

Altman has served as a director of Terra Fund 6 since April 2016.

Since May 2019, Mr.

Altman has been a Managing Director and Co-Head of U.S.

Lodging & Leisure within the real estate, gaming and lodging investment banking group (REGAL) of Jefferies LLC, an investment bank.

From 2011 to 2019, Mr.

Altman was a Managing Director in Houlihan Lokey’s real estate and lodging investment banking group and from December 1998 to May 2011, he served as a Director of Lazard Fréres & Co.

LLC REGAL, where he led the firm’s global hospitality and leisure effort.

Altman has advised on over $100 billion of real estate transactions in his career and is a frequent speaker at real estate and lodging conferences.

He is currently a member of the New York Hospitality Council, the National Association of Real Estate Investment Trusts, the International Council of Shopping Centers and the Samuel Zell and Robert Lurie Real Estate Center of the Wharton School of the University of Pennsylvania.

Altman received a B.S., magna cum laude, with a concentration in accounting and finance, and an M.B.A., with a concentration in finance, from the John M.

Olin School of Business at Washington University.

Beless has served as one of our independent directors since February 2018.

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Evans has served as one of our independent directors since October 2017.

Evans has served since March 2015 as a member of the board of directors of Terra Fund 6.

Evans has served as a member of the board of directors of Terra Fund 6 from March 2015 to April 2019.

Since December 2012, Mr.

Evans has been the Managing Director of Newport Board Group, a CEO and board advisory firm.

Evans has been the Managing Director and Chief Financial Officer of Newport LLC (formerly known as Newport Board Group), a CEO and board advisory firm.

From June 2010 to September 2011, Mr.

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Evans currently serves on the Advisory Board of Marcus & Millichap, Inc., the Independent Counsel Board of Prologis Targeted U.S.

Logistics Fund and the board of directors of Newport Board Group, CyArk.org and InfinteSmile.org.

Logistics Fund and the board of directors of Newport LLC and Sen Plex, Inc.

Evans is a licensed attorney and a C.P.A.

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from Golden Gate University.

Goldenberg has served as one of our independent directors since February 2018.

Goldenberg has served since April 2019 as a member of the board of directors of Terra Fund 6.

He has served since June 2015 as Vice President of Corporate Development at Menin Hospitality.

Prior to his time at Menin, Mr.

Goldenberg was employed as an accountant at the firm of Gerstle, Rosen & Goldenberg P.A.

from February 2008 to June 2015.

From October 2005 until February 2008, he served as a legislative aide to Florida State Senator Gwen Margolis.

Goldenberg holds an active certified public accountant's license in the state of Florida.

He holds a Bachelor of Arts in International Affairs from Florida State University.

Gregorits has served as one of our independent directors since October 2017.

Gregorits retired in 2014 from his position with the Specialized Funds Group at Prudential Real Estate Investors (“PREI”), the real estate investment management business of Prudential Financial, where he worked since 1998.

Gregorits was responsible for certain of PREI’s funds in its U.S.

business, totaling approximately $10 billion in gross assets.

While at PREI, Mr.

Gregorits served on the U.S.

Executive Committee and Investment Committee.

Before joining PREI, Mr.

Gregorits managed a variety of multi-billion dollar equity and debt portfolios on behalf of Prudential Financial’s General Account, gaining extensive experience in portfolio and asset management, development, acquisitions, sales, leasing, and joint venture management.

His 36 years in real estate includes serving on a variety of industry associations as well as the board of directors of several privately held companies.

Gregorits holds a Bachelor of Art in economics and psychology from Duke University and a Master of Arts in organizational behavior from Fairleigh Dickson University.

Executive Officers

The names, ages, positions and biographies of our officers and the officers of our Manager are as follows:

Position(s) Held with the Company

Position(s) Held with our Manager

Chairman of the Board of Directors

Chairman of the Board of Managers (1)

Vice Chairman of the Board of Directors

Vice Chairman of the Board of Managers (1)

Chief Executive Officer, Chief Investment

Chief Operating Officer and Chief Financial

Chief Originations Officer

Name Age Position(s) Held with the Company Position(s) Held with our Manager

Axelrod 38 Chairman of the Board of Directors Member of the Board of Managers (1)

Batkin 67 N/A Member of the Board of Managers (1)

Uppal 37 Chief Executive Officer, Chief Investment

Officer Chief Executive Officer, Chief Investment

Pinkus 56 Chief Operating Officer and Chief Financial

Officer Chief Operating Officer and Chief Financial

Cooperman 46 Chief Originations Officer Chief Originations Officer

_______________

(1) Our Manager is managed by Terra Capital Partners and does not have a board of managers.

Axelrod and Batkin are members of the board of managers of Terra Capital Partners.

Axelrod, Batkin and Uppal are members of the board of managers of Terra Capital Partners.

For biographical information regarding Messrs.

Axelrod, Batkin and Uppal, see “Item 10.

Axelrod and Uppal, see “Item 10.

— Board of Directors” above.

Batkin has served as the Vice Chairman of the Terra Capital Partners from its formation in 2001 and its commencement of operations in 2002 until February 2018 and as a member of the Board of Managers of our Manager since

February 2018.

He served as one of our directors from January 2016, and as the Vice Chairman of our board of directors from December 2018, to March 2020.

Batkin also serves as the Vice Chairman of the board of directors (or managers, as applicable) of Terra International, Terra Income Advisors, Terra Fund Advisors and Terra Fund 5 International.

He served as our Chief Executive Officer from January 2016 to November 2018.

He has also served as Chief Executive Officer of Terra Capital Advisors, Terra Capital Advisors 2, Terra Income Advisors 2, Terra Fund Advisors, Fund 5 International, Terra Fund 6, Terra International and Terra Fund 7 from April 2009, September 2012, October 2016, September 2017, June 2014, March 2015, October 2016 and October 2016, respectively, until November 30, 2018.

He has also served as Chief Executive Officer and director of Terra Fund 6, from May 2013 to April 2019, as Chairman of the board of director of Terra Fund 6 from April 2019 to November 2019, and as Chief Executive Officer of Terra Income Advisors from May 2013 to April 2019.

Batkin has over 40 years’ experience in real estate acquisition, finance, development, management and investment banking.

Prior to founding Terra Capital Partners, he held senior management positions at Merrill Lynch & Co.

Inc., Donaldson, Lufkin & Jenrette Securities Corporation (now Credit Suisse (USA) Inc.), ABN AMRO Bank N.V.

and several private real estate development partnerships.

Batkin has acquired major commercial properties throughout the United States and has acted as managing partner in over $5 billion of real estate investments for domestic and foreign investors.

He is a member of the Harvard Alumni Real Estate Board and the Cornell Real Estate Council and the Committee for Economic Development;

he sits on the Advisory Board of the Baker Program in Real Estate at Cornell University and the Dean's Advisory Council of the College of Art, Architecture and Planning at Cornell University;

and he is a participant in the semiannual Yale CEO Summit.

Batkin received a Bachelor of Architecture from Cornell University and an M.B.A.

from Harvard Business School.

Pinkus has served as the Chief Financial Officer, Treasurer and Secretary of our company and the Chief Financial Officer and Chief Operating Officer of our Manager, Terra Fund Advisors, and Terra Income Advisors since January 2016, October 2017, October 2017, and May 2013, respectively.

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(iv) the Chief Financial Officer, Treasurer and Secretary of Terra Fund 6 since May 2013 and Chief Operating Officer of Terra Fund 6 since July 2014;

and (v) the Chief Financial Officer and Chief Operating Officer of Fund 5 International, Terra International, Terra Fund 7 and Terra Property Trust 2 since June 2014, October

2016, October 2016 and September 2016, respectively.

(v) the Chief Financial Officer and Chief Operating Officer of Fund 5 International, Terra International and Terra Fund 7 since June 2014, October 2016 and October 2016, respectively;

and (vi) a director of Terra RECO since October 2020.

Prior to joining Terra Capital Partners in May 2012, he served as Assistant Controller for W.P.

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(ii) Fund 5 International since January 2015, having previously served as Managing Director of Originations from June 2014 to June 2014;

(iii) Terra Property Trust 2 since September 2016;

(iv) Terra Fund 6 since February 2015, having previously served as Managing Director of Originations from May 2013 until February 2015;

and (v) each of Terra Income Advisors 2, Terra International, and Terra Fund 7 since October 2016.

(iii) Terra Fund 6 since February 2015, having previously served as Managing Director of Originations from May 2013 until February 2015;

and (iv) each of Terra Income Advisors 2, Terra International, and Terra Fund 7 since October 2016.

Cooperman has 18 years’ experience in the acquisition, financing, leasing and asset management of commercial real estate with an aggregate value of over $5 billion.

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Code of Ethics

Our Manager has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) pursuant to Rule 17j‑1 of the 1940 Act, which applies to, among others, the senior officers of our Manager, including the Chief Executive Officer and the Chief Financial Officer, as well as every officer, director, employee and “access person” (as defined within the Code of Ethics).

Our Manager has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) pursuant to Rule 17j‑1 of the Advisers Act, which applies to, among others, the senior officers of our Manager, including the Chief Executive Officer and the Chief Financial Officer, as well as every officer, director, employee and “access person” (as defined within the Code of Ethics).

We will also provide the Code of Ethics, free of charge, to stockholders who request it.

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The members of the Audit Committee are Messrs.

Altman, Goldenberg and Evans, each of whom is independent.

Beless and Evans, each of whom is independent.

Evans serves as the chairman of the Audit Committee.

The Board has determined that Mr.

Our board of directors has determined that Mr.

Evans is an “audit committee financial expert” as defined under Item 407 of regulation S-K promulgated under the Exchange Act.

The Board has determined that each of Messrs.

Altman, Goldenberg and Evans meets the current independence and experience requirements of Rule 10A-3 of the Exchange Act.

Our board of directors has determined that each of Messrs.

Beless and Evans meets the current independence and experience requirements of Rule 10A-3 of the Exchange Act.

Executive Compensation.

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The following table sets forth compensation of our directors for the year ended December 31, 2020:

Fees Earned or Paid in Cash

All Other Compensation

Name Fees Earned or Paid in Cash All Other Compensation Total

$ 17,500 $ — $ 17,500

Beless $ 65,000 $ — $ 65,000

Evans $ 75,000 $ — $ 75,000

Goldenberg (1)

$ 17,500 $ — $ 17,500

Gregorits (1)

$ 15,000 $ — $ 15,000

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(1) In connection with the Merger in March 2020, the size of our board of directors was reduced from eight directors to four directors and the directorship of each of Messrs.

Altman, Goldenberg and Gregorits was terminated.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

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Except as indicated in the footnotes to the table below, the business address of the stockholders listed below is the address of our principal executive office, 550 Fifth Avenue, 6th Floor, New York, NY 10036.

Number of Shares Beneficially Owned

Percentage of

Name Number of Shares Beneficially Owned Percentage of

Cooperman — —

All directors and executive officers as a group (6 persons) — —

5% or Greater Beneficial Owners

Terra Fund 5 (1)

17,029,775.95 87.4%

Terra Offshore REIT (2)

2,457,684.59 12.6%

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* Represents beneficial ownership of less than 1%.

(1) On April 6, 2020, Mr.

Uppal purchased 22 units of limited liability company interest (the “Units”) of Terra Fund 5 in a secondary market transaction.

The Units are held through Lakshmi 15 LLC, a family limited liability company over which Mr.

Uppal exercises voting and investment control.

The shares of our common stock indicated on this report as being held indirectly by Mr.

Uppal are held indirectly by Terra Fund 5 through a controlled subsidiary.

Uppal is the Chief Executive Officer and Chief Investment Officer of Terra Fund Advisors, the manager of Terra Fund 5.

Accordingly, Mr.

Uppal disclaims beneficial ownership of the shares of our common stock reported herein except to the extent of his pecuniary interest therein, and this report shall not be deemed an admission that he is the beneficial owner of such shares for purposes of Section 16 or for any other purpose.

(2) Terra Fund 5 is managed by Terra Fund Advisors, its managing member.

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The Axar Transaction

On February 8, 2018, an entity (“Axar”), wholly owned by a pooled investment vehicle advised by Axar Capital Management, a Delaware limited partnership, entered into an investment agreement with Terra Capital Partners and its affiliates (which we refer to collectively as the “Axar Transaction”).

(which we refer to collectively as the “Axar Transaction”).

As a result of the Axar Transaction, Terra REIT Advisors, a newly formed subsidiary of Terra Capital Partners, became our external manager, Terra Fund Advisors was admitted as the replacement manager of Terra Fund 5, the equity interests in Terra Fund Advisors were distributed to the equity owners of Terra Capital Partners on a pro rata basis, and the equity interests in another subsidiary of Terra Capital Partners, Terra Income Advisors, which serves as the external advisor to Terra Fund 6, were distributed to the equity owners of Terra Capital Partners on a pro rata basis.

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At the same time, the prior owners of Terra Capital Partners retained certain approval rights over major decisions impacting Terra Capital Partners (and thereby our Manager).

Terra International 3

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

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.

In addition, Terra International 3 agreed to contribute to us future cash proceeds, if any, raised from time to time by it, and we 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.

Terra International Fund 3, L.P.

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

(“Terra International 3”) and Terra Offshore REIT (formerly known as International Fund 3 REIT), a then wholly-owned subsidiary of Terra International 3, which we amended and restated on November 13, 2019.

Pursuant to this agreement, Terra International 3, through Terra Offshore 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.

Our Manager also serves as adviser to the Terra International 3 and Terra International Fund 3 REIT.

In addition, the general partner of Terra International 3 is Terra International Fund 3 GP, LLC, which is an affiliate of Terra Fund Advisors, the manager of Terra Fund 5.

On April 29, 2020, we repurchased, at a price of $17.02 per share, the 212,690.95 shares of common stock that we had previously sold to Terra Offshore REIT on September 30, 2019.

At the same time, Terra International 3 redeemed all of its limited partnership interest and ceased operations.

Our Manager also serves as adviser to Terra Offshore REIT.

Merger and Issuance of Common Stock to Terra Offshore REIT

On February 28, 2020, we entered into a merger agreement pursuant to which Terra Property Trust 2 was merged with and into us, with us 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 Terra Property Trust 2 issued and outstanding immediately prior to the effective time of the Merger was converted into the right to receive from us a number of shares of our common stock, par value $0.01 per share, equal to an exchange ratio, which was 1.2031.

As a result, Terra Fund 7, the sole stockholder of Terra Property Trust 2, received 2,116,785.76 shares of our common stock as consideration in the Merger.

The shares of common stock were issued in a private placement in reliance on Section 4(a)(2) under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

In addition, on March 2, 2020, we entered into two separate contribution agreements, one by and among us, Terra Offshore REIT and Terra Income Fund International, and another by and among us, Terra Offshore REIT and Terra Secured Income Fund 5 International, pursuant to which 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 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.

As of December 31, 2020, Terra JV owns 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 own an 87.6% and 12.4% interest, respectively, in Terra JV.

Voting Agreement

On February 8, 2018, we, Terra Fund 5, and our Manager entered into the Voting Agreement, pursuant to which the board of directors of our company was increased to eight members.

Pursuant to the terms of the Voting Agreement, for so long as our Manager remains our external manager, our Manager will have the right to nominate two individuals to serve as directors of our company (which nominees need not be independent directors) and for so long as Terra Fund 5 holds at least 10% of our outstanding shares of common stock, Terra Fund 5 will have the right to nominate one individual to serve as a director of our company (who need not be an independent director).

On March 2, 2020, we, Terra Fund 5, Terra JV and Terra REIT Advisors also entered into the Amended and Restated Voting Agreement (the “Voting Agreement”), pursuant to which Terra Fund 5 assigned its rights and obligations under the

Voting Agreement to Terra JV.

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

Except as otherwise required by law or the provisions of other agreements to which the parties are or may in the future become bound, the parties have agreed to vote all shares of our common stock directly or indirectly owned in favor (or against removal) of the directors properly nominated in accordance with the Voting Agreement.

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As described above, as part of the Axar Transaction, Terra Income Advisors assigned all of its rights, title and interest in and to its current external management agreement with us to our Manager and immediately thereafter, we and our Manager amended and restated such management agreement.

The current management agreement runs co-terminus with Terra Fund 5's amended and restated operating agreement, which terminates on December 31, 2023, unless sooner dissolved in accordance with its terms

of our amended and restated operating agreement.

During the years ended December 31, 2019 and 2018 , we paid the predecessor to our Manager and our Manager in the aggregate the following fees under the management agreement:

$3.7 million and $3.1 million in asset management fee, respectively, $0.9 million and $0.7 million in asset servicing fees, respectively, $2.0 million and $2.5 million in origination fees, respectively;

$1.4 million and $1.2 million in disposition and extension fees, respectively, and $4.9 million and $3.7 million of operating expense reimbursements, respectively.

During the years ended December 31, 2020 and 2019, we paid our Manager in the aggregate the following fees under the management agreement:

$4.5 million and $3.7 million in asset management fee, respectively, $1.0 million and $0.9 million in asset servicing fees, respectively, $1.4 million and $2.0 million in origination and extension fees, respectively;

$0.5 million and $1.4 million in disposition, respectively, and $6.0 million and $4.9 million of operating expense reimbursements, respectively.

It is anticipated that our Manager will exercise its discretion through our management agreement with our company.

The agreements and arrangements, including those relating to compensation, between us and our Manager and its affiliates are not the

result of arm’s-length negotiations and may create conflicts between our Manager and its affiliates, on the one hand, and us on the other.

The agreements and arrangements, including those relating to compensation, between us and our Manager and its affiliates are not the result of arm’s-length negotiations and may create conflicts between our Manager and its affiliates, on the one hand, and us on the other.

Our Manager and its Affiliates May Compete With Us

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Our Manager and its affiliates have, and in the future will have, legal and financial obligations with respect to its other programs that are similar to our Manager’s obligations to us.

For example, our Manager and affiliates of our Manager are the external managers to Fund 5 International, Terra Fund 6, Terra International, Terra International 3, Terra International Fund 3 REIT, Terra Fund 7 and Terra Property Trust 2, all of which follow investment strategies that are similar to our strategy.

For example, our Manager and affiliates of our Manager are the external managers to Terra Fund 6 and Terra RECO, all of which follow investment strategies that are similar to our strategy.

Competition for investments among the real estate-related investment programs sponsored by our Manager and its affiliates will create a conflict of interest.

In determining which program should receive an investment opportunity, our Manager will first evaluate the objectives of each program to determine if the opportunity is suitable for each program.

If the proposed investment is appropriate for more than one program, our Manager will then evaluate the portfolio of each program, in terms of diversity of geography, underlying property type, tenant concentration and borrower, to determine if the investment is most suitable for one program in order to create portfolio diversification.

If the proposed investment

is appropriate for more than one program, our Manager will then evaluate the portfolio of each program, in terms of diversity of geography, underlying property type, tenant concentration and borrower, to determine if the investment is most suitable for one program in order to create portfolio diversification.

If such analysis is not determinative, our Manager will allocate the investment to the program with uncommitted funds available for the longest period or, to the extent feasible, prorate the investment between the programs in accordance with uninvested funds.

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Related party transactions will not be the result of an arm’s-length negotiation.

Participation Agreements

Participation Agreements and Secured Borrowing

We have diversified our exposure to loans and borrowers by entering into participation agreements in respect of certain of our loans whereby we transferred a portion of the loans on a pari passu basis to related parties, and to a lesser extent, unrelated parties, with the principal balance of participation obligations totaling $71.3 million as of December 31, 2020.

Additionally, we sold a portion of a loan with a principal balance of $18.3 million to a third-party that didn’t qualify for sale accounting treatment.

However, we do not have direct liability to a participant under our participation agreements 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).

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 mortgage loans, 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.

For additional information concerning our participation agreements, see “Item 7— Management’s Discussion and Analysis of Financial Condition and Results of Operations — Participation Agreements.”

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.

Allocation of Our Manager’s Time

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Our Manager is presently, and plans in the future to continue to be, involved with activities that are unrelated to us.

As a result of these activities, our Manager, its employees and certain of its affiliates will have conflicts of interest in allocating their time between us and the other activities in which they are or may become involved, including the management of Fund 5 International, Terra Fund 6, Terra International, Terra International 3, Terra International Fund 3 REIT, Terra Fund 7 and Terra Property Trust 2.

The employees of our Manager will devote only as much of its or their time to our business as it and its employees, in their judgment, determine is reasonably required, which may be substantially less than their full time.

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However, we believe that the members of our Manager’s senior management and the other key debt finance professionals performing services for us on behalf of our Manager have sufficient time to fully discharge their responsibilities to us and to the other businesses in which they are involved.

We believe that our Manager’s executive officers will devote the time required to

manage our business and expect that the amount of time a particular executive officer or affiliate devotes to us will vary during the course of the year and depend on business activities at the given time.

We believe that our Manager’s executive officers will devote the time required to manage our business and expect that the amount of time a particular executive officer or affiliate devotes to us will vary during the course of the year and depend on business activities at the given time.

We expect that these executive officers and affiliates will generally devote more time to programs raising and investing capital than to programs that have completed their offering stages, though from time to time each program will have its unique demands.

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Competition and Allocation of Investment Opportunities

Employees of our Manager or its affiliates are simultaneously providing investment advisory or management services to other affiliated entities, including Fund 5 International, Terra Fund 6, Terra International, Terra International 3, Terra International Fund 3 REIT, Terra Fund 7 and Terra Property Trust 2.

Employees of our Manager or its affiliates are simultaneously providing investment advisory or management services to other affiliated entities, including Terra Fund 6 and Terra RECO.

Our Manager may determine it appropriate for us and one or more other investment programs managed by our Manager or any of its affiliates to participate in an investment opportunity.

To the extent we are able to make co-investments with investment programs managed by our Manager or its affiliates, these co-investment opportunities may give rise to conflicts of interest or perceived conflicts of interest among us and the other participating programs.

To the extent we are able to make co-investments with investment programs managed by our Manager or its affiliates, these co-investment opportunities may give rise to conflicts of

interest or perceived conflicts of interest among us and the other participating programs.

In addition, conflicts of interest or perceived conflicts of interest may also arise in determining which investment opportunities should be presented to us and other participating programs.

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Years Ended December 31,

Audit Fees $ 463,000 $ 409,500

Audit-Related Fees — 50,000

Tax Fees 68,380 65,800

All Other Fees — —

Total $ 531,380 $ 525,300

Audit fees include fees for services that normally would be provided by KPMG in connection with statutory and regulatory filings or engagements and that generally only an independent accountant can provide.

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000-56117) filed with the SEC on November 6, 2019).

Description and Method of Filing

2.2 Amendment No.

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000-56117) filed with the SEC on November 6, 2019).

2.3 Agreement and Plan of Merger, dated February 28, 2020, by and among Terra Property Trust, Inc., Terra Property Trust 2, Inc.

and Terra Secured Income Fund 7, LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No.

000-56117) filed with the SEC on March 5, 2020).

3.1 Amended and Restated Bylaws of Terra Property Trust, Inc.

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000-56117) filed with the SEC on December 16, 2019).

Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934

3.3 Articles of Supplementary of Terra Property Trust, Inc.

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000-56117) filed with the SEC on December 16, 2019).

4.1 Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.1 to Annual Report on Form 10-K filed with the SEC on February 28, 2020).

Description and Method of Filing

10.1 Amended and Restated Management Agreement between Terra Property Trust, Inc., and Terra REIT Advisors, LLC, dated February 8, 2018 (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form 10 (File No.

000-56117) filed with the SEC on November 6, 2019).

Voting Agreement between Terra Property Trust, Inc., Terra REIT Advisors, LLC and Terra Secured Income Fund 5, LLC, dated February 8, 2018 (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form 10 (File No.

000-56117) filed with the SEC on November 6, 2019).

Uncommitted Master Repurchase and Securities Contract Agreement between Terra Mortgage Capital I, LLC, as Seller, and Goldman Sachs Bank USA, as Buyer, dated December 12, 2018 (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form 10 (File No.

000-56117) filed with the SEC on November 6, 2019).

Guarantee Agreement by Terra Property Trust, Inc.

in favor of Goldman Sachs Bank USA, dated December 12, 2018 (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form 10 (File No.

000-56117) filed with the SEC on November 6, 2019).

Amended and Restated Contribution and Repurchase Agreement among Terra International Fund 3, L.P., Terra International Fund 3 REIT, LLC and Terra Property Trust, Inc., dated November 13, 2019 (incorporated by reference to Exhibit 10.5 to the Registration Statement on Amendment No.1 to Form 10 (File No.

000-56117) filed with the SEC on December 16, 2019).

10.2 Amended and Restated Voting Agreement by and among Terra Property Trust, Inc., Terra Secured Income Fund 5, LLC, Terra JV, LLC and Terra REIT Advisors, LLC, dated March 2, 2020 (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed with the SEC on May 15, 2020).

10.3 Stockholder Rights Agreement among Terra JV, LLC and Terra Property Trust, Inc., dated March 2, 2020 (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q (File No.

000-56117) filed with the SEC on May 15, 2020).

10.4 Contribution Agreement by and among Terra Property Trust, Terra International Fund 3 REIT, LLC and Terra Income Fund International, dated March 2, 2020 (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q (File No.

000-56117) filed with the SEC on May 15, 2020).

10.5 Contribution Agreement by and among Terra Property Trust, Terra International Fund 3 REIT, LLC and Terra Secured Income Fund 5 International, dated March 2, 2020 (incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q (File No.

000-56117) filed with the SEC on May 15, 2020).

10.6 Indenture and Credit Agreement, dated as of September 3, 2020, by and among Terra Mortgage Capital I, LLC, as Issuer, Goldman Sachs Bank USA, as initial Class A lender, and Wells Fargo Bank, National Association, as trustee, custodian, collateral agent, loan agent and note administrator (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K (File No.

000-56117) filed with the SEC on September 17, 2020).

10.7 Guaranty, dated as of September 3, 2020, by and among Terra Property Trust, Inc., as guarantor, for the benefit of Goldman Sachs Bank USA (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K (File No.

000-56117) filed with the SEC on September 17, 2020).

10.8* Business Loan and Security Agreement, dated as of March 12, 2021, by and among Terra Mortgage Portfolio II, LLC, as the Borrower, and Western Alliance Bank, as the Lender.

10.9* Limited Guaranty, dated as of March 12, 2021, by and among Terra Property Trust, Inc., as Guarantor, for the benefit of Western Alliance Bank.

21.1 * Subsidiaries

31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS** Inline XBRL Instance Document - t he instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH** Inline XBRL Taxonomy Extension Schema Document

101.CAL** Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB** Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE** Inline XBRL Taxonomy Extension Presentation Linkbase Document

104 Cover Page Interactive Data File Included as Exhibit 101 (embedded within the Inline XBRL document)

______________

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Consolidated Statements of Operations for the years ended December 31, 20 20 and 201 9

Consolidated Statements of Comprehensive Income for the years ended December 31, 2020 and 2019

Consolidated Statements of Changes in Equity for the years ended December 31, 20 20 and 201 9

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We have audited the accompanying consolidated balance sheets of Terra Property Trust, Inc.

and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, changes in equity, and cash flows for the years then ended, and the related notes and financial statement schedule III - Real Estate and Accumulated Depreciation and schedule IV - Mortgage Loans on Real Estate as of December 31, 2019 (collectively, the consolidated financial statements).

and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for the years then ended, and the related notes and financial statement schedules III and IV (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with U.S.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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New York, New York

February 28, 2020

March 18, 2021

Terra Property Trust, Inc.

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Cash held in escrow by lender 2,166,755 2,398,053

Marketable securities 1,287,500 —

Loans held for investment, net 417,986,462 375,462,222

Loans held for investment acquired through participation, net 4,294,053 3,150,546

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

Real estate owned, net ( Note 6 )

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Interest receivable 2,509,589 1,876,799

Other assets 3,934,468 2,594,411

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

Liabilities and Equity

Term loan payable, net of deferred financing fees $ 105,245,801 $ —

Obligations under participation agreements ( Note 8 )

71,581,897 103,186,327

Repurchase agreement payable, net of deferred financing fees — 79,608,437

Mortgage loan payable, net of deferred financing fees and other 44,117,293 44,753,633

Secured borrowing 18,187,663 —

Interest reserve and other deposits held on investments 12,145,616 18,542,163

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Lease intangible liabilities, net ( Note 6 )

10,249,776 11,424,809

Due to Manager ( Note 8 )

1,257,098 1,037,168

Interest payable 1,185,502 1,076,231

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Preferred stock, $0.01 par value, 50,000,000 shares authorized and

none issued — —

12.5% Series A Cumulative Non-Voting Preferred Stock at liquidation

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Accumulated deficit ( 70,438,482 ) ( 54,459,821 )

Total equity 303,325,065 247,543,733

Total liabilities and equity $ 588,477,181 $ 527,343,078

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Other operating income 505,116 419,101

50,320,888 51,399,525

Operating expenses

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Asset servicing fee 1,008,256 854,096

Provision for loan losses 3,738,758 —

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

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Professional fees (1)

1,695,876 3,373,554

Directors fees 190,000 335,000

Other 371,444 172,232

26,667,214 22,607,397

Operating income 23,653,674 28,792,128

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

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

Interest expense on secured borrowing ( 633,850 ) —

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

Realized gains on marketable securities 1,160,162 —

Unrealized gains on marketable securities 111,494 —

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

( 18,397,944 ) ( 19,749,353 )

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

Preferred stock dividend declared ( 15,624 ) ( 15,624 )

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Earnings per share — basic and diluted

$ 0.28 $ 0.60

Weighted-average shares — basic and diluted

18,813,066 14,967,183

Distributions declared per common share $ 1.16 $ 2.03

_______________

Amount for the year ended December 31, 2019 included $2.4 million of professional fees directly incurred, and which were previously deferred, in contemplation of the Company’s public offering.

(1) Amount for the year ended December 31, 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.

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Terra Property Trust, Inc.

Consolidated Statements of Comprehensive Income

Years Ended December 31,

Comprehensive income, net of tax

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

Other comprehensive income

Net unrealized gains on marketable securities 192,919 —

Reclassification of net realized gains on marketable securities into earnings ( 192,919 ) —

Total comprehensive income $ 5,255,730 $ 9,042,775

Preferred stock dividend declared ( 15,624 ) ( 15,624 )

Comprehensive income attributable to common shares $ 5,240,106 $ 9,027,151

See notes to consolidated financial statements.

Terra Property Trust, Inc.

Consolidated Statements of Changes in Equity

Years Ended December 31, 2019 and 2018

Preferred Stock

12.5% Series A Cumulative Non-Voting Preferred Stock

Accumulated Deficit

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

Distributions declared on common

share ($2.03 per share)

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 shares ($1.16 per share) — — — — — — ( 21,218,767 ) — ( 21,218,767 )

Distributions declared on preferred shares — — — — — — ( 15,624 ) — ( 15,624 )

Comprehensive income:

Net income — — — — — — 5,255,730 — 5,255,730

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

Reclassification of net realized gains on marketable securities

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

Balance at December 31, 2020 — 125 $ 125,000 19,487,460 $ 194,875 $ 373,443,672 $ ( 70,438,482 ) $ — $ 303,325,065

Preferred Stock

12.5% Series A Cumulative Non-Voting Preferred Stock

Accumulated Deficit

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

Distributions declared on common

share ($2.19 per share)

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

Distributions declared on common shares ($2.03 per share) — — — — — — ( 30,395,777 ) — ( 30,395,777 )

Distributions declared on preferred shares — — — — — — ( 15,624 ) — ( 15,624 )

Comprehensive income:

Net income — — — — — — 9,042,775 — 9,042,775

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

Reclassification of net realized gains on marketable securities

into earnings — — — — — — — — —

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

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Cash flows from operating activities:

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

Adjustments to reconcile net income to net cash provided by operating activities:

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Depreciation and amortization 4,635,980 3,785,977

Provision for loan losses 3,738,758 —

Impairment charge — 1,550,000

Lease termination fee income ( 236,000 ) —

Amortization of net purchase premiums on loans 57,155 81,642

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Amortization of deferred financing costs 1,644,944 1,993,486

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

Amortization of above- and below-market rent intangibles ( 1,027,129 ) ( 446,997 )

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Amortization of above-market rent ground lease ( 130,348 ) ( 130,348 )

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

Unrealized gains on marketable securities ( 111,494 ) —

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

Changes in operating assets and liabilities:

Interest receivable ( 632,790 ) 575,627

Other assets ( 956,735 ) 1,639,202

Due to Manager ( 409,927 ) ( 213,485 )

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Proceeds from repayments of loans 66,144,729 181,131,959

Capital expenditure on real estate property

Cash acquired upon foreclosure of real estate property

Purchase of partnership interest in a limited partnership ( 35,862,692 ) —

Purchase of marketable securities ( 6,039,567 ) —

Proceeds from sale of marketable securities 6,023,723 —

Capital expenditures on real estate — ( 242,071 )

Net cash used in investing activities ( 78,222,218 ) ( 4,437,331 )

Cash flows from financing activities:

Proceeds from borrowings under the term loan 107,584,451 —

Proceeds from borrowings under revolving credit facility 35,000,000 16,000,000

Proceeds from borrowings under repurchase agreement 22,860,134 81,134,436

Repayments of borrowings under repurchase agreement

Repayments of obligations under participation agreements

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

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

Proceeds from secured borrowing 18,281,848 —

Distributions paid ( 21,234,391 ) ( 30,411,401 )

Proceeds from obligations under participation agreements 22,498,765 34,665,630

Change in interest reserve and other deposits held on investments

Proceeds from borrowings under revolving credit agreement

Repayments of borrowings under revolving credit agreement

Repayment of borrowings under repurchase agreement ( 103,994,570 ) ( 34,200,000 )

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

Repayment of borrowings under revolving credit facility ( 35,000,000 ) ( 16,000,000 )

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

Payment of financing costs

Change in interest reserve and other deposits held on investments ( 6,396,547 ) 1,171,501

Repayment of mortgage principal ( 594,255 ) ( 385,520 )

Proceeds from mortgage financing

Payment of financing costs ( 2,361,369 ) ( 405,673 )

Repayments of obligations under participation agreements ( 5,855,759 ) ( 46,243,595 )

Net cash provided by financing activities 52,665,381 8,945,378

Net increase (decrease) in cash, cash equivalents and restricted cash

Net (decrease) increase in cash, cash equivalents and restricted cash ( 17,629,377 ) 22,010,847

Cash, cash equivalents and restricted cash at beginning of year 50,549,700 28,538,853

Cash, cash equivalents and restricted cash at end of year ( Note 2 )

$ 32,920,323 $ 50,549,700

Terra Property Trust, Inc.

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Cash paid for interest $ 16,317,378 $ 17,308,592

Cash paid for income taxes

Supplemental Non-Cash Financing Activities:

On February 28, 2020, Terra Property Trust, Inc.

( the “Company”) entered into certain Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Terra Property Trust 2, Inc.

(“TPT2”) and Terra Secured Income Fund 7, LLC (“Terra Fund 7”), the sole stockholder of TPT2, pursuant to which, effective March 1, 2020, TPT2 was merged with and into the Company, with the Company continuing as the surviving corporation (the “Merger”).

In connection with the Merger, the Company issued 2,116,785.76 shares of common stock, par value $ 0.01 per share, were issued to Terra Fund 7 ( 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 Merger:

Total Consideration

Equity issued in the Merger $ 34,630,615

Proceeds from equity issued in the Merger 16,897,074

Net assets exchanged

Settlement of obligations under participation agreements $ 17,688,741

Interest receivable 134,543

Other assets 18,384

Accounts payable and accrued expenses ( 57,433 )

Due to Manager ( 50,694 )

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

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 REIT”) and Terra Income Fund International, and another by and among the Company, Terra Offshore 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 Terra Offshore 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 Terra Offshore REIT:

Total Consideration

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

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

Net Assets exchanged

Settlement of obligations under participation agreements $ 32,112,257

Interest receivable 270,947

Due to Manager ( 233,826 )

Net assets acquired excluding cash and cash equivalents $ 32,149,378

Terra Property Trust, Inc.

Consolidated Statements of Cash Flows (Continued)

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 6 ).

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

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 payment of the first mortgage and related fees and expenses ( Note 6 ).

The following table summarizes the carrying value of the first mortgage and the fair value of asset acquired in the transaction:

The following table summarizes the carrying value of the first mortgage and the fair value of asset acquired in the transaction as of the date of the deed in lieu of foreclosure:

Carrying Value of First Mortgage

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Assets Acquired at Fair Value

On July 30, 2018, the Company foreclosed on a multi-tenant office building encumbering a $54.0 million first mortgage in exchange for the relief of the first mortgage and related fees and expenses ( Note 4 ).

The following table summarizes the carrying value of the first mortgage and the fair value of assets acquired and liabilities assumed in the transaction:

Carrying Value of First Mortgage

Loans held for investment

Interest receivable

Restricted cash

Assets Acquired at Fair Value (Excluding Cash)

Real estate owned:

Building and building improvements

In-place lease intangible assets

Above-market rent intangible assets

Below-market rent intangible liabilities

Liabilities Assumed at Fair Value

Accounts payable and accrued expense

Unearned income

Other liabilities

Net assets acquired excluding cash

Cash acquired upon foreclosure of real estate property

Land $ 14,703,359

See notes to consolidated financial statements .

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The Company believes these loans are subject to less competition and offer higher risk adjusted returns than larger loans with similar risk/return metrics.

On January 1, 2016, Terra Secured Income Fund 5, LLC (“Terra Fund 5”), the Company’s parent, contributed its consolidated portfolio of net assets to the Company pursuant to a contribution agreement in exchange for shares of the Company’s common stock.

On January 1, 2016, Terra Secured Income Fund 5, LLC (“Terra Fund 5”), the Company’s then parent, contributed its consolidated portfolio of net assets to the Company pursuant to a contribution agreement in exchange for shares of the Company’s common stock.

Upon receipt of the contribution of the consolidated portfolio of net assets from Terra Fund 5, the Company commenced its operations on January 1, 2016 .

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 its 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 December 31, 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 REIT ( 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.

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The Company also operates its business in a manner that permits it to maintain its exclusion from registration under the Investment Company Act of 1940, as amended.

The Company’s investment activities were externally managed by Terra Income Advisors, LLC (“Terra Income Advisors”), a subsidiary of the Company’s sponsor, Terra Capital Partners, LLC (“Terra Capital Partners”), pursuant to a management agreement, under the oversight of the Company’s board of directors ( Note 6 ).

On February 8, 2018, Terra Capital Partners caused a new subsidiary of Terra Capital Partners, Terra REIT Advisors, LLC (“Terra REIT Advisors”), to be admitted as the replacement manager of the Company.

As part of the February 8, 2018 transaction, Terra Income Advisors assigned all of its rights, title and interest in and to its external management agreement to Terra REIT Advisors and immediately thereafter, Terra REIT Advisors and the Company 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 the Company in effect immediately prior to February 8, 2018, except for the identity of the manager.

When used herein the term “Manager” refers to Terra Income Advisors prior to February 8, 2018 and refers to Terra REIT Advisors beginning on February 8, 2018.

Additionally, when used herein the term “Management Agreement” refers to the original management agreement prior to February 8, 2018 and refers to the amended and restated management agreement beginning on February 8, 2018.

The Company’s investment activities are externally managed by Terra REIT Advisors, LLC (“Terra REIT Advisors” or the “Manager”), a subsidiary of the Company’s sponsor, Terra Capital Partners, LLC, pursuant to a management agreement (the “Management Agreement”), under the oversight of the Company’s board of directors ( Note 8 ).

The Company does not currently have any employees and does not expect to have any employees.

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Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S.

GAAP”) and include all of the Company’s accounts and those of its consolidated subsidiaries.

The accompanying financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-K and Articles 6 or 10 of Regulation S-X.

All intercompany balances and transactions have been eliminated.

Principles of Consolidation

The consolidated financial statements include all of the Company’s accounts and those of its consolidated subsidiaries.

All significant intercompany balances and transactions have been eliminated in consolidation.

The Company consolidates entities in which it has a controlling financial interest based on either the variable interest entity (“VIE”) or voting interest model.

The Company is required to first apply the VIE model to determine whether it holds a variable interest in an entity, and if so, whether the entity is a VIE.

If the Company determines it does not hold a variable interest in a VIE, it then applies the voting interest model.

Under the voting interest model, the Company consolidates an entity when it holds a majority voting interest in an entity.

The Company accounts for investments in which it has significant influence but not a controlling financial interest using the equity method of accounting (see Note 5 ).

An entity is considered to be a VIE if any of the following conditions exist:

(a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) the holders of the equity investment at risk, as a group, lack either the direct or indirect ability through voting rights or similar rights to make

F-10 (Preliminary and Confidential V1)

Notes to Consolidated Financial Statements

decisions that have a significant effect on the success of the entity or the obligation to absorb the entity’s expected losses or right to receive the entity’s expected residual returns, or (c) the voting rights of some equity investors are disproportionate to their obligation to absorb losses of the entity, their rights to receive returns from an entity, or both and substantially all of the entity’s activities either involve or are conducted on behalf of an investor with disproportionately few voting rights.

Under the VIE model, limited partnerships are considered VIE unless the limited partners hold substantive kick-out or participating rights over the general partner.

The Company consolidates entities that are VIEs when the Company determines it is the primary beneficiary.

Generally, the primary beneficiary of a VIE is a reporting entity that has (a) the power to direct the activities that most significantly affect the VIE’s economic performance, and (b) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE.

Loans Held for Investment

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Loans held for investment are carried at the principal amount outstanding, adjusted for the accretion of discounts on investments and exit fees, and the amortization of premiums on investments and origination fees.

The Company’s preferred equity investments, which are

Notes to Consolidated Financial Statements

economically similar to mezzanine loans and subordinate to any loans but senior to common equity, are accounted for as loans held for investment.

The Company’s preferred equity investments, which are economically similar to mezzanine loans and subordinate to any loans but senior to common equity, are accounted for as loans held for investment.

Loans are carried at cost less allowance for loan losses.

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Based on a 5-point scale, the Company’s loans are rated “1” through “5”, from less risk to greater risk, as follows:

Risk Rating Description

1 Very low risk

3 Moderate/average risk

4 Higher risk

5 Highest risk

The Company records 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.

There may be circumstances where the Company modifies a loan by granting the borrower a concession that it might not otherwise consider when a borrower is experiencing financial difficulty or is expected to experience financial difficulty in the foreseeable future.

Notes to Consolidated Financial Statements

foreseeable future.

Such concessionary modifications are classified as troubled debt restructurings (“TDR”s) unless the modification solely results in a delay in a payment that is insignificant.

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

Equity Investment in a Limited Partnership

The Company accounts for its equity interest in a limited partnership under the equity method of accounting, i.e., at cost, increased or decreased by its share of earnings or losses, less distributions, plus contributions and other adjustments required by equity method accounting.

Marketable Securities

The Company from time to time invests in short term debt and equity securities.

These securities are classified as available-for-sale and are carried at fair value.

Changes in the fair value of equity securities are recognized in earnings.

Changes in the fair value of debt securities are reported in other comprehensive income until a gain or loss on the securities is realized.

Real Estate Owned, Net

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The Company allocates the purchase price of its real estate acquisitions to land, building, tenant improvements, acquired in-place leases, intangibles for the value of any above or below market leases at fair value and to any other identified intangible assets or liabilities.

The Company amortizes the value allocated to in-place leases over the remaining

Notes to Consolidated Financial Statements

lease term, which is reported in depreciation and amortization expense on its consolidated statements of operations.

The Company amortizes the value allocated to in-place leases over the remaining lease term, which is reported in depreciation and amortization expense on its consolidated statements of operations.

The value allocated to above or below market leases are amortized over the remaining lease term as an adjustment to rental income.

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The Company uses the implicit rate when readily determinable.

The operating lease ROU asset also includes any lease payments made and excludes lease incentives if there were any.

The operating lease ROU asset also includes any lease payments made in advance and excludes lease incentives if there were any.

The Company’s lease term may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option.

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Notes to Consolidated Financial Statements

Revenue Recognition

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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.

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Real estate operating revenue is derived from leasing of space to various types of tenants.

The leases are for fixed terms of varying length and generally provide for annual rentals and expense reimbursements to be paid in monthly installments.

The leases are for fixed terms of varying length and generally provide for annual rent increases and expense reimbursements to be paid in monthly installments.

Lease revenue, or rental income from leases, is recognized on a straight-line basis over the term of the respective leases.

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All other income is recognized when earned.

Notes to Consolidated Financial Statements

Cash, Cash Equivalents and Restricted Cash

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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:

December 31, 2019

December 31, 2018

Cash and cash equivalents $ 18,607,952 $ 29,609,484

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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.

For the investments for which participation has been granted, the 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 investments for which

Notes to Consolidated Financial Statements

participation has been granted, the 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.

Interest expense from obligations under participation agreement is reversed when recovery of interest income on the related loan becomes doubtful.

See “ Obligations under Participation Agreements ” in Note 9 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

United States generally accepted accounting principles (“U.S.

GAAP”) establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs.

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 and mortgage loan payable.

Such financial instruments are carried at cost, less impairment.

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

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

Deferred Financing Costs

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These costs are presented in the consolidated balance sheets as a direct deduction of the debt liability to which the costs pertain.

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

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.

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.

In order to qualify as a REIT, the Company is required, among other things, to distribute at least 90% of its REIT net taxable income to the stockholders and meet certain tests regarding the nature of its income

Notes to Consolidated Financial Statements

As a REIT, the Company is not subject to federal income taxes on income and gains distributed to the stockholders as long as certain requirements are satisfied, principally relating to the nature of income and the level of distributions, as well as other factors.

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federal and state income taxes at regular corporate rates.

As of December 31, 2019 , the Company has satisfied all the requirements for a REIT and accordingly, no provision for federal income taxes has been included in the consolidated financial statements for the year ended months ended December 31, 2019 and 2018 .

As of December 31, 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 years ended December 31, 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 year ended months ended December 31, 2019 and 2018 , the Company did not incur any interest or penalties.

For the years ended December 31, 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.

The Company’s inception-to-date federal tax returns remain subject to examination by the Internal Revenue Service.

The Company’s 2017-2019 federal tax returns remain subject to examination by the Internal Revenue Service.

Notes to Consolidated Financial Statements

Earnings Per Share

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The preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of gains (losses), income and expenses during the reporting period.

Actual results could significantly differ from those estimates.

The most significant estimates inherent in the preparation of the Company’s consolidated financial statements is the valuation of loans.

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.

As of December 31, 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.

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 operations of non-essential offices and retail centers.

Such actions are creating disruption in global supply chains, 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.

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 December 31, 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 December 31, 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.

Segment Information

The Company’s primary business is originating, acquiring and structuring real estate-related loans related to high quality commercial real estate.

For time to time, the Company may acquire real estate encumbering the senior loans through foreclosure.

From time to time, the Company may acquire real estate encumbering the senior loans through foreclosure.

However, management treats the operations of the real estate acquired through foreclosure as the continuation of the original senior loans.

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Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”).

ASU 2016-02 outlines a new model for accounting by lessees, whereby their rights and obligations under substantially all leases, existing and new, would be capitalized and recorded on the balance sheet.

For lessors, however, the accounting remains largely unchanged from the model under ASC 840, Leases (“ASC 840”), with the distinction between operating and financing leases retained, but updated to align with certain changes to the lessee model and the new revenue recognition standard.

The new standard also replaces the sale-leaseback guidance under ASC 840 with a new model applicable to both lessees and lessors.

Additionally, the new standard requires extensive quantitative and qualitative disclosures.

ASU 2016-02 was effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

The Company adopted ASU 2016-02 on January 1, 2019 using a modified retrospective transition approach and chose not to adjust comparable periods ( Note 4 ).

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326):

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

ASU 2016-13 introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses.

In April 2019, the FASB issued additional amendments to clarify the scope of ASU 2016-13 and address issues related to accrued interest receivable balances, recoveries, variable interest

Notes to Consolidated Financial Statements

rates and prepayments, amount other things.

In May 2019, the FASB issued ASU 2019-05 — Targeted Transition Relief, which provides an option to irrevocable elect the fair value option for certain financial assets previously measured at amortized cost basis.

In April 2019, the FASB issued additional amendments to clarify the scope of ASU 2016-13 and address issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things.

In May 2019, the FASB issued ASU 2019-05 — Targeted Transition Relief, which provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis.

In October 2019, the FASB decided that for smaller reporting companies, ASU 2016-13 and related amendments will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The Company meets the definition of a smaller reporting company under the regulation of the Securities and Exchange Commission (the “SEC”).

The Company meets the definition of a smaller reporting company under the regulation of the Securities and Exchange Commission.

As such, the Company will adopt this ASU and related amendments on January 1, 2023.

Management is currently evaluating the impact of this change will have on the Company’s consolidated financial statements and disclosures.

Management is currently evaluating the impact this change will have on the Company’s consolidated financial statements and disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

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ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.

Notes to Consolidated Financial Statements

All other amendments should be applied retrospectively to all periods presented upon their effective date.

Early adoption is permitted upon issuance of ASU 2018-13.

The Company does not expect the adoption of ASU 2018-13 to have a material impact on its consolidated financial statements and disclosures.

In August 2018, the SEC adopted a final rule that eliminates or amends disclosure requirements that have become duplicative, overlapping, or outdated in light of other SEC disclosure requirements, U.S.

GAAP, or changes in the information environment (the “Final Rule”).

The Final Rule is intended to simplify and update the disclosure of information to investors and reduce compliance burdens for companies, without significantly altering the total mix of information available to investors.

Among other items, the Final Rule requires registrants to include in their interim financial statements a reconciliation of changes in net assets or stockholders’ equity in the notes or as a separate statement.

The Final Rule was effective for all filings made on or after November 5, 2018;

however, the SEC would not object if a filer’s first presentation of the changes in net assets or stockholders' equity was included in its Form 10-Q for the quarter that begins after the effective date of the Final Rule.

The Company adopted the Final Rule in the first quarter of fiscal year 2019.

The adoption of the Final Rule did not have a material impact on the Company’s consolidated financial statements and disclosures.

The Company adopted ASU 2018-13 on January 1, 2020.

The adoption of ASU 2018-13 did not have a material impact on its consolidated financial statements and disclosures.

London Interbank Offered Rate (“LIBOR”) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities.

At the end of 2021, banks will no longer be required to report information that is used to determine LIBOR.

As a result, LIBOR could be discontinued.

Other interest rates used globally could also be discontinued for similar reasons.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) — Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”).

The amendments in ASU 2020-04 provide companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued.

The provisions of optional relief include:

(i) contract modifications - account for the modification as a continuation of the existing contract without additional analysis;

(ii) hedging accounting - continue hedge accounting when certain critical terms of a hedging relationship change;

and (iii) held-to-maturity (HTM) debt securities - one-time sale and/or transfer to available for sale or trading may be made for HTM debt securities that both reference an eligible reference rate and were classified as HTM before January 1, 2020.

Companies can apply the amendments in ASU 2020-04 immediately.

However, ASU 2020-04 will only be available for a limited time (generally through December 31, 2022).

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 Terra Offshore REIT

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 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.

As a result, Terra Fund 7, the sole stockholder of TPT2, received 2,116,785.76 shares of common stock of the Company as consideration in the Merger.

The shares of common stock were issued in a private placement in reliance on Section 4(a)(2) under the Securities Act of 1933, as amended (the “Securities Act”), and the rules and regulations promulgated thereunder.

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 Merger:

Total Consideration

Equity issued in the Merger $ 34,630,615

Net Assets of TPT2 Received in the Merger

Loans held for investment acquired through participation $ 17,688,741

Cash and cash equivalents 16,897,074

Interest receivable 134,543

Other assets 18,384

Accounts payable and accrued expenses ( 57,433 )

Due to Manager ( 50,694 )

Total identifiable net assets $ 34,630,615

Notes to Consolidated Financial Statements

The fair value of the 2,116,785.76 shares of the Company’s stock issued in the Merger as consideration paid for TPT2 was derived from the fair value per share of the Company as of December 31, 2019 as adjusted to reflect the change in the net working capital of the Company during the period from January 1, 2020 through March 1, 2020, the effective time of the Merger.

In connection with the Merger, the size of the board of directors of the Company was reduced from eight directors to four directors, with Andrew M.

Axelrod, Vikram S.

Uppal, Roger H.

Beless and Michael L.

Evans continuing as directors of the Company.

Issuance of Common Stock to Terra Offshore REIT

In addition, on March 2, 2020, the Company entered into two separate contribution agreements, one by and among the Company, Terra Offshore REIT and Terra Income Fund International, and another by and among the Company, Terra Offshore 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 Terra Offshore 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.

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 Terra Offshore 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.

Total Consideration

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

Net Assets of Terra Offshore REIT Received

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

Cash and cash equivalents 8,600,000

Interest receivable 270,947

Due to Manager ( 233,826 )

Total identifiable net assets $ 40,749,378

On April 29, 2020, the Company repurchased 212,691 shares of common stock at a price of $ 17.02 per share that the Company had previously sold to Terra Offshore REIT on September 30, 2019 ( Note 8 ).

Terra JV, LLC

Prior to the completion of the Merger and the Issuance of Common Stock to Terra Offshore 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 Terra Offshore REIT.

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”).

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.

On March 2, 2020, the Company, Terra Fund 5, Terra JV and Terra REIT Advisors also entered into the Amended and Restated Voting Agreement (the “Voting Agreement”), pursuant to which Terra Fund 5 assigned its rights and obligations under the Voting Agreement to Terra JV.

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

Notes to Consolidated Financial Statements

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 December 31, 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 REIT, 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 8 , 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 Terra Offshore REIT.

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.

Loans Held for Investment

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

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Fixed Rate Floating

Rate (1)(2)(3)

Total Fixed Rate Floating

Rate (1)(2)(3)

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Carrying value $ 56,464,310 $ 365,816,205 $ 422,280,515 $ 71,469,137 $ 307,143,631 $ 378,612,768

Fair value $ 56,284,334 $ 363,122,860 $ 419,407,194 $ 71,516,432 $ 307,643,983 $ 379,160,415

Weighted-average coupon rate 12.17 % 7.95 % 8.51 % 11.93 % 9.13 % 9.65 %

Weighted-average remaining

term (years) 1.78 1.44 1.48 2.28 2.09 2.13

_______________

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

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

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

As of December 31, 2019 and 2018 , amounts included $114.8 million and $57.3 million, respectively, of senior mortgages used as collateral for $81.1 million and a $34.2 million, respectively, of borrowings under a repurchase agreement ( Note 7 ).

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.

(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, amounts 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.

Notes to Consolidated Financial Statements

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The following table presents the activities of the Company’s loan portfolio for the years ended December 31, 2020 and 2019:

Loans Held for Investment

Loans Held for Investment through Participation Interests

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

Balance, January 1, 2020 $ 375,462,222 $ 3,150,546 $ 378,612,768

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Principal repayments received ( 66,144,729 ) — ( 66,144,729 )

Deed in lieu of foreclosure of collateral (1)

PIK interest (1)

4,442,759 — 4,442,759

Net amortization of premiums on loans ( 61,391 ) — ( 61,391 )

Accrual, payment and accretion of investment-related fees, net (3)

Accrual, payment and accretion of investment-related fees and other,

net 667,060 14,395 681,455

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

Balance, December 31, 2020 $ 417,986,462 $ 4,294,053 $ 422,280,515

Loans Held for Investment

Loans Held for Investment through Participation Interests

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

Balance, January 1, 2019 $ 388,243,974 $ — $ 388,243,974

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Foreclosure of collateral (2)

( 14,325,000 ) — ( 14,325,000 )

PIK interest (1)

2,476,355 — 2,476,355

Net amortization of premiums on loans ( 104,426 ) — ( 104,426 )

Accrual, payment and accretion of investment-related fees, net (3)

( 1,903,054 ) 29,659 ( 1,873,395 )

Balance, December 31, 2019 $ 375,462,222 $ 3,150,546 $ 378,612,768

_______________

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 4 ).

(1) Certain loans in the Company’s portfolio contain PIK interest provisions.

1 unchanged sentence

PIK interest related to obligations under participation agreements amounted to $ 1.5 million and $ 0.8 million for the years ended December 31, 2020 and 2019, respectively.

Amount included $0.5 million of deferred origination fee that was previously recorded as unearned income.

(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 6 ).

(3) Amount for the year ended December 31, 2019 included $ 0.5 million of deferred origination fees that were previously recorded as unearned income.

Notes to Consolidated Financial Statements

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 December 31, 2020 and 2019:

December 31, 2019

December 31, 2018

Loan Structure

Principal Balance

Carrying Value

Principal Balance

Carrying Value

December 31, 2020 December 31, 2019

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

First mortgages $ 254,042,847 $ 255,093,989 60.5 % $ 178,130,623 $ 178,203,675 47.1 %

1 unchanged sentence

Mezzanine loans 28,541,279 28,923,140 6.8 % 42,113,654 42,671,330 11.3 %

Notes to Consolidated Financial Statements

December 31, 2019

December 31, 2018

Property Type

Principal Balance

Carrying Value

Principal Balance

Carrying Value

Allowance for loan losses — ( 3,738,758 ) ( 0.9 ) % — — — %

Total $ 424,174,758 $ 422,280,515 100.0 % $ 377,388,317 $ 378,612,768 100.0 %

December 31, 2020 December 31, 2019

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

Office $ 182,698,225 $ 183,053,751 43.3 % $ 142,055,845 $ 141,870,355 37.5 %

Multifamily 87,978,759 88,627,207 21.0 % 76,640,369 77,136,016 20.4 %

Student housing 55,294,414 55,643,591 13.2 % 58,049,717 58,553,496 15.5 %

December 31, 2019

December 31, 2018

Geographic Location

Principal Balance

Carrying Value

Principal Balance

Carrying Value

Hotel 53,392,809 53,687,304 12.7 % 46,598,011 46,731,939 12.3 %

Infill land 27,210,551 27,305,496 6.5 % 36,444,375 36,624,375 9.7 %

Condominium 10,600,000 10,701,924 2.5 % 10,600,000 10,696,587 2.8 %

Industrial 7,000,000 7,000,000 1.7 % 7,000,000 7,000,000 1.8 %

Allowance for loan losses — ( 3,738,758 ) ( 0.9 ) % — — — %

Total $ 424,174,758 $ 422,280,515 100.0 % $ 377,388,317 $ 378,612,768 100.0 %

December 31, 2020 December 31, 2019

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

United States

California $ 200,279,688 $ 200,990,328 47.6 % $ 150,988,463 $ 151,108,109 39.9 %

New York 79,187,004 79,310,276 18.8 % 79,734,323 79,896,663 21.1 %

Georgia 74,116,787 74,505,752 17.6 % 61,772,764 61,957,443 16.4 %

North Carolina 33,242,567 33,438,806 7.9 % 32,592,767 32,766,311 8.7 %

Washington 23,500,000 23,682,536 5.6 % 23,500,000 23,661,724 6.2 %

Massachusetts 7,000,000 7,000,000 1.7 % 7,000,000 7,000,000 1.8 %

Texas 3,848,712 3,887,200 0.9 % 3,500,000 3,531,776 0.9 %

Illinois — — — % 8,004,877 8,071,562 2.1 %

Kansas — — — % 6,200,000 6,251,649 1.7 %

3,000,000 3,204,375 0.8 % 4,095,123 4,367,531 1.2 %

Other includes $1.1 million unused portion of a credit facility at December 31, 2019 .

Other also includes a $3.0 million loan with collateral located in South Carolina at both December 31, 2019 and 2018 .

Allowance for loan losses — ( 3,738,758 ) ( 0.9 ) % — — — %

Total $ 424,174,758 $ 422,280,515 100.0 % $ 377,388,317 $ 378,612,768 100.0 %

_______________

(1) Other includes a $ 3.0 million loan with collateral located in South Carolina at both December 31, 2020 and 2019.

Other also includes $ 1.1 million of the unused portion of a credit facility at December 31, 2019.

Loan Risk Rating

3 unchanged sentences

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

December 31, 2019

December 31, 2018

Loan Risk Rating

Number of Loans

Principal Balance

Carrying Value

Number of Loans

Principal Balance

Carrying Value

December 31, 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

1 0 $ — $ — — % — $ — $ — — %

2 1 7,000,000 7,000,000 1.6 % 5 50,000,000 50,284,751 13.3 %

3 14 323,696,475 325,284,285 76.4 % 17 322,648,317 323,588,017 85.4 %

3 72,861,587 73,079,804 17.2 % — — — — %

1 3,848,712 3,887,200 0.9 % — — — — %

1 16,767,984 16,767,984 3.9 % 1 4,740,000 4,740,000 1.3 %

20 $ 424,174,758 426,019,273 100.0 % 23 $ 377,388,317 378,612,768 100.0 %

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

Total, net of allowance for loan losses $ 422,280,515 $ 378,612,768

_______________

(1) The increase in number of loans with a loan risk rating of “4” and “5” was due to the higher risk in select loans as a result of asset-specific factors that are particularly negatively impacted by the COVID-19 pandemic.

(2) These loans were deemed impaired and removed from the pool of loans on which a general allowance is calculated.

As of December 31, 2019 and 2018 , no specific reserve for loan losses was recorded on these loans because the fair value of the collateral was greater than carrying value for each loan.

The Company expects to recover in full the principal balance of the $4.7 million defaulted senior loan categorized as “Other” above as of December 31, 2019 .

In January 2019, the Company acquired the collateral of a defaulted $14.3 million senior loan categorized as “Other” above as of December 31, 2018 via deed in lieu of foreclosure ( Note 4 ).

As of the date of the deed in lieu of foreclosure, the appraised value of the collateral was greater than the principal amount of the senior loan.

On June 30, 2019, the Company recorded an impairment charge of $1.6 million on the collateral in order to reduce the carrying value of the collateral to its estimated fair value, which is the estimated selling price less the cost of sale ( Note 4 ).

On April 15, 2019, the second investment categorized as “Other” above as of December 31, 2018 was repaid in full.

As of December 31, 2019 and 2018 , the Company did not have any loans with a loan risk rating of “4” and “5”.

Therefore, no allowance for loan losses was recorded as of December 31, 2019 and 2018 .

For the year ended December 31, 2020, the Company recorded a specific allowance of $ 2.5 million on this loan as a result of a decline in the fair value of the collateral.

For the year ended December 31, 2019, no specific reserve for loan losses was recorded on this loan because the fair value of the collateral was greater than carrying value of the loan.

In March 2020, this loan was repaid in full.

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

The following table presents the activity in the Company’s allowance for loan losses for the years ended December 31, 2020 and 2019:

Years Ended December 31,

Allowance for loan losses, beginning of year

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

Provision for loan losses 3,738,758 —

Allowance for loan losses, end of year

Charge-offs — —

Recoveries — —

Allowance for loan losses, end of period $ 3,738,758 $ —

The allowance for loan losses reserve reflects the macroeconomic impact of the COVID-19 pandemic on commercial real estate markets generally and is not specific to any loan losses or impairments in our portfolio.

See Note 2 for further discussion of COVID-19.

Equity Investment in a Limited Partnership

On August 3, 2020, the Company entered into a subscription agreement with Terra Real Estate Credit Opportunities Fund, LP (“Terra RECO”) whereby the Company committed to fund up to $ 50.0 million to purchase a limited partnership interest in Terra RECO.

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

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

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

Notes to Consolidated Financial Statements

The Company evaluated its equity interest in Terra RECO and determined it does not have a controlling financial interest and is not the primarily beneficiary.

Accordingly, the equity interest in Terra RECO is accounted for as an equity method investment.

As of December 31, 2020, the Company owned a 90.3 %, or $ 36.3 million, of equity interest in Terra RECO.

For the year ended December 31, 2020, the Company recorded equity income from Terra RECO of $ 38,640 and did not receive any distributions from Terra RECO.

The following tables present summarized financial information of the Company’s equity investment in Terra RECO.

Amounts provided are the total amounts attributable to the investment and do not represent the Company’s proportionate share:

December 31, 2020

Investments at fair value (cost of $44,174,031) $ 44,715,979

Other assets 5,331,840

Total assets 50,047,819

Obligations under participation agreement (proceeds of $6,222,830) 6,347,478

Other liabilities 4,204,147

Total liabilities $ 10,551,625

Partners’ capital $ 39,496,194

December 31, 2020

Total investment income $ 239,837

Total expenses 614,362

Net investment loss ( 374,525 )

Unrealized appreciation on investments 417,300

Net increase in partners' capital resulting from operations $ 42,775

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 years and are 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.

4 unchanged sentences

Restricted cash applied against loan principal amount ( 60,941 )

Notes to Consolidated Financial Statements

The table below summarizes the allocation of the estimated fair value of the real estate acquired on January 9, 2019 based on the policy described in Note 2 :

Notes to Consolidated Financial Statements

Assets Acquired

Real estate owned:

Land $ 14,703,359

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

For the years ended December 31, 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.

2018 — 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.

The following table summarizes the carrying value of the first mortgage prior to the foreclosure:

Carrying Value of First Mortgage

Loans held for investment

Interest receivable

Restricted cash applied against loan principal amount

The table below summarizes the allocation of the estimated fair value of the real estate acquired based on the policy described in Note 2 :

Assets Acquired

Cash and cash equivalents

Real estate owned:

Building and building improvements (weighted-average life - 40.0 years)

In-place lease intangible assets (weighted-average life - 7.2 years)

Above-market rent intangible assets (weighted-average life - 6.9 years)

Total assets acquired

Liabilities Assumed

Lease intangible liabilities:

Below-market rent intangible liabilities (weighted-average life - 8.1 years)

Above-market ground lease (remaining life - 68.3 years)

Accounts payable and accrued expense

Unearned income

Other liabilities

Total liabilities assumed

Estimated fair value

The Company capitalized transaction costs of approximately $0.4 million to building and building improvements and reimbursed approximately $1.9 million to tenants for tenant improvements made on the property.

Notes to Consolidated Financial Statements

For the year ended December 31, 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 was the estimated selling price less the cost of sale.

Real Estate Owned, Net

1 unchanged sentence

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

December 31, 2019

December 31, 2018

Accumulated Depreciation/Amortization

December 31, 2020 December 31, 2019

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

Land $ 13,395,430 $ — $ 13,395,430 $ 13,395,430 $ — $ 13,395,430

Building and building

improvements 51,725,969 ( 3,125,143 ) 48,600,826 51,725,969 ( 1,831,980 ) 49,893,989

Tenant improvements 1,854,640 ( 670,090 ) 1,184,550 1,854,640 ( 392,812 ) 1,461,828

Furniture and fixtures 236,000 ( 31,467 ) 204,533 — — —

Total real estate 67,212,039 ( 3,826,700 ) 63,385,339 66,976,039 ( 2,224,792 ) 64,751,247

8 unchanged sentences

Total real estate $ 70,953,229 $ ( 8,024,066 ) $ 62,929,163 $ 70,717,229 $ ( 4,545,563 ) $ 66,171,666

Notes to Consolidated Financial Statements

Real Estate Operating Revenues and Expenses

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

Year Ended December 31, 2019

Year Ended December 31, 2018

Years Ended December 31,

Real estate operating revenues:

1 unchanged sentence

Other operating income 2,273,522 2,122,664

Year Ended December 31, 2019

Year Ended December 31, 2018

Total $ 10,423,563 $ 9,806,507

Real estate operating expenses:

Utilities $ 166,003 $ 191,657

Real estate taxes 1,925,999 1,194,192

3 unchanged sentences

Other operating expenses 394,299 598,047

Total $ 4,505,119 $ 3,989,911

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 and provide for annual fixed

Notes to Consolidated Financial Statements

rent increase.

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.

In addition, the Company assumed a ground lease whereby the Company is the lessee (or a tenant) to the ground lease.

The ground lease had a remaining lease term of 68.3 years and provides for a new base rent every five 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 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 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.

2 unchanged sentences

The result of the lease classification test indicated that the tenant leases and the ground lease shall be classified as operating leases on the date of foreclosure.

On January 1, 2019, the Company adopted ASU 2016-02 using a modified retrospective transition approach and chose not to adjust comparable periods ( Note 2 ).

On January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) using a modified retrospective transition approach and chose not to adjust comparable periods ( Note 2 ).

The Company elected to use the package of practical expedients for its existing leases whereby the Company did not need to reassess whether a contract is or contains a lease, lease classification and initial direct costs.

5 unchanged sentences

The Company elected to continue to amortize the remaining leasing commission through the end of the lease terms.

Notes to Consolidated Financial Statements

Scheduled Future Minimum Rent Income

Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants, under non-cancelable operating leases at December 31, 2020 are as follows:

Years Ending December 31,

Years Ending December 31, Total

2021 $ 6,628,573

2022 7,132,812

2023 7,363,647

2024 7,600,861

2025 4,111,257

Thereafter 1,199,623

Total $ 34,036,773

Scheduled Annual Net Amortization of Intangibles

Based on the intangible assets and liabilities recorded at December 31, 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)

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

Increase in Depreciation and Amortization (1)

1 unchanged sentence

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

Notes to Consolidated Financial Statements

2022 ( 338,220 ) 2,062,060 ( 130,348 ) 1,593,492

2023 ( 338,220 ) 2,062,060 ( 130,348 ) 1,593,492

2024 ( 338,220 ) 2,062,060 ( 130,348 ) 1,593,492

2025 ( 181,608 ) 1,431,245 ( 130,348 ) 1,119,289

Thereafter ( 19,911 ) — ( 7,929,522 ) ( 7,949,433 )

Total $ ( 1,554,399 ) $ 9,679,485 $ ( 8,581,262 ) $ ( 456,176 )

_______________

(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:

December 31, 2019

Operating lease

3 unchanged sentences

Weighted average discount rate — operating lease 7.9 % 7.9 %

Notes to Consolidated Financial Statements

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

Year Ended December 31, 2019

Years Ended December 31,

Operating lease cost $ 1,264,500 $ 1,265,445

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

Year Ended December 31, 2019

Years Ended December 31,

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

2 unchanged sentences

Operating leases $ 1,264,500 $ 1,265,445

Maturities of operating lease liabilities were as follows:

Years Ending December 31,

Operating Leases

2020 (Year of rent reset)

Maturities of operating lease liabilities are as follows:

Years Ending December 31, Operating Lease

2021 1,264,500

2022 1,264,500

2023 1,264,500

2024 1,264,500

2025 1,264,500

Thereafter 76,871,063

Total lease payments 83,193,563

Imputed interest ( 67,087,675 )

Total $ 16,105,888

Fair Value Measurements

2 unchanged sentences

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 of judgment used in measuring fair

Notes to Consolidated Financial Statements

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).

3 unchanged sentences

Level 3 — Significant unobservable inputs are based on the best information available in the circumstances, to the extent observable inputs are not available, including the Company’s own assumptions used in determining the fair value of investments.

Fair value for these investments are determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, and financing transactions subsequent to the acquisition of the investment.

Notes to Consolidated Financial Statements

financing transactions subsequent to the acquisition of the investment.

The inputs into the determination of fair value require significant management judgment.

2 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 December 31, 2020 and 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.

Financial Instruments Carried at Fair Value on a Recurring Basis

From time to time, the Company may invest in short-term debt and equity securities which are classified as available-for-sale securities, which are presented at fair value on the consolidated balance sheet.

Changes in the fair value of equity securities are recognized in earnings.

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 December 31, 2020, according to the fair value hierarchy:

December 31, 2020

Fair Value Measurements

Level 1 Level 2 Level 3 Total

Marketable Securities:

Equity securities $ 1,287,500 $ — $ — $ 1,287,500

Debt securities — — — —

Total $ 1,287,500 $ — $ — $ 1,287,500

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

Years Ended December 31,

Beginning balance $ — $ —

Purchases 6,039,567 —

Proceeds from sale ( 6,023,723 ) —

Realized gains on marketable securities 1,160,162 —

Unrealized gains on marketable securities 111,494 —

Ending balance $ 1,287,500 $ —

Notes to Consolidated Financial Statements

Financial Instruments Not Carried at Fair Value

As of December 31, 2019 and 2018 , the Company has not elected the fair value option for its financial instruments.

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:

December 31, 2019

December 31, 2018

Principal Amount

Carrying Value

Principal Amount

Carrying Value

December 31, 2020 December 31, 2019

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

Loans held for investment, net 3 $ 419,924,758 $ 421,725,220 $ 415,113,225 $ 374,267,430 $ 375,462,222 $ 375,956,154

2 unchanged sentences

participation, net 3 4,250,000 4,294,053 4,293,969 3,120,887 3,150,546 3,204,261

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

Total loans $ 424,174,758 $ 422,280,515 $ 419,407,194 $ 377,388,317 $ 378,612,768 $ 379,160,415

Term loan payable 3 $ 107,584,451 $ 105,245,801 $ 107,248,555 $ — $ — $ —

Obligations under participation

agreements 3 71,266,303 71,581,897 70,693,207 102,564,795 103,186,327 103,188,783

Mortgage loan payable 3 44,020,225 44,117,293 44,348,689 44,614,480 44,753,633 44,947,378

Secured borrowing 3 18,281,848 18,187,663 17,037,032 — — —

Repurchase agreement payable 3 — — — 81,134,436 79,608,437 81,134,436

Total liabilities $ 241,152,827 $ 239,132,654 $ 239,327,483 $ 228,313,711 $ 227,548,397 $ 229,270,597

The Company estimated that its other financial assets and liabilities, not included in the table above, had fair values that approximated their carrying values at both December 31, 2019 and 2018 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 December 31, 2020 and 2019 due to their short-term nature.

Valuation Process for Fair Value Measurement

The fair value of the Company’s investment in equity securities is determined based on quoted prices in an active market and is classified as Level 1 of the fair value hierarchy.

Market quotations are not readily available for the Company’s real estate-related loan investments, all of which are included in Level 3 of the fair value hierarchy, and therefore these investments are valued utilizing a yield approach, i.e.

a discounted cash flow methodology to arrive at an estimate of the fair value of each respective investment in the portfolio using an estimated market yield.

In following this methodology, investments are evaluated individually, and management takes into account, in determining the risk-adjusted discount rate for each of the Company’s investments, relevant factors, including available current market data

Notes to Consolidated Financial Statements

on applicable yields of comparable debt/preferred equity instruments;

market credit spreads and yield curves;

10 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 and repurchase agreement payable debt 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.

Notes to Consolidated Financial Statements

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 December 31, 2020 and 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 December 31, 2019

Primary Valuation Technique

Unobservable Inputs

December 31, 2019

Asset Category

Weighted Average

Loans held for investment, net

Discounted cash flow

Discount rate

Fair Value at December 31, 2020 Primary Valuation Technique Unobservable Inputs December 31, 2020

Asset Category Minimum Maximum Weighted Average

Loans held for investment, net $ 415,113,225 Discounted cash flow Discount rate 5.29 % 20.05 % 10.38 %

Loans held for investment acquired through

participation, net

Discounted cash flow

Discount rate

participation, net 4,293,969 Discounted cash flow Discount rate 12.89 % 12.89 % 12.89 %

Total Level 3 Assets $ 419,407,194

Obligations under Participation Agreements

Discounted cash flow

Discount rate

Mortgage loan payable

Discounted cash flow

Discount rate

Repurchase agreement payable

Discounted cash flow

Discount rate

Term loan payable $ 107,248,555 Discounted cash flow Discount rate 5.25 % 5.25 % 5.25 %

Obligations under Participation Agreements 70,693,207 Discounted cash flow Discount rate 9.75 % 20.05 % 12.58 %

Mortgage loan payable 44,348,689 Discounted cash flow Discount rate 6.08 % 6.08 % 6.08 %

Secured borrowing 17,037,032 Discounted cash flow Discount rate 11.25 % 11.25 % 11.25 %

Total Level 3 Liabilities $ 239,327,483

Fair Value at December 31, 2018

Primary Valuation Technique

Unobservable Inputs

December 31, 2018

Asset Category

Weighted Average

Loans held for investment, net

Discounted cash flow

Discount rate

Fair Value at December 31, 2019 Primary Valuation Technique Unobservable Inputs December 31, 2019

Asset Category Minimum Maximum Weighted Average

Loans held for investment, net $ 375,956,154 Discounted cash flow Discount rate 4.71 % 14.95 % 9.77 %

Loans held for investment acquired

through participation, net 3,204,261 Discounted cash flow Discount rate 11.90 % 11.90 % 11.90 %

Total Level 3 Assets $ 379,160,415

Obligations under Participation Agreements

Discounted cash flow

Discount rate

Mortgage loan

Discounted cash flow

Discount rate

Repurchase agreement payable

Discounted cash flow

Discount rate

Obligations under Participation Agreements $ 103,188,783 Discounted cash flow Discount rate 9.00 % 14.95 % 11.99 %

Mortgage loan 44,947,378 Discounted cash flow Discount rate 6.08 % 6.08 % 6.08 %

Repurchase agreement payable 81,134,436 Discounted cash flow Discount rate 4.11 % 4.75 % 4.33 %

Total Level 3 Liabilities $ 229,270,597

Notes to Consolidated Financial Statements

Related Party Transactions

5 unchanged sentences

Origination and extension fee expense (1)(2)

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

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

3 unchanged sentences

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.

Any excess is deferred

Notes to Consolidated Financial Statements

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 the Company’s 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.

Origination and Extension Fee Expense

Pursuant to the Management Agreement, the Manager or its affiliates receives an origination fee in the amount of 1% of the amount used to originate, fund, acquire or structure real estate-related loans, including any third-party expenses related to such loans.

Pursuant to the Management Agreement, the Manager or its affiliates receives an origination fee in the amount of 1 % of the amount used to originate, fund, acquire or structure real estate-related investments, including any third-party expenses related to such loans.

In the event that the term of any real estate-related loan held by the Company is extended, the Manager also receives an extension fee equal to the lesser of (i) 1 % of the principal amount of the loan being extended or (ii) the amount of fee paid to the Company by the borrower in connection with such extension.

6 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 December 31, 2019 , the Company has not received any breakup fees.

Notes to Consolidated Financial Statements

As of December 31, 2020 and 2019, the Company has not received any breakup fees.

Operating Expenses

The Company reimburses the Manager for operating expenses incurred in connection with services provided to the operations of the Company, including the Company’s allocable share of the Manager’s overhead, such as rent, employee costs, utilities, and technology costs.

Disposition and Extension Fee

Disposition Fee

Pursuant to the Management Agreement, the Manager or its affiliates receives a disposition fee in the amount of 1 % of the gross sale price received by the Company from the disposition of any real estate-related loan, or any portion of, or interest in, any real estate-related loan.

2 unchanged sentences

Distributions Paid

For the year ended December 31, 2019 , the Company made distributions totaling approximately $30.4 million to Terra Fund 5 and Terra International Fund 3 REIT, LLC (“Terra International Fund 3 REIT”), of which $21.4 million were returns of capital ( Note 9 ).

For the year ended December 31, 2018 , the Company made distributions totaling approximately $32.7 million to Terra Fund 5, of which $10.2 million were returns of capital ( Note 9 ).

For the year ended December 31, 2020, the Company made distributions to Terra Fund 5, Terra JV and Terra Offshore REIT in the aggregate $ 21.2 million, of which $ 16.0 million were returns of capital ( Note 11 ).

For the year ended December 31, 2019, the Company made distributions to Terra Fund 5 and Terra Offshore REIT totaling $ 30.4 million, of which $ 21.4 million were returns of capital ( Note 11 ).

Notes to Consolidated Financial Statements

Due to Manager

As of December 31, 2020 and 2019, approximately $ 1.3 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.

Terra International 3

Merger and Issuance of Common Stock to Terra Offshore REIT

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, Terra Offshore 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.

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.

As of December 31, 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 REIT;

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

Terra Real Estate Credit Opportunities Fund, LP

On August 3, 2020, the Company entered into a subscription agreement with Terra RECO whereby the Company committed to fund up to $ 50.0 million to purchase limited partnership interests in Terra RECO.

For more information on this investment, please see Note 5 .

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 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 $3.6 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.

The shares were issued in a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

Terra REIT Advisors also serves as adviser to the Terra International 3 and Terra International Fund 3 REIT.

In addition, the general partner of Terra International 3 is Terra International Fund 3 GP, LLC, which is an affiliate of Terra Fund Advisors, Terra Fund 5’s manager.

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

Pursuant to this agreement, Terra International 3, through Terra Offshore 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.

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 Terra International 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.

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.

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.

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 Terra Offshore REIT on September 30, 2019.

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

Participation Agreements

2 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.

In addition, the Company sells participation interests to affiliated international funds not less than 90 days after the origination of an investment to allow for greater diversification within the Company’s portfolio as well as sharing investment economics with the affiliate.

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

ASC 860-10 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings.

The Company has determined that the participation agreements it enters into are accounted for as secured

The Company has determined that the participation agreements it enters into are accounted for as

Notes to Consolidated Financial Statements

borrowings under ASC 860 (See “ Participation interests ” in Note 2 and “ Obligations under Participation Agreements ” in ( Note 7 ).

secured borrowings under ASC 860 (See “ Participation interests ” in Note 2 and “ Obligations under Participation Agreements ” in Note 9 ).

Participation Interests Purchased by the Company

1 unchanged sentence

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.

December 31, 2019

December 31, 2018

Participating Interests

Principal Balance

Carrying Value

Participating Interests

Principal Balance

Carrying Value

December 31, 2020 December 31, 2019

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

LD Milpitas Mezz, LP (1)

25.00 % 4,250,000 4,294,053 25.00 % 3,120,887 3,150,546

________________

(1) On June 27, 2018, the Company entered into a participation agreement with Terra Income Fund 6, Inc.

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

As of December 31, 2018 , none of the amount was funded.

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

As of December 31, 2020, all of the commitment has been funded.

Transfers of Participation Interest by the Company

2 unchanged sentences

December 31, 2020

Principal Balance

Carrying Value

% Transferred

Principal Balance (6)

Principal Balance Carrying Value % Transferred Principal Balance (6)

Carrying Value (6)

14th & Alice Street Owner, LLC (5)

2539 Morse, LLC (1)(3)

$ 32,625,912 $ 32,877,544 80.00 % $ 26,100,729 $ 26,211,548

370 Lex Part Deux, LLC (2)

Owner LLC (1)

53,874,507 53,912,363 35.00 % 18,856,078 18,856,077

City Gardens 333 LLC (2)

High Pointe Mezzanine Investments, LLC (3)

NB Private Capital, LLC (1)(2)(3)(4)

28,303,628 28,307,408 14.00 % 3,962,509 3,963,010

Orange Grove Property Investors, LLC (2)

10,600,000 10,701,924 80.00 % 8,480,000 8,561,523

RS JZ Driggs, LLC (2)

SparQ Mezz Borrower, LLC (1)(3)

8,544,513 8,629,929 50.00 % 4,272,257 4,314,965

Stonewall Station Mezz LLC (2)

10,442,567 10,537,512 44.00 % 4,594,730 4,635,937

The Bristol at Southport, LLC (5)

TSG-Parcel 1, LLC (1)(2)

23,500,000 23,682,536 21.28 % 5,000,000 5,038,837

$ 167,891,127 $ 168,649,216 $ 71,266,303 $ 71,581,897

Notes to Consolidated Financial Statements

1 unchanged sentence

December 31, 2019

Principal Balance

Carrying Value

% Transferred

Principal Balance (6)

Principal Balance Carrying Value % Transferred Principal Balance (6)

Carrying Value (6)

140 Schermerhorn Street Mezz LLC (1)(2)

17th Street Owner, LLC (1)(3)

14th & Alice Street Owner, LLC (5)

$ 12,932,034 $ 12,957,731 80.00 % $ 10,345,627 $ 10,387,090

2539 Morse, LLC (1)(3)(7)

37 Gables Member LLC (3)

7,000,000 7,067,422 40.00 % 2,800,001 2,825,519

370 Lex Part Deux, LLC (2)(4)(7)

575 CAD I LLC (1)(3)

48,349,948 48,425,659 47.00 % 22,724,476 22,724,476

Owner LLC (1)(7)

3,500,000 3,531,776 30.00 % 1,050,000 1,059,532

City Gardens 333 LLC (1)(2)(3)(4)(7)

Greystone Gables Holdings Member LLC (3)

High Pointe Mezzanine Investments, LLC (3)

28,049,717 28,056,179 47.00 % 13,182,584 13,184,648

High Pointe Mezzanine Investments,

3,000,000 3,263,285 37.20 % 1,116,000 1,217,160

NB Private Capital, LLC (1)(2)(3)(4)(7)

OHM Atlanta Owner, LLC (2)(4)

20,000,000 20,166,610 72.40 % 14,480,392 14,601,021

Orange Grove Property Investors, LLC (2)

10,600,000 10,696,587 80.00 % 8,480,000 8,557,205

RS JZ Driggs, LLC (2)

8,200,000 8,286,629 50.00 % 4,100,000 4,142,264

SparQ Mezz Borrower, LLC (1)(3)(7)

8,700,000 8,783,139 36.81 % 3,202,454 3,231,689

Stonewall Station Mezz LLC (2)

9,792,767 9,875,162 44.00 % 4,308,817 4,344,635

The Bristol at Southport, LLC (1)(3)(4)(7)

23,500,000 23,661,724 42.44 % 9,974,444 10,043,088

TSG-Parcel 1, LLC (1)(2)(7)

Windy Hill PV Seven CM, LLC (1)(3)

18,000,000 18,180,000 37.78 % 6,800,000 6,868,000

Participant is Terra Secured Income Fund 5 International, an affiliated fund advised by the Manager.

$ 201,624,466 $ 202,951,903 $ 102,564,795 $ 103,186,327

________________

(1) Participant was Terra Secured Income Fund 5 International, an affiliated fund advised by the Manager.

(2) Participant is Terra Fund 6, an affiliated fund advised by Terra Income Advisors.

Participant is Terra Income Fund International, an affiliated fund advised by the Manager.

Participant is Terra Property Trust 2, Inc., an affiliated fund managed by the Manager.

(3) Participant was Terra Income Fund International, an affiliated fund advised by the Manager.

(4) Participant was TPT2, an affiliated fund managed by the Manager.

(5) Participant is a third-party.

(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 Terra Offshore REIT, which Terra Offshore 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 Terra Offshore REIT, 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.

4 unchanged sentences

Pursuant to the PAs with these entities, the Company receives and allocates the interest income and other related investment income to the Participants based on their respective pro rata participation interest.

The 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 the Manager.

The Participants pay any expenses, including any fees to the Manager, only on their respective pro rata participation interest, subject to the terms of the respective governing fee arrangements.

Secured Borrowing

In March 2020, the Company 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 under ASC 860 and therefore, the gross amount of the loan remains in the consolidated balance sheets and the proceeds are recorded as secured borrowing.

For the loan for which a portion is transferred, the interest earned on the entire loan balance is recorded within “ Interest income ” and the interest related to the transferred interest is recorded within “ Interest expense on secured borrowing ” in the consolidated statements of operations.

Notes to Consolidated Financial Statements

The following table summarizes the loan that was transferred to a third-party that was accounted for as secured borrowing as of December 31, 2020.

Transfers Treated as Secured Borrowing as of December 31, 2020

Principal Balance Carrying Value % Transferred Principal Balance Carrying Value

Windy Hill PV Five CM, LLC $ 26,454,910 $ 26,407,494 69.11 % $ 18,281,848 $ 18,187,663

$ 26,454,910 $ 26,407,494 $ 18,281,848 $ 18,187,663

Co-investment

3 unchanged sentences

In August 2019, the loan was repaid in full.

The Company’s portion of the loan was 52.82%, or $4.7 million and was reflected as loans held for investment on the consolidated balance sheets.

The Company’s rights and obligations under the loan pertained to its portion of the loan only.

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,

Notes to Consolidated Financial Statements

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 December 31, 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 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 December 31, 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 December 31, 2020:

December 31, 2020

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

Principal Amount Carrying Value Fair

330 Tryon DE LLC $ 22,800,000 $ 22,901,294 $ 22,869,879 13,680,000

1389 Peachtree St, LP;

1401 Peachtree St, LP;

1409 Peachtree St, LP 50,808,453 51,068,554 50,982,247 29,897,848

AGRE DCP Palm Springs, LLC 45,294,097 45,506,051 45,519,030 24,894,939

MSC Fields Peachtree Retreat, LLC 23,308,334 23,437,198 23,428,860 13,985,001

Patrick Henry Recovery Acquisition, LLC 18,000,000 18,039,456 17,994,495 10,800,000

University Park Berkeley, LLC 23,990,786 24,131,808 24,162,710 14,326,663

$ 184,201,670 $ 185,084,361 $ 184,957,221 $ 107,584,451

_______________

(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 December 31, 2020 using LIBOR of 0.14 %.

(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.

For the year ended December 31, 2020, the Company received proceeds from the Term Loan of $ 107.6 million, including $ 2.4 million of Committed Advances and $ 2.2 million of discretionary advances, and made no repayments.

There was no Term Loan for the year ended December 31, 2019.

As of December 31, 2020, the remaining amount for Committed Advances and discretionary advances was $ 1.2 million and $ 9.4 million, respectively.

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, which ranges from 2.25% to 3.00%, 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.

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 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.

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

Notes to Consolidated Financial Statements

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.

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 December 31, 2019 and 2018 , 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 December 31, 2019 and 2018 , unamortized deferred financing costs were $1.5 million and $2.7 million, respectively.

The following tables present summary information with respect to the Company’s outstanding borrowing under the Master Repurchase Agreement as of December 31, 2019 and 2018 :

December 31, 2019

Amount Outstanding

Master Repurchase Agreement

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

Amount Outstanding

Master Repurchase Agreement

Arrangement Weighted

Amount Outstanding Amount

Available Weighted

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

_______________

Notes to Consolidated Financial Statements

Amount is calculated using LIBOR of 1.76% and 2.50% as of December 31, 2019 and 2018 , 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.

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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 December 31, 2019 and 2018 :

Notes to Consolidated Financial Statements

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

December 31, 2019

Borrowings Under Master Repurchase Agreement

Principal Amount

Carrying Value

Borrowing Date

Principal Amount

330 Tryon DE LLC

LIBOR+2.25% (LIBOR floor of 2.49%)

1389 Peachtree St, LP;

Collateral Borrowings Under Master Repurchase Agreement

Principal Amount Carrying Value Fair

Value Borrowing Date Principal Amount Interest

330 Tryon DE LLC $ 22,800,000 $ 22,891,149 $ 22,906,207 2/15/2019 $ 17,100,000 LIBOR+2.25% (LIBOR floor of 2.49%)

1389 Peachtree St, LP;

1401 Peachtree St, LP;

AGRE DCP Palm Springs, LLC

LIBOR+2.50% (LIBOR floor of 1.8%)

MSC Fields Peachtree Retreat, LLC

LIBOR+2.25% (LIBOR floor of 2.00%)

December 31, 2018

Borrowings Under Master Repurchase Agreement

Principal Amount

Carrying Value

Borrowing Date

Principal Amount

CGI 1100 Biscayne Management

For the year ended December 31, 2019 , the Company borrowed $81.1 million under the Master Repurchase Agreement for the financing of four first mortgages.

The borrowings bear interest at an annual rate of LIBOR plus an index ranging from 2.25% to 2.50%.

For the year ended December 31, 2019 , the Company repaid $34.2 million of borrowings under the Master Repurchase Agreement using proceeds from the repayment of a first mortgage.

The borrowings had an annual interest rate of LIBOR plus 2.50%.

1409 Peachtree St, LP 38,464,429 38,510,650 38,655,000 3/7/2019 24,040,268 LIBOR+2.35%

AGRE DCP Palm Springs, LLC 30,184,357 30,174,455 30,326,076 12/23/2019 22,638,268 LIBOR+2.50% (LIBOR floor of 1.8%)

MSC Fields Peachtree Retreat, LLC 23,308,335 23,446,793 23,418,996 3/25/2019 17,355,900 LIBOR+2.25% (LIBOR floor of 2.00%)

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

For the years ended December 31, 2020 and 2019, the Company borrowed $ 22.9 million and $ 81.1 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.

Revolving Credit Facility

On June 20, 2019, Terra LOC Portfolio I, LLC, a special-purpose indirect wholly-owned subsidiary of the Company, entered into a credit agreement with Israel Discount Bank of New York to provide for revolving credit loans of up to $35.0 million in the aggregate (“Revolving Credit Facility”), which the Company expects to use solely for short term financing needed to bridge the timing of anticipated loans repayments and funding obligations.

On June 20, 2019, Terra LOC Portfolio I, LLC, a special-purpose indirect wholly-owned subsidiary of the Company, entered into a credit agreement with Israel Discount Bank of New York to provide for revolving credit loans of up to $ 35.0 million in the aggregate (“Revolving Credit Facility”), which the Company expects 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 %.

Each loan made under the Revolving Credit Facility shall be in a minimum aggregate principal amount of the lesser of $1.0 million or the then unused amount under the facility and cannot be more than $25.0 million in the aggregate with respect to each asset purchased with the proceeds from the Revolving Credit Facility.

The Revolving Credit Facility matures on June 20, 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 December 31, 2019 , the Company had no outstanding borrowings under the Revolving Credit Facility.

The Revolving Credit Facility requires the Company to maintain:

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

The Revolving Credit Facility was amended to extend the maturity to October 2, 2020.

On October 2, 2020, the Company amended the Revolving Credit Facility and reduced the commitment amount to $ 15.0 million.

In connection with this amendment, the interest rate was changed to prime rate plus 1 % or LIBOR plus 4 % with a floor of 4.5 % and the maturity was extended to September 2, 2021 .

On March 16, 2021, the Revolving Credit Facility was terminated.

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 December 31, 2020, there was no amount outstanding under the Revolving Credit Facility.

The Revolving Credit Facility required the Company to maintain:

(i) an EBITDA to interest expense ratio of not less than 1.00 ;

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and (iii) a total indebtedness to tangible net worth ratio of not more than 1.75 to 1.00.

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

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

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

For the years ended December 31, 2020 and 2019, the Company borrowed $ 35.0 million and $ 16.0 million under the Revolving Credit Facility, respectively, and made repayments of $ 35.0 million and $ 16.0 million, respectively.

Notes to Consolidated Financial Statements

For the year ended December 31, 2019 , the Company borrowed $16.0 million under the Revolving Credit Facility for the funding commitment of two first mortgages, all of which was repaid in the same period.

The borrowing had an annual interest rate of prime rate plus 1%.

Mortgage Loan Payable

As of December 31, 2019 , the Company had a $45.0 million mortgage loan payable collateralized by a multi-tenant office building that the Company acquired through foreclosure ( Note 4 ).

As of December 31, 2020, the Company had a $ 44.0 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 December 31, 2020 and 2019:

December 31, 2019

December 31, 2018

Interest Rate

Principal Amount

Carrying Value

Carrying Value of

Carrying Value

Carrying Value of

Centennial Bank

LIBOR + 3.85%

(LIBOR Floor of 2.23%)

September 27, 2020

December 31, 2020 December 31, 2019

Lender Current

Interest Rate Maturity

Principal Amount Carrying Value Carrying Value of

Collateral Carrying Value Carrying Value of

Centennial Bank LIBOR + 3.85%

(LIBOR Floor of 2.23%) September 27, 2022 $ 44,020,225 $ 44,117,293 $ 49,533,733 $ 44,753,633 $ 52,776,236

_______________

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.

(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 December 31, 2020 are as follows:

Years Ending December 31,

Years Ending December 31, Total

2022 44,020,225

2025 107,584,451

Unamortized deferred financing costs ( 2,241,582 )

At December 31, 2018 , the unamortized deferred financing costs were $2.8 million.

Obligations Under Participation Agreements

As discussed in Note 2 , the Company follows the guidance in ASC 860 when accounting for loan participations.

Such guidance requires participation interests meet certain criteria in order for the interest transaction to be recorded as a sale.

Total $ 149,363,094

At December 31, 2020 and 2019, the unamortized deferred financing costs were $ 2.2 million and $ 1.4 million, respectively.

Obligations Under Participation Agreements and Secured Borrowing

As discussed in Note 2 , the Company follows the guidance in ASC 860 when accounting for loan participations and loans sold.

Such guidance requires the transferred interests meet certain criteria in order for the transaction to be recorded as a sale.

Loan participations and loans transferred 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 or secured borrowing, as applicable.

As of December 31, 2020 and 2019, obligations under participation agreements had a carrying value of approximately $ 71.6 million and $ 103.2 million, respectively, and the carrying value of the loans that are associated with these obligations under participation agreements was approximately $ 168.6 million and $ 203.0 million, respectively, (see “ Participation Agreements ” in Note 8 ).

The weighted-average interest rate on the obligations under participation agreements was approximately 11.8% and 12.2% as of December 31, 2019 and 2018 , respectively.

Additionally, as of December 31, 2020, secured borrowing had a carrying value of approximately $ 18.2 million and the carrying value of the loan that is associated with the secured borrowing was $ 26.4 million.

The weighted-average interest rate on the obligations under participation agreements and secured borrowing was approximately 10.2 % and 11.8 % as of December 31, 2020 and 2019, respectively.

Commitments and Contingencies

Impact of COVID-19

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 December 31, 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.

Notes to Consolidated Financial Statements

Unfunded Commitments on Loans Held for Investment

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 $ 67.9 million and $ 116.7 million as of December 31, 2020 and 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.

Notes to Consolidated Financial Statements

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.

Unfunded Investment Commitment

As discussed in Note 8 , On August 3, 2020, the Company entered into a subscription agreement with Terra RECO whereby the Company committed to fund up to $ 50.0 million to purchase limited partnership interests in Terra RECO.

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

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

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Years Ended December 31,

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

Preferred stock dividend declared ( 15,624 ) ( 15,624 )

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

Weighted-average shares outstanding - basic and

Weighted-average shares outstanding — basic and diluted 18,813,066 14,967,183

Earnings per share — basic and diluted $ 0.28 $ 0.60

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Series A Preferred Stock

On November 30, 2016, the Company’s board of directors classified and designated 125 shares of preferred stock as a separate class of preferred stock to be known as the 12.5% Series A Redeemable Cumulative Preferred Stock, $1,000 liquidation value per share (“Series A Preferred Stock”).

On November 30, 2016, the Company’s board of directors classified and designated 125 shares of preferred stock as a separate class of preferred stock to be known as the 12.5 % Series A Redeemable Cumulative Preferred Stock, $ 1,000

Notes to Consolidated Financial Statements

liquidation value per share (“Series A Preferred Stock”).

In December 2016, the Company sold 125 shares of the Series A Preferred Stock for $ 125,000 .

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and (iii) any reclassification of the Series A Preferred Stock.

On September 30, 2019, the Company issued 212,691 shares of its common stock to Terra International Fund 3 REIT, an affiliate managed by the Manager, at a price of $17.02 per share for total proceeds of $3.6 million .

As of December 31, 2019 , the

Notes to Consolidated Financial Statements

Company had 15,125,681 shares of common stock issued and outstanding, of which Terra Fund 5 owned 14,912,990 shares, or 98.6%, and Terra International Fund 3 REIT owned 212,691 shares, or 1.4%.

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

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, the Company issued 2,457,684.59 shares of common stock of the Company in exchange for the settlement of certain participation interests in loans held by the Company and cash.

On September 30, 2019, the Company issued 212,691 shares of its common stock to Terra Offshore 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 Terra Offshore REIT ( Note 7 ).

Distributions

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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.

For the year ended December 31, 2019 , the Company made distributions totaling approximately $30.4 million to Terra Fund 5 and Terra International Fund 3 REIT, of which $21.4 million were returns of capital.

For the year ended December 31, 2018 , the Company made distributions totaling approximately $32.7 million to Terra Fund 5, of which $10.2 million were returns of capital.

For the year ended December 31, 2020, the Company made distributions to Terra Fund 5, Terra JV and Terra Offshore REIT in the aggregate of $ 21.2 million, of which $ 16.0 million were returns of capital.

For the year ended December 31, 2019, the Company made distributions to Terra Fund 5 and Terra Offshore REIT totaling $ 30.4 million, of which $ 21.4 million were returns of capital.

Additionally, for both the years ended December 31, 2020 and 2019, the Company made distributions to preferred stockholders of $ 15,624 .

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The following table presents distributions per share, declared and paid during the years ended December 31, 2020 and 2019, reported for federal tax purposes and serves as a designation of capital gain distributions, if applicable, pursuant to Section 857(b)(3)(C) of the Internal Revenue Code and Treasury Regulation § 1.857-6(e):

Distributions Paid

Years Ended December 31,

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Return of capital 0.68 1.25

$ 1.16 $ 2.03

Notes to Consolidated Financial Statements

Subsequent Events

Management has evaluated subsequent events through the date the consolidated financial statements were available to be issued.

Management has determined that there are no material events other than the ones below that would require adjustment to, or disclosure in, the Company’s consolidated financial statements.

On February 27, 2020, the board of directors of the Company approved the potential acquisition by the Company of Terra Property Trust 2, Inc.

As of December 31, 2019, TPT2’s assets consisted of approximately $17.5 million of participation interests in loans also held by the Company and approximately $17.6 million in cash.

The transaction, if consummated, is expected to be structured as a merger pursuant to which TPT2 will be merged with and into the Company, with the Company continuing as the surviving company (the “Merger”).

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 is expected to be 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 is expected to be 1.20.

The exchange ratio will be based on the relative net asset values of the Company and TPT2.

As a result, Terra Secured Income Fund 7, LLC, the sole stockholder of TPT2, is expected to receive approximately 2,110,102 shares of common stock of the Company as consideration in the Merger.

In addition, each issued and outstanding share of TPT2’s 12.5% Series A Redeemable Cumulative Preferred Stock will be converted into the right to receive approximately $1,026 in cash.

In connection with the Merger, the size of the board of directors of the Company is expected to be reduced from eight directors to four directors, with Andrew M.

Axelrod, Vikram S.

Uppal, Roger H.

Beless and Michael L.

Evans continuing as directors of the Company.

The consummation of the Merger is subject to the execution by the parties of a definitive agreement and certain other conditions, and there can be no assurance that the transaction will be completed.

In addition, on February 27, 2020, the board of directors of the Company approved the potential acquisition by the Company of approximately $32.0 million of participation interests in loans also held by the Company and approximately $9.2 million in cash (collectively, the “Assets”) from Terra International Fund 3 REIT, all of which will be acquired from Terra Secured Income Fund 5 International and Terra Income Fund International.

If the transaction is consummated, the Company expects to issue to Terra International Fund 3 REIT approximately 2,481,020 shares of common stock of the Company at a price per share equal to $16.58 in exchange for the Assets.

The shares of common stock will be issued in a private placement in reliance on Section 4(a)

Notes to Consolidated Financial Statements

(2) under the Securities Act, as amended, and the rules and regulations promulgated thereunder.

The consummation of the transaction is subject to the execution by the parties of a definitive agreement and certain other conditions, and there can be no assurance that the transaction will be completed.

Management has determined that there are no material events other than the one below that would require adjustment to, or disclosure in, the Company’s consolidated financial statements.

On March 12, 2021, Terra Mortgage Portfolio II, LLC, an indirect wholly-owned subsidiary of the Company, entered into a Business Loan and Security Agreement (the “Revolving Line of Credit”) with Western Alliance Bank (“WAB”) to provide for advances up to the lesser of $ 75.0 million or the amount determined by the borrowing base, which is based on the eligible assets pledged to the lender.

Borrowings under the Revolving Line of Credit bear interest at an annual rate of LIBOR + 3.25 % with a combined floor of 4.0 % per annum.

The Revolving Line of Credit matures on March 12, 2023 with an annual 12-month extension available at the Company’s option, which are subject to certain conditions.

In connection with the Revolving Line of Credit, the Company entered into a limited guaranty (the “Guaranty”) in favor of WAB, pursuant to which the Company will guarantee the payment of up to 25 % of the amount outstanding under the Revolving Line of Credit.

Under the Revolving Line of credit and the Guaranty, the Company will be required to maintain (i) a minimum total net worth of $ 250.0 million;

(ii) a $ 2.0 million quarterly operating profit;

and (iii) a ratio of total debt to total net worth of no more than 2.50 to 1.00.

The Revolving Line of Credit contains terms, conditions, covenants, and representations and warranties that are customary and typical for a transaction of this nature.

The Revolving Line of Credit also includes customary events of default, including a cross-default provision applicable to debt obligations of Terra Mortgage Portfolio II, LLC or the Company.

The occurrence of an event of default may result in termination of the Revolving Line of Credit and acceleration of amounts due under the Revolving Line of Credit.

In connection with the closing of the Revolving Line of Credit, the Company pledged a $ 11.5 million first mortgage to the borrowing base and drew down $ 8.0 million on the Revolving Line of Credit.

Terra Property Trust, Inc.

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As of December 31, 2020

Initial Costs

Cost Capitalized Subsequent to Acquisition

Decrease in Net Investment (1)

Initial Costs Cost Capitalized Subsequent to Acquisition Decrease in Net Investment (1)

Gross Amount at Period End

Building and Building Improvements

Accumulated Depreciation

Date of Construction

Date Acquired

Life Used for Depreciation

Description Encumbrance Land Building, Building Improvements and Furniture and Fixtures Land Building, Building Improvements and Furniture and Fixtures Total Accumulated Depreciation Date of Construction Date Acquired Life Used for Depreciation

Office building

July 30, 2018

Conshohocken, PA

January 9, 2019

Monica, CA $ 44,020,225 $ — $ 51,308,076 $ 2,508,533 $ — $ — $ 53,816,609 $ 53,816,609 $ 3,826,700 2002-2004 July 30, 2018 40 years

Conshohocken, PA — 14,703,359 — 242,071 ( 1,550,000 ) 13,395,430 — 13,395,430 — N/A January 9, 2019 N/A

$ 44,020,225 $ 14,703,359 $ 51,308,076 $ 2,750,604 $ ( 1,550,000 ) $ 13,395,430 $ 53,816,609 $ 67,212,039 $ 3,826,700

___________________________

(1) For the year ended December 31, 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.

At December 31, 2020, the aggregate cost of real estate for federal income tax purposes was $ 57.6 million.

The changes in total real estate assets and accumulated depreciation for the year ended December 31, 2020 are as follows:

Real Estate Asset

Accumulated Depreciation

December 31, 2019

Real Estate Asset Accumulated Depreciation

December 31, 2020 Year Ended

December 31, 2020

Balance, beginning of year

Acquisition through foreclosure

Depreciation for the year

Balance, end of year

Balance, beginning of year $ 66,976,039 Balance, beginning of year $ 2,224,792

Acquisition through foreclosure — Depreciation for the year 1,601,908

Improvements 236,000 Balance, end of year $ 3,826,700

Impairment charge —

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Portfolio Company (1)

Collateral Location

Property Type

Interest Payment Rates

Maximum Maturity Date (2)

Periodic Payment Terms

Carrying Amount

Collateral Location Property Type Interest Payment Rates Maximum Maturity Date (2)

Periodic Payment Terms Prior Liens Face Amount Carrying Amount

Mezzanine Loans:

150 Blackstone River Road, LLC

Interest Only

2539 Morse, LLC (3)(4)(5)

Interest Only

150 Blackstone River Road, LLC US - MA Industrial 8.5 % 9/6/2027 Interest Only $ — $ 7,000,000 $ 7,000,000

Owner LLC (3)

Interest Only

US - TX Hotel 12.5 % 10/6/2020 Interest Only — 3,848,712 3,887,200

High Pointe Mezzanine Investments, LLC (4)

Interest Only

US - SC Student

housing 15.0 % 1/6/2024 Interest Only — 3,000,000 3,204,375

LD Milipitas Mezz, LLC (5)

LIBOR +10.25% (2.75% Floor)

Interest Only

SparQ Mezz Borrower, LLC (3)(4)(5)

Interest Only

US - CA Hotel LIBOR +10.25% (2.75% Floor) 6/27/2023 Interest Only — 4,250,000 4,294,053

Stonewall Station Mezz LLC (4)(6)(7)

12.0% current

Interest Only

US - NC Land 12.0% current

2.0% PIK 5/31/2023 Interest Only — 10,442,567 10,537,512

— 28,541,279 28,923,140

First Mortgages:

14th & Alice Street Owner, LLC (6)(8)

LIBOR + 5.75% (3.25% Floor)

Interest Only

US - CA Multifamily LIBOR + 5.75% (3.25% Floor) 3/5/2022 Interest Only — 32,625,912 32,877,544

1389 Peachtree St, LP;

1 unchanged sentence

1409 Peachtree St, LP (9)

Interest Only

US - GA Office LIBOR + 4.5% 3/10/2024 Interest Only — 50,808,453 51,068,554

330 Tryon DE LLC (9)

LIBOR + 3.85% (2.51% Floor)

Interest Only

US - NC Office LIBOR + 3.85% (2.51% Floor) 3/1/2024 Interest Only — 22,800,000 22,901,294

870 Santa Cruz, LLC US - CA Office LIBOR + 6.75% (0.5% Floor) 12/15/2025 Interest Only — 10,760,355 10,724,590

AGRE DCP Palm Springs, LLC (9)(10)

LIBOR +4.75% (1.80% Floor)

Interest Only

US - CA Hotel LIBOR +4.75% (1.8% Floor) 1/1/2025 Interest Only — 45,294,097 45,506,051

MSC Fields Peachtree Retreat, LLC (9)

LIBOR + 3.85% (2.0% Floor)

Interest Only

US - GA Multifamily LIBOR + 3.85% (2.0% Floor) 4/1/2024 Interest Only — 23,308,334 23,437,198

Patrick Henry Recovery Acquisition, LLC (9)

LIBOR + 2.95% (1.5% Floor)

Interest Only

REEC 286 Lenox LLC

LIBOR + 2.95%

Interest Only

TSG-Parcel 1, LLC (3)(5)(6)

LIBOR + 10.0% (2.0% Floor)

Interest Only

US - CA Office LIBOR + 2.95% (1.5% Floor) 12/1/2024 Interest Only — 18,000,000 18,039,456

University Park Berkeley, LLC (9)(11)

US - CA Student

housing LIBOR + 4.2% (1.5% Floor) 3/5/2025 Interest Only — 23,990,786 24,131,808

Windy Hill PV Five CM, LLC (12)

LIBOR + 6.0% (2.05% Floor)

Interest Only

US - CA Office LIBOR + 6.0% (2.05% Floor) 9/20/2023 Interest Only — 26,454,910 26,407,494

— 254,042,847 255,093,989

Terra Property Trust, Inc.

2 unchanged sentences

Portfolio Company (1)

Collateral Location

Property Type

Interest Payment Rates

Maximum Maturity Date (2)

Periodic Payment Terms

Carrying Amount

Collateral Location Property Type Interest Payment Rates Maximum Maturity Date (2)

Periodic Payment Terms Prior Liens Face Amount Carrying Amount

Preferred equity investments:

370 Lex Part Deux, LLC (6)(7)

LIBOR + 8.25% (2.44% Floor)

Interest Only

US - NY Office LIBOR + 8.25% (2.44% Floor) 1/9/2025 Interest Only — 53,874,507 53,912,363

City Gardens 333 LLC (6)(7)

LIBOR + 9.95% (2.0% Floor)

Interest Only

NB Private Capital, LLC (3)(4)(5)(6)(7)

LIBOR +10.5% (3.5% Floor)

Interest Only

US - CA Student housing LIBOR + 9.95% (2.0% Floor) 4/1/2023 Interest Only — 28,303,628 28,307,408

Orange Grove Property Investors, LLC (6)(7)

LIBOR + 8.0% (4.0% Floor)

Interest Only

REEC Harlem Holdings Company LLC

LIBOR + 12.5%

Interest Only

US - CA Condominium LIBOR + 8.0% (4.0% Floor) 6/1/2022 Interest Only — 10,600,000 10,701,924

REEC Harlem Holdings Company LLC US - NY Land LIBOR + 12.5% 3/9/2025 Interest Only — 16,767,984 16,767,984

RS JZ Driggs, LLC (6)(7)(13)

Interest Only

US - NY Multifamily 12.3 % 8/1/2021 Interest Only — 8,544,513 8,629,929

The Bristol at Southport, LLC (6)(8)

Interest Only

US - WA Multifamily 12.0 % 9/22/2022 Interest Only — 23,500,000 23,682,536

— 141,590,632 142,002,144

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

Total investments $ — $ 424,174,758 $ 422,280,515

2 unchanged sentences

(2) Maximum maturity date assumes all extension options are exercised.

The Company sold a portion of its interest in this loan through a participation agreement to Terra Secured Income Fund 5 International, an affiliated fund advised by the Manager ( Note 6 ).

The Company sold a portion of its interest in this loan through a participation agreement to Terra Income Fund International, an affiliated fund advised by the Manager ( Note 6 ).

(3) This loan is currently past due.

The Company is currently evaluating the options of recovering the principal amount, including foreclosing on the collateral.

The latest appraisal the Company received in August 2020 indicates that the value of the collateral is sufficient to recover the principal amount.

(4) The Company entered into a forbearance agreement with the borrower to allow for more time to make the interest payment.

(5) On June 27, 2018, the Company entered into a participation agreement with Terra Income Fund 6, Inc.

to purchase a 25 % interest, or $ 4.3 million, in a mezzanine loan.

(6) The loan participations from the Company do not qualify for sale accounting under ASC 860 and therefore, the gross amount of these loans remain in Schedule IV.

1 unchanged sentence

(7) The Company sold a portion of its interest in this loan through a participation agreement to Terra Income Fund 6, Inc., an affiliated fund advised by the Terra Income Advisors, an affiliate of the Company’s sponsor and Manager ( Note 8 ).

The Company sold a portion of its interest in this loan through a participation agreement to Terra Property Trust 2, Inc., an affiliated fund managed by a subsidiary of the Manager ( Note 6 ).

On June 27, 2018, the Company entered into a participation agreement with Terra Income Fund 6, Inc.

to purchase a 25% interest, or $4.3 million, in a mezzanine loan.

As of December 31, 2019 , the unfunded commitment was $1.1 million.

(8) The Company sold a portion of its interest in this loan to a third-party through a participation agreement ( Note 8 ).

These loans were used as collateral for $81.1 million borrowing under a repurchase agreement ( Note 7 ).

(9) These loans were used as collateral for $ 107.6 million borrowing under a term loan ( Note 9 ).

(10) In July 2020, the Company amended the loan agreement to change the interest rate to PIK 15 % for the period from July 2020 through January 2021.

(11) In December 2020, the Company entered into a forbearance agreement with the borrower pursuant to which interest is accrued on the loan during the 90-day forbearance period from November 2020 to January 2021.

In connection with entering into the forbearance agreement, the spread on the interest rate was increased to 4.2 % and the exit fee was increased to 0.75 %.

(12) In March 2020, the Company entered into a financing transaction where a third-party purchased an A-note position.

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

The liability is reflected as secured borrowing in the consolidated balance sheets.

(13) This loan is currently past due.

Given the loan is in default, the Company issued a demand notice and is currently in control of the sale process.

The Company expects the sales proceeds to repay the principal in full.

Terra Property Trust, Inc.

3 unchanged sentences

on Real Estate

Year Ended December 31, 2019

December 31, 2020

Balance, beginning of year $ 378,612,768

1 unchanged sentence

New mortgage loans 108,488,411

Reversal of provision for loan losses

PIK interest 4,442,759

Accrual, payment and accretion of exit fees, net 681,455

Deductions during the period:

Collections of principals ( 66,144,729 )

Accrual, payment and accretion of exit fees, net

Amortization of premium ( 61,391 )

Foreclosure or deed in lieu of collateral (1)

Provision for loan losses ( 3,738,758 )

Balance, end of year $ 422,280,515

_______________

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.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

February 28, 2020

March 18, 2021

TERRA PROPERTY TRUST, INC.

6 unchanged sentences

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title Date

/s/ Andrew M.

Chairman of the Board

February 28, 2020

Vice Chairman of the Board

February 28, 2020

Axelrod Chairman of the Board March 18, 2021

/s/ Vikram S.

Director and, Chief Executive Officer

February 28, 2020

( Principal Executive Officer )

Uppal Director and Chief Executive Officer March 18, 2021

Uppal (Principal Executive Officer)

/s/ Gregory M.

Chief Financial Officer, Chief Operating Officer, Treasurer and Secretary ( Principal Financial and Accounting Officer )

February 28, 2020

/s/ Jeffrey M.

February 28, 2020

Pinkus Chief Financial Officer, Chief Operating Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)

March 18, 2021

Beless Director March 18, 2021

/s/ Michael L.

February 28, 2020

/s/ Spencer E.

February 28, 2020

Evans Director March 18, 2021

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 9A. Controls and Procedures