What changed in this filing

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Item 1. Financial Statements

2021-08-12 compared with 2021-05-13 · 468 added, 312 removed, 1419 unchanged (35% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Cash and cash equivalents $ 88,293,082 $ 18,607,952

14 unchanged sentences

Term loan payable, net of deferred financing fees $ 104,925,595 $ 105,245,801

Unsecured notes payable, net of debt issuance cost 81,622,637 —

Obligations under participation agreements ( Note 8 )

12 unchanged sentences

Unearned income 688,226 677,856

Distributions payable 3,906 —

Other liabilities 975,441 429,123

1 unchanged sentence

Commitments and contingencies ( Note 10 )

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

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

both March 31, 2021 and December 31, 2020 125,000 125,000

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 preference,

125 shares authorized and 125 shares issued and outstanding at both June 30,

2021 and December 31, 2020 125,000 125,000

Common stock, $0.01 par value, 450,000,000 shares authorized and 19,487,460

19,487,460 shares issued and outstanding at both March 31, 2021 and

December 31, 2020, respectively 194,875 194,875

shares issued and outstanding at both June 30, 2021 and December 31, 2020,

respectively 194,875 194,875

Additional paid-in capital 373,443,672 373,443,672

5 unchanged sentences

Consolidated Statements of Operations

Three Months Ended March 31,

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

2021 2020 2021 2020

Interest income $ 8,750,466 $ 9,585,175 $ 16,871,415 $ 19,237,040

15 unchanged sentences

Other income and expenses

Interest expense from obligations under participation agreements ( 1,880,081 ) ( 2,560,267 )

Interest expense from obligations under participation

agreements ( 2,772,801 ) ( 1,823,121 ) ( 4,652,882 ) ( 4,383,388 )

Interest expense on repurchase agreement payable — ( 1,469,669 ) — ( 3,020,939 )

2 unchanged sentences

Interest expense on term loan payable ( 1,646,182 ) — ( 3,318,950 ) —

Interest expense on unsecured notes payable ( 336,861 ) — ( 336,861 ) —

Interest expense on secured borrowing ( 334,905 ) ( 169,622 ) ( 634,710 ) ( 210,113 )

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

Net change in unrealized losses on marketable securities ( 14,608 ) —

Net loss on extinguishment of obligations under

participation agreements — — — ( 319,453 )

Net change in unrealized gains on marketable securities 248,874 67,522 234,266 67,522

Income from equity investment in a limited partnership 1,400,839 — 2,738,666 —

1 unchanged sentence

( 4,260,546 ) ( 3,668,419 ) ( 7,493,977 ) ( 9,056,631 )

Net income $ 1,476,096 $ 578,963

Net (loss) income $ ( 104,771 ) $ 2,646,042 $ 1,371,325 $ 3,225,005

Series A preferred stock dividend declared ( 3,906 ) ( 3,906 ) ( 7,812 ) ( 7,812 )

Net income allocable to common stock $ 1,472,190 $ 575,057

Earnings per share — basic and diluted

Net (loss) income allocable to common stock $ ( 108,677 ) $ 2,642,136 $ 1,363,513 $ 3,217,193

(Loss) earnings per share — basic and diluted

$ ( 0.01 ) $ 0.14 $ 0.07 $ 0.18

5 unchanged sentences

Consolidated Statements of Comprehensive Income

Three Months Ended March 31,

Comprehensive income, net of tax

Net income $ 1,476,096 $ 578,963

Other comprehensive income

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

2021 2020 2021 2020

Comprehensive (loss) income, net of tax

Net (loss) income $ ( 104,771 ) $ 2,646,042 $ 1,371,325 $ 3,225,005

Other comprehensive loss

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

Reclassification of net realized gains on marketable securities into earnings — ( 8,894 )

Total comprehensive income $ 1,476,096 $ 762,988

Reclassification of net realized gains on marketable

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

— ( 184,025 ) — —

Total comprehensive (loss) income $ ( 104,771 ) $ 2,462,017 $ 1,371,325 $ 3,225,005

Series A preferred stock dividend declared ( 3,906 ) ( 3,906 ) ( 7,812 ) ( 7,812 )

Comprehensive income attributable to common shares $ 1,472,190 $ 759,082

Comprehensive (loss) income attributable to

common shares $ ( 108,677 ) $ 2,458,111 $ 1,363,513 $ 3,217,193

See notes to unaudited consolidated financial statements.

10 unchanged sentences

Net income — — — — — — 1,476,096 — 1,476,096

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

Reclassification of net realized gains on marketable securities

into earnings — — — — — — — — —

Balance at March 31, 2021 — 125 125,000 19,487,460 194,875 373,443,672 ( 72,859,887 ) — 300,903,660

Distributions declared on common shares ($0.23 per share) — — — — — — ( 4,429,352 ) — ( 4,429,352 )

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

Comprehensive loss:

Net loss — — — — — — ( 104,771 ) — ( 104,771 )

Balance at June 30, 2021 $ — 125 $ 125,000 19,487,460 $ 194,875 $ 373,443,672 $ ( 77,397,916 ) $ — $ 296,365,631

See notes to unaudited consolidated financial statements .

Terra Property Trust, Inc.

Consolidated Statements of Changes in Equity

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

13 unchanged sentences

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

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

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

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

Comprehensive income:

— — — — — — —

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

Reclassification of net realized gains on marketable securities

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

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

See notes to unaudited consolidated financial statements .

1 unchanged sentence

Consolidated Statements of Cash Flows (Unaudited)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

Net income $ 1,371,325 $ 3,225,005

Adjustments to reconcile net income to net cash (used in) provided by operating

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

Paid-in-kind interest income, net ( 383,089 ) ( 736,204 )

4 unchanged sentences

Amortization of deferred financing costs 428,411 1,109,771

Amortization of discount on unsecured notes payable 31,035 —

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

2 unchanged sentences

Amortization of above-market rent ground lease ( 65,175 ) ( 65,174 )

Unrealized gains on marketable securities 14,608 —

Realized gains on marketable securities — ( 1,085,107 )

Net change in unrealized gains on marketable securities ( 234,266 ) ( 67,522 )

Income from equity investment in a limited partnership ( 2,738,666 ) —

7 unchanged sentences

Other liabilities 546,318 ( 605,172 )

Net cash (used in) provided by operating activities ( 1,757,148 ) 3,377,515

Net cash provided by operating activities 127,264 4,974,655

Cash flows from investing activities:

11 unchanged sentences

Proceeds from secured borrowing 7,569,135 9,534,957

Proceeds from issuance of unsecured notes payable, net of discount 82,464,844 —

Proceeds from obligations under participation agreements 54,550,858 15,282,905

4 unchanged sentences

Repayment of borrowings under repurchase agreement — ( 3,395,740 )

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

Proceeds from borrowings under repurchase agreement — 17,617,665

1 unchanged sentence

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

Net cash (used in) provided by financing activities ( 2,797,401 ) 74,865,456

Net (decrease) increase in cash, cash equivalents and restricted cash ( 5,320,264 ) 49,931,719

Net cash provided by financing activities 127,988,731 81,856,714

Net increase in cash, cash equivalents and restricted cash 71,816,691 52,395,600

Cash, cash equivalents and restricted cash at beginning of period 32,920,323 50,549,700

3 unchanged sentences

Consolidated Statements of Cash Flows (Continued)

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental Disclosure of Cash Flows Information:

4 unchanged sentences

(“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 ).

In connection with the Merger, the Company issued 2,116,785.76 shares of common stock, par value $ 0.01 per share, 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:

9 unchanged sentences

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 (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 ).

In addition, on March 2, 2020, the Company entered into two separate contribution agreements, (i) by and among the Company, Terra Offshore Funds REIT, LLC (the “Terra Offshore REIT”) and Terra Income Fund International, and (ii) 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:

10 unchanged sentences

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2021

June 30, 2021

Terra Property Trust, Inc.

3 unchanged sentences

The Company focuses on the origination of middle market loans in the approximately $ 10 million to $ 50 million range, to finance properties in primary and secondary markets.

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 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.

1 unchanged sentence

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 March 31, 2021, 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 ).

As of June 30, 2021, 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.

5 unchanged sentences

On April 1, 2021, Mavik Capital Management, LP (“Mavik”), an entity controlled by Vikram S.

Uppal, the Chief Executive Officer of the Company, completed a series of related transactions that resulted in all of the outstanding interests in Terra Capital Partners, LLC, being acquired by Mavik for a combination of cash and interests in Mavik (the “Recapitalization”).

Uppal, the Chief Executive Officer of the Company, completed a series of related transactions that resulted in all of the outstanding interests in Terra Capital Partners, being acquired by Mavik for a combination of cash and interests in Mavik (the “Recapitalization”).

No amendments or other modifications were made to the Management Agreement in connection with the Recapitalization and the Manager and its personnel continue to serve as the external manager of the Company pursuant to the terms of the Management Agreement.

8 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

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 ).

Notes to Unaudited Consolidated Financial Statements

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

29 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

Risk Rating Description

3 unchanged sentences

5 Highest risk

Notes to Unaudited Consolidated Financial Statements

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.

25 unchanged sentences

Operating leases in which the Company is the lessee are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance sheets.

Notes to Unaudited Consolidated Financial Statements

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease.

2 unchanged sentences

The Company uses the implicit rate when readily determinable.

The operating lease ROU asset also includes any lease payments made in advance 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

Notes to Unaudited Consolidated Financial Statements

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.

30 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

March 31, 2021 March 31, 2020

Cash and cash equivalents $ 88,293,082 $ 82,553,933

3 unchanged sentences

statements of cash flows $ 104,737,014 $ 102,945,300

Notes to Unaudited Consolidated Financial Statements

Participation Interests

22 unchanged sentences

federal and state income taxes at regular corporate rates.

As of March 31, 2021, the Company has satisfied all the requirements for a REIT.

No provision for federal income taxes has been included in the consolidated financial statements for the three months ended March 31, 2021 and 2020.

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

Notes to Unaudited Consolidated Financial Statements

periods presented herein.

As of June 30, 2021, the Company has satisfied all the requirements for a REIT.

No provision for federal income taxes has been included in the consolidated financial statements for the three and six months ended June 30, 2021 and 2020.

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

For the three months ended March 31, 2021 and 2020, the Company did not incur any interest or penalties.

For the three and six months ended June 30, 2021 and 2020, 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 2017 - 2019 federal tax returns remain subject to examination by the Internal Revenue Service.

Notes to Unaudited Consolidated Financial Statements

Earnings Per Share

5 unchanged sentences

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

As of March 31, 2021, the outbreak of the coronavirus (“COVID-19”) pandemic around the globe continues to adversely impact global commercial activity and has contributed to significant volatility in financial markets.

The COVID-19 pandemic and preventative measures taken by local, state and federal authorities to alleviate the public health crisis have had a continued and prolonged adverse impact on economic and market conditions and have caused a global economic slowdown which has had and could further have a material adverse effect on the Company’s results and financial condition.

The pandemic continues to evolve, and the full impact of COVID-19 on the real estate industry, the commercial real estate market, and the credit markets generally, and consequently on the Company’s financial condition and results of operations is uncertain and cannot be predicted at the current time as it depends on several factors beyond the control of the Company including, but not limited to, (i) the uncertainty around the severity and duration of the outbreak, (ii) the effectiveness of the United States public health response, including the administration of vaccines throughout the United States (iii) the pandemic’s impact on the U.S.

and global economies, (iv) the timing, scope and effectiveness of governmental responses to the pandemic, including the PPP and other programs under the CARES Act, (v) the timing and speed of economic recovery, (vi) the availability of a treatment or vaccination for COVID-19, and (vii) the negative impact on our borrowers, real estate values and cost of capital.

The Company believes the estimates and assumptions underlying its consolidated financial statements are reasonable and supportable based on the information available as of March 31, 2021, 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 March 31, 2021 inherently less certain than they would be absent the current and potential impacts of COVID-19.

Actual results may ultimately differ from those estimates.

Actual results may ultimately differ from those estimates, and those differences could be material.

The coronavirus (“COVID-19”) pandemic has had a significant impact on local, national and global economies and has resulted in a world-wide economic slowdown.

However, after a year into the COVID-19 pandemic, the real estate market has started to recover from the dislocation it experienced over the past year.

A strong pace of vaccination along with aggressive fiscal stimulus, has improved the outlook for the real estate market.

The Company continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its investments and operations.

The Company believes the estimates and assumptions underlying its financial statements are reasonable and supportable based on the information available as of June 30, 2021;

however, the extent to which the COVID-19 pandemic may impact the Company’s investments and operations going forward will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

These developments include the duration of the outbreak, the impact of the global vaccination effort, any new strains of the virus that are resistant to available vaccines, the impact of government stimulus, new information that may emerge concerning the severity of the COVID-19 pandemic, and actions taken by federal, state and local agencies as well as the general public to contain the COVID-19 pandemic or treat its impact, among others.

Accordingly, any estimates and assumptions as of June 30, 2021 inherently less certain than they would be absent the current and potential impacts of the COVID-19 pandemic.

Segment Information

11 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

ASU and related amendments on January 1, 2023.

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

Management is currently evaluating the impact this change will have on the Company’s 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 certain information that is used to determine LIBOR.

As a result, LIBOR could be discontinued.

In July 2017, the U.K.

Financial Conduct Authority, which regulates the LIBOR administrator, ICE Benchmark Administration Limited (“IBA”), announced that it would cease to compel banks to participate in setting LIBOR as a benchmark by the end of 2021.

Such announcement indicates that market participants cannot rely on LIBOR being published after 2021.

On December 4, 2020, the IBA published a consultation on its intention to cease the publication of LIBOR.

For the most commonly used tenors (overnight and one, three, six and 12 months) of U.S.

dollar LIBOR, the IBA is proposing to cease publication immediately after June 30, 2023, anticipating continued rate submissions from panel banks for these tenors of U.S.

dollar LIBOR.

The IBA’s consultation also proposes to cease publication of all other U.S.

dollar LIBOR tenors, and of all non-

Notes to Unaudited Consolidated Financial Statements

dollar LIBOR rates, after December 31, 2021.

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

27 unchanged sentences

Total identifiable net assets $ 34,630,615

Notes to Unaudited 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.

Notes to Unaudited Consolidated Financial Statements

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.

22 unchanged sentences

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 two individuals to serve as directors of the Company and, until Terra JV no longer holds at least 10 % of the outstanding shares of the Company’s common stock, Terra JV will have the right to nominate one individual to serve as a director of the Company.

As of June 30, 2021, 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.

Notes to Unaudited 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 March 31, 2021, 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

4 unchanged sentences

Portfolio Summary

The following table provides a summary of the Company’s loan portfolio as of March 31, 2021 and December 31, 2020:

March 31, 2021 December 31, 2020

The following table provides a summary of the Company’s loan portfolio as of June 30, 2021 and December 31, 2020:

June 30, 2021 December 31, 2020

Fixed Rate Floating

11 unchanged sentences

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

Coupon rate shown was determined using LIBOR of 0.11 % and 0.14 % as of March 31, 2021 and December 31, 2020, respectively.

(2) As of March 31, 2021 and December 31, 2020, amounts included $ 183.7 million and $ 184.2 million of senior mortgages used as collateral for $ 106.5 million and $ 107.6 million of borrowings under a term loan, respectively ( Note 9 ).

As of March 31, 2021, amounts also included $ 11.9 million of senior mortgages used as collateral for $ 8.0 million of borrowings under a revolving line of credit.

Coupon rate shown was determined using LIBOR of 0.10 % and 0.14 % as of June 30, 2021 and December 31, 2020, respectively.

(2) As of June 30, 2021 and December 31, 2020, amounts included $ 184.3 million and $ 184.2 million of senior mortgages used as collateral for $ 107.0 million and $ 107.6 million of borrowings under a term loan, respectively ( Note 9 ).

As of June 30, 2021, amounts also included $ 13.2 million of senior mortgages used as collateral for $ 9.2 million of borrowings under a revolving line of credit.

Borrowings under the term loan bear interest at an annual rate of LIBOR plus 4.25 % with a LIBOR floor of 1.00 %.

Borrowings under the revolving line of credit bear interest at a minimum rate of 4.0 %.

(3) As of March 31, 2021 and December 31, 2020, eleven and twelve of these loans, respectively, are subject to a LIBOR floor.

Notes to Unaudited Consolidated Financial Statements

(3) As of June 30, 2021 and December 31, 2020, nine and twelve of these loans, respectively, are subject to a LIBOR floor.

Lending Activities

The following table presents the activities of the Company’s loan portfolio for the three months ended March 31, 2021 and 2020:

The following table presents the activities of the Company’s loan portfolio for the six months ended June 30, 2021 and 2020:

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

8 unchanged sentences

Provision for loan losses ( 849,081 ) — ( 849,081 )

Balance, March 31, 2021 $ 401,776,723 $ 4,292,148 $ 406,068,871

Balance, June 30, 2021 $ 459,324,373 $ — $ 459,324,373

Notes to Unaudited Consolidated Financial Statements

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

7 unchanged sentences

Provision for loan losses ( 1,314,294 ) — ( 1,314,294 )

Balance, March 31, 2020 $ 398,931,946 $ 4,037,567 $ 402,969,513

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

_______________

1 unchanged sentence

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

PIK interest related to obligations under participation agreements amounted to $ 0.5 million and $ 0.2 million for the three months ended March 31, 2021 and 2020, respectively.

PIK interest related to obligations under participation agreements amounted to $ 1.0 million and $ 0.6 million for the six months ended June 30, 2021 and 2020, respectively.

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 March 31, 2021 and December 31, 2020:

March 31, 2021 December 31, 2020

The tables below detail the types of loans in the Company’s loan portfolio, as well as the property type and geographic location of the properties securing these loans as of June 30, 2021 and December 31, 2020:

June 30, 2021 December 31, 2020

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

4 unchanged sentences

Total $ 461,267,889 $ 459,324,373 100.0 % $ 424,174,758 $ 422,280,515 100.0 %

Notes to Unaudited Consolidated Financial Statements

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

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

1 unchanged sentence

Multifamily 121,160,887 122,010,069 26.5 % 150,873,173 151,768,347 35.9 %

Infill land 66,355,092 66,936,752 14.6 % 10,442,567 10,537,512 2.5 %

Hotel - full/select service 47,112,521 47,544,871 10.4 % 49,142,809 49,393,251 11.7 %

Mixed use 16,567,853 16,567,853 3.6 % 16,767,984 16,767,984 4.0 %

Infill land 10,669,168 10,768,255 2.7 % 10,442,567 10,537,512 2.5 %

Industrial 7,000,000 7,000,000 1.5 % 7,000,000 7,000,000 1.7 %

Hotel - extended stay 4,250,000 4,292,148 1.1 % 4,250,000 4,294,053 1.0 %

Student housing 3,000,000 3,174,860 0.7 % 3,000,000 3,204,375 0.8 %

Hotel - extended stay — — — % 4,250,000 4,294,053 1.0 %

Allowance for loan losses — ( 4,587,839 ) ( 1.0 ) % — ( 3,738,758 ) ( 0.9 ) %

Total $ 461,267,889 $ 459,324,373 100.0 % $ 424,174,758 $ 422,280,515 100.0 %

During the first quarter of 2021, the Company reclassified the property types of collateral on certain loans to multifamily to better reflect the tenant mixed of each property.

During the first quarter of 2021, the Company reclassified the property types of collateral on certain loans to multifamily to better reflect the tenant mix of each property.

Additionally, the Company categorized hotel properties further to hotel - full/selected service and hotel - extended stay.

The prior period amounts have been reclassified to conform to the current period presentation.

March 31, 2021 December 31, 2020

Notes to Unaudited Consolidated Financial Statements

June 30, 2021 December 31, 2020

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

3 unchanged sentences

Georgia 75,167,030 75,556,746 16.4 % 74,116,787 74,505,752 17.6 %

Pennsylvania 52,000,000 52,447,064 11.4 % — — — %

North Carolina 37,155,092 37,395,640 8.1 % 33,242,567 33,438,806 7.9 %

8 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

The following table allocates the principal balance and the carrying value of the Company’s loans based on the loan risk rating as of March 31, 2021 and December 31, 2020:

March 31, 2021 December 31, 2020

The following table allocates the principal balance and the carrying value of the Company’s loans based on the loan risk rating as of June 30, 2021 and December 31, 2020:

June 30, 2021 December 31, 2020

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

9 unchanged sentences

_______________

(1) This loan was deemed impaired and removed from the pool of loans on which a general allowance is calculated.

As of March 31, 2021 and December 31, 2020, the specific allowance for loan losses on this loan was $ 2.7 million and $ 2.5 million, respectively, as a result of a decline in the fair value of the collateral.

As of March 31, 2021, the Company had three loans with a loan risk rating of “4” and one loan with a loan risk rating of “5”, which were unchanged from those as December 31, 2020, and recorded an additional general allowance for loan losses of $ 0.04 million for the three months ended March 31, 2021.

As of March 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 $ 1.1 million for the three months ended March 31, 2020.

The following table presents the activity in the Company’s allowance for loan losses for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

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

As of June 30, 2021 and December 31, 2020, the specific allowance for loan losses on these loans were $ 3.7 million and $ 2.5 million, respectively, as a result of a decline in the fair value of the collateral.

As of June 30, 2021, the Company had one loan with a loan risk rating of “4” and no loan with a loan risk rating of “5”, representing a decrease in loans with loan risk ratings of “4” and “5” from those as December 31, 2020, and the Company reversed the previously recorded general allowance for loan losses of $ 0.5 million and $ 0.4 million for the three and six months ended June 30, 2021, respectively.

Additionally, as of June 30, 2021, the number of loans deemed impaired increased as compared to those as of December 31, 2020, and the Company recorded specific allowance for loan losses of $ 1.0 million and $ 1.3 million for the three and six months ended June 30, 2021, respectively.

As of June 30, 2020, the Company had five loans with a loan risk rating of “4”, and recorded a general allowance for loan losses of $ 0.2 million and $ 1.3 million for the three and six months ended June 30, 2020, respectively.

Notes to Unaudited Consolidated Financial Statements

The following table presents the activity in the Company’s allowance for loan losses for the six months ended June 30, 2021 and 2020:

Six Months Ended June 30,

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

6 unchanged sentences

Management’s Discussion and Analysis of Financial Condition and Results of Operations for further discussion of COVID-19.

As of March 31, 2021 and December 31, 2020, the Company had two and one loans that were in maturity default, respectively.

Additionally, for the three months ended March 31, 2021, the Company suspended interest income accrual of $ 0.7 million on two loans because recovery of such income was doubtful.

There was no suspension of such interest income for the three months ended March 31, 2020.

As of June 30, 2021 and December 31, 2020, the Company had four and one loans, respectively, that were in maturity default.

Additionally, for the three and six months ended June 30, 2021, the Company suspended interest income accrual of $ 0.7 million and $ 1.3 million on two loans, respectively, because recovery of such income was doubtful.

There was no suspension of such interest income for the three and six months ended June 30, 2020.

Equity Investment in a Limited Partnership

2 unchanged sentences

Mavik RESOF 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 Mavik RESOF is Mavik Real Estate Special Opportunities Fund GP, LLC (formerly known as Terra Real Estate Credit Opportunities Fund GP, LLC) ,

Notes to Unaudited Consolidated Financial Statements

which is a subsidiary of the Company’s sponsor, Terra Capital Partners .

As of March 31, 2021 and December 31, 2020, the unfunded commitment was $ 1.3 million and $ 14.1 million, respectively.

The general partner of Mavik RESOF is Mavik Real Estate Special Opportunities Fund GP, LLC (formerly known as Terra Real Estate Credit Opportunities Fund GP, LLC) , which is a subsidiary of the Company’s sponsor, Terra Capital Partners .

As of June 30, 2021, the Company has fully funded all of its commitment.

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

The Company evaluated its equity interest in Mavik RESOF and determined it does not have a controlling financial interest and is not the primary beneficiary.

Accordingly, the equity interest in Mavik RESOF is accounted for as an equity method investment.

As of March 31, 2021 and December 31, 2020, the Company owned 83.5 % and 90.3 % of equity interest in Mavik RESOF, respectively.

As of March 31, 2021 and December 31, 2020, the carrying value of the Company ’ s investment in MAVIK RESOF was $ 50.5 million and $ 36.3 million, respectively.

For the three months ended March 31, 2021, the Company recorded equity income from Mavik RESOF of $ 1.3 million and did not receive any distributions from Mavik RESOF.

There was no such equity income recorded or distributions received for the three months ended March 31, 2020.

As of June 30, 2021 and December 31, 2020, the Company owned 71.1 % and 90.3 % of equity interest in Mavik RESOF, respectively.

As of June 30, 2021 and December 31, 2020, the carrying value of the Company ’ s investment in MAVIK RESOF was $ 53.1 million and $ 36.3 million, respectively.

For the three and six months ended June 30, 2021, the Company recorded equity income from Mavik RESOF of $ 1.4 million and $ 2.7 million, respectively, and did not receive any distributions from Mavik RESOF.

There was no such equity income recorded or distributions received for the three and six months ended June 30, 2020.

In connection with the equity investment in Mavik RESOF, the Company paid origination fees to the Manager totaling $ 0.5 million, to be amortized to equity income on a straight-line basis over the life of Mavik RESOF.

1 unchanged sentence

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

March 31, 2021 December 31, 2020

Investments at fair value (cost of $63,791,529 and $44,174,031) $ 64,371,103 $ 44,715,979

June 30, 2021 December 31, 2020

Investments at fair value (cost of $74,388,622 and $44,174,031, respectively) $ 75,074,280 $ 44,715,979

Other assets 7,832,357 5,331,840

1 unchanged sentence

Obligations under participation agreement (proceeds of $6,295,100 and $6,295,100,

respectively) 6,345,282 6,347,478

Other liabilities 2,736,950 4,204,147

1 unchanged sentence

Partners’ capital $ 73,824,405 $ 39,496,194

Three Months Ended March 31,

Notes to Unaudited Consolidated Financial Statements

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

2021 2020 2021 2020

Total investment income $ 2,698,223 $ — $ 4,740,323 $ —

5 unchanged sentences

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.

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 pursuant to a 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.

2 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

Real Estate Owned, Net

1 unchanged sentence

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

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

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

14 unchanged sentences

Total real estate $ 70,699,927 $ ( 9,399,927 ) $ 61,300,000 $ 70,953,229 $ ( 8,024,066 ) $ 62,929,163

Notes to Unaudited 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:

Three Months Ended March 31,

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

2021 2020 2021 2020

Real estate operating revenues:

7 unchanged sentences

Management fees 88,981 58,076 150,306 114,777

Lease expense, including amortization of above-market ground lease 283,538 283,538

Lease expense, including amortization of above-market

ground lease (1)

826,538 283,538 1,110,076 567,076

Other operating expenses 96,019 103,281 196,879 198,531

Total $ 1,516,105 $ 871,207 $ 2,487,420 $ 1,815,725

_______________

(1) As discussed in “ Leases ” below, the multi-tenant office building is subject to a ground lease, for which the rent resets every five years.

The last rent reset was on November 1, 2020.

Based on information available to the Company as of November 1, 2020, including the fact that there was a global pandemic with a potentially significant negative impact on real estate values, the Company estimated the value of the land was no greater than the value on the date of foreclosure and continued to accrue and pay rent at the then-existing rate.

On June 2, 2021, the third-party appraisal process was completed, resulting in an increase of the annual base rent to $ 2.1 million from $ 1.3 million.

The increase in base rent was retroactive back to November 1, 2020.

The Company accounted for the change in base rent as a change in accounting estimate;

as a result, the increase in rent from November 2020 through March 2021 was recorded in the period in which the change occurred, which is June 2021.

Had the new base rent been recorded on November 1, 2020, lease expense including amortization of above-market ground lease would have been $ 0.5 million and $ 0.8 million for the three and six months ended June 30, 2021, respectively, and total real estate operating expenses would have been $ 1.2 million and $ 2.1 million for the three and six months ended June 30, 2021, respectively .

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

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

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

Notes to Unaudited Consolidated Financial Statements

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.

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 increases.

Each of the three tenant leases provides two options to renew the lease for five years 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 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.

The next rent reset on the ground lease is scheduled for November 1, 2025.

The Company is currently litigating with the landlord with respect to the appropriate determination of the fair value of the land, on which the ground rent is based.

Since future rent increases on the ground lease are unknown, the Company did not include any potential future rent increases in calculating the present value of future rent payments.

The ground lease does not provide for renewal options.

1 unchanged sentence

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.

Notes to Unaudited 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 March 31, 2021 are as follows:

Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants, under non-cancelable operating leases at June 30, 2021 are as follows:

Years Ending December 31, Total

2021 (April 1 through December 31) $ 4,919,262

2021 (July 1 through December 31) $ 3,209,106

2022 7,132,812

5 unchanged sentences

Scheduled Annual Net Amortization of Intangibles

Based on the intangible assets and liabilities recorded at March 31, 2021, scheduled annual net amortization of intangibles for each of the next five calendar years and thereafter is as follows:

Based on the intangible assets and liabilities recorded at June 30, 2021, scheduled annual net amortization of intangibles for each of the next five calendar years and thereafter is as follows:

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

1 unchanged sentence

Decrease in Rent Expense (1)

2021 (April 1 through December 31) $ ( 253,665 ) $ 1,546,545 $ ( 97,761 ) $ 1,195,119

2021 (July 1 through December 31) $ ( 169,110 ) $ 1,031,030 $ ( 65,174 ) $ 796,746

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

8 unchanged sentences

and amortization of above-market ground lease is recorded as a reduction to rent expense.

Notes to Unaudited Consolidated Financial Statements

Supplemental Ground Lease Disclosures

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

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Operating lease

Operating lease right-of-use assets (1)

$ 27,402,564 $ 16,105,888

Operating lease liabilities $ 27,402,564 $ 16,105,888

1 unchanged sentence

Weighted average discount rate — operating lease 7.6 % 7.9 %

_______________

(1) The operating lease ROU assets and liabilities were remeasured at June 30, 2021 based on the new base rent resulting from the ground rent reset.

Notes to Unaudited Consolidated Financial Statements

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

Three Months Ended March 31,

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

2021 2020 2021 2020

Operating lease cost (1)

$ 859,125 $ 316,125 $ 1,175,250 $ 632,250

_______________

(1) The increase in operating lease cost was a result of the ground rent reset described above.

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

Three Months Ended March 31,

Six Months Ended June 30,

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

4 unchanged sentences

Years Ending December 31, Operating Lease

2021 (April 1 through December 31) $ 948,375

2021 (July 1 through December 31) $ 1,039,500

2022 2,079,000

12 unchanged sentences

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).

Notes to Unaudited Consolidated Financial Statements

Investments measured and reported at fair value are classified and disclosed into one of the following categories based on the inputs as follows:

1 unchanged sentence

Level 2 — Pricing inputs are other than quoted prices in active markets, including, but not limited to, quoted prices for similar assets and liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs.

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.

Notes to Unaudited Consolidated Financial Statements

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.

3 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 March 31, 2021 and December 31, 2020, 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, secured borrowing, term loan payable, mortgage loan payable and revolving line of credit.

As of June 30, 2021 and December 31, 2020, 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, secured borrowing, term loan payable, mortgage loan payable and revolving line of credit.

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

4 unchanged sentences

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

The following tables present fair value measurements of marketable securities, by major class, as of March 31, 2021 and December 31, 2020, according to the fair value hierarchy:

March 31, 2021

The following tables present fair value measurements of marketable securities, by major class, as of June 30, 2021 and December 31, 2020, according to the fair value hierarchy:

June 30, 2021

Fair Value Measurements

11 unchanged sentences

Total $ 1,287,500 $ — $ — $ 1,287,500

Notes to Unaudited Consolidated Financial Statements

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

Three Months Ended March 31,

Six Months Ended June 30,

Beginning balance $ 1,287,500 $ —

2 unchanged sentences

Reclassification of net realized gains on marketable securities into earnings — 1,085,107

Unrealized (losses) gains on marketable securities ( 14,608 ) 192,919

Unrealized gains on marketable securities 234,266 67,522

Ending balance $ 8,000,914 $ 236,085

Notes to Unaudited Consolidated Financial Statements

Financial Instruments Not Carried at Fair Value

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:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

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

6 unchanged sentences

Term loan payable 3 $ 107,016,023 $ 104,925,595 $ 106,681,890 $ 107,584,451 $ 105,245,801 $ 107,248,555

Unsecured notes payable 1 85,125,000 81,622,637 84,512,100 — — —

Obligations under participation

5 unchanged sentences

Total liabilities $ 381,936,624 $ 376,650,188 $ 382,187,943 $ 241,152,827 $ 239,132,654 $ 239,327,483

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 March 31, 2021 and December 31, 2020 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 June 30, 2021 and December 31, 2020 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.

The fair value of the Company’s investment in equity securities and its unsecured notes payable 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 on applicable yields of comparable debt/preferred equity instruments;

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, which may include available current market data on applicable yields of comparable debt/preferred equity instruments;

market credit spreads and yield curves;

4 unchanged sentences

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

the forces that influence the

Notes to Unaudited Consolidated Financial Statements

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

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

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

3 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

The fair values of the Company’s mortgage loan payable, secured borrowing, term loan payable and revolving line of credit 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 March 31, 2021 and December 31, 2020.

The following table summarizes the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 loans as of June 30, 2021 and December 31, 2020.

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 March 31, 2021 Primary Valuation Technique Unobservable Inputs March 31, 2021

Fair Value at June 30, 2021 Primary Valuation Technique Unobservable Inputs June 30, 2021

Asset Category Minimum Maximum Weighted Average

24 unchanged sentences

The Management Agreement runs co-terminus with the amended and restated operating agreement for Terra Fund 5, which is scheduled to terminate on December 31, 2023 unless Terra Fund 5 is dissolved earlier.

The following table presents a summary of fees paid and costs reimbursed to the Manager in connection with providing services to the Company

that are included on the consolidated statements of operations:

Three Months Ended March 31,

The following table presents a summary of fees paid and costs reimbursed to the Manager in connection with providing services to the Company that are included on the consolidated statements of operations:

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

2021 2020 2021 2020

Origination and extension fee expense (1)

20 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 March 31, 2021 and December 31, 2020, the Company has not received any breakup fees.

As of June 30, 2021 and December 31, 2020, the Company has not received any breakup fees.

Operating Expenses

2 unchanged sentences

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.

debt-related loan prior to such transaction or (ii) the amount of the fee paid by the borrower in connection with such transaction.

The disposition fee is paid concurrently with the closing of any such disposition of all or any portion of any real estate-related loan or any interest therein, which is the lesser of (i) 1% of the principal amount of the loan or debt-related loan prior to such transaction or (ii) the amount of the fee paid by the borrower in connection with such transaction.

If the Company takes ownership of a property as a result of a workout or foreclosure of a loan, the Company will pay a disposition fee upon the sale of such property equal to 1% of the sales price.

Distributions Paid

For the three months ended March 31, 2021 and 2020, the Company made distributions to Terra 5, Terra JV and Terra Offshore REIT totaling $ 3.9 million and $ 8.8 million, respectively, of which $ 2.4 million and $ 8.3 million were returns of capital, respectively ( Note 11 ).

For the three months ended June 30, 2021 and 2020, the Company made distributions to Terra JV and Terra Offshore REIT totaling $ 4.4 million and $ 4.5 million, respectively, of which $ 4.4 million and $ 1.8 million were returns of capital, respectively.

For the six months ended June 30, 2021 and 2020, the Company made distributions to Terra 5, Terra JV and Terra Offshore

REIT totaling $ 8.3 million and $ 13.3 million, respectively, of which $ 6.8 million and $ 10.1 million were returns of capital, respectively ( Note 11 ).

Due to Manager

As of March 31, 2021 and December 31, 2020, approximately $ 1.7 million and $ 1.3 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.

As of June 30, 2021 and December 31, 2020, approximately $ 1.6 million and $ 1.3 million was due to the Manager, respectively, as reflected on the consolidated balance sheets, primarily related to the present value of the disposition fees on individual loans due to the Manager.

Merger and Issuance of Common Stock to Terra Offshore REIT

4 unchanged sentences

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.

Mavik Real Estate Special Opportunities Fund, LP

6 unchanged sentences

Participation Agreements

In the normal course of business, the Company may enter into participation agreements (“PAs”) with related parties, primarily other affiliated funds managed by the Manager, and to a lesser extent, unrelated parties (the “Participants”).

The purpose of the PAs is to allow the Company and an affiliate to originate a specified loan when, individually, the Company does not have the liquidity to do so or to achieve a certain level of portfolio diversification.

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 “Participants”).

The purpose of the participation agreements is to allow the Company and an affiliate to originate a specified loan when, individually, the Company does not have the liquidity to do so or to achieve a certain level of portfolio diversification.

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

3 unchanged sentences

Participation Interests Purchased by the Company

The below table lists the loan interests participated in by the Company via PAs as of March 31, 2021 and December 31, 2020.

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.

March 31, 2021 December 31, 2020

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

From time to time, the Company may purchase investments from affiliates pursuant to participation agreements.

In accordance with the terms of each participation agreement, 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.

The table below lists the participation interests purchased by the Company pursuant to participation agreements as of December 31, 2020.

There were no such purchased participation interests outstanding as of June 30, 2021.

December 31, 2020

Participating Interests Principal Balance Carrying Value

LD Milpitas Mezz, LP (1)

3 unchanged sentences

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

This loan was repaid in full in May 2021.

Transfers of Participation Interest by the Company

The following tables summarize the loans that were subject to PAs with affiliated entities as of March 31, 2021 and December 31, 2020:

The following tables summarize the loans that were subject to participation agreements with affiliated entities and third-parties as of June 30, 2021 and December 31, 2020:

Transfers Treated as Obligations Under Participation Agreements as of

March 31, 2021

June 30, 2021

Principal Balance Carrying Value % Transferred Principal Balance Carrying Value

3 unchanged sentences

56,852,434 56,871,362 35.00 % 19,898,352 19,898,352

Orange Grove Property Investors, LLC (2)

BW Property Owner LLC and BW 2

Property Owner LLC (1)(2)(3)

52,000,000 52,447,064 90.38 % 47,000,000 47,404,077

3 unchanged sentences

10,901,205 11,001,782 44.00 % 4,796,530 4,840,038

Stonewall Station Investments LLC (2)(3)

3,453,887 3,487,906 44.00 % 1,519,710 1,534,678

The Bristol at Southport, LLC (1)

22 unchanged sentences

(2) Participant is Terra Fund 6, an affiliated fund advised by Terra Income Advisors, LLC, an affiliate of the Company’s sponsor and Manager.

(3) The participation interest was transferred to an affiliate and/or a third-party pursuant to a participation agreement in the second quarter of 2021.

(4) The obligation under participation agreement was repaid in the second quarter of 2021.

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.

, exit fee, prepayment income) and related fees/expenses ( e.g.

, disposition fees, asset management and asset servicing fees), are based upon their respective pro rata participation interest in such participated investments, as specified in the respective PA.

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.

, disposition fees, asset management and asset servicing fees), are based upon their respective pro rata participation interest in such participated investments, as specified in the respective participation agreement.

The Participants’ share of the investments is repayable only from the proceeds received from the related borrower/issuer of the investments and, therefore, the Participants also are subject to credit risk ( i.e.

, risk of default by the underlying borrower/issuer).

Pursuant to the 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.

Pursuant to the participation agreements 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 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.

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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.

The following table summarizes the loan that was transferred to a third-party that was accounted for as secured borrowing as of March 31, 2021 and December 31, 2020:

Transfers Treated as Secured Borrowing as of March 31, 2021

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.

The following table summarizes the loan that was transferred to a third-party that was accounted for as secured borrowing as of June 30, 2021 and December 31, 2020:

Transfers Treated as Secured Borrowing as of June 30, 2021

Principal Balance Carrying Value % Transferred Principal Balance Carrying Value

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

Unsecured Notes Payable

On June 10, 2021, the Company issued $ 78.5 million in aggregate principal amount of its 6.00 % notes due 2026 (the “initial note”), for net proceeds of $ 76.0 million after deducting underwriting commissions of $ 2.5 million, but before offering expenses payable by the Company.

On June 25, 2021, the underwriters partially exercised their option to purchase an additional $ 6.6 million of the notes for net proceeds of $ 6.4 million (the “additional notes” and, together with the initial notes, the “notes”), after deducting underwriting commissions of $ 0.2 million, but before offering expenses payable by us, which closed on June 29, 2021.

Interest on the notes is paid quarterly in arrears every March 30, June 30, September 30 and December 30, at a fixed rate of 6.00 % per year, beginning September 30, 2021.

The notes mature on June 30, 2026 , unless redeemed earlier by the Company.

The notes may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after June 10, 2023.

In connection with the issuance of the notes, the Company entered into (i) an Indenture, dated June 10, 2021 (the “Base Indenture”), by and between the Company and U.S.

Bank National Association, as trustee (the “Trustee”), and (ii) the First Supplemental Indenture thereto, dated June 10, 2021 (the “Supplemental Indenture” and, collectively with the Base Indenture, the “Indenture”), by and between the Company and the Trustee.

The Indenture contains certain covenants that, among other things, limit the ability of the Company, subject to exceptions, to make distributions in excess of 90% of the Company’s taxable income, incur indebtedness (as defined in the Indenture) or purchase shares of the Company’s capital stock unless the Company has an asset coverage ratio (as defined in the Indenture) of at least 150 % after giving effect to such transaction.

The Indenture

also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the notes to become or to be declared due and payable.

As of June 30, 2021, the Company was in compliance with the covenants included in the Indenture.

The table below presents detailed information regarding the unsecured notes payable at June 30, 2021:

June 30, 2021

Principal Balance Carrying Value (1)

Unsecured notes payable $ 85,125,000 $ 81,622,637 $ 84,512,100

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(1) Amount is net of unamortized issue discount of $ 2.6 million and unamortized deferred financing costs of $ 0.9 million.

Revolving Line of Credit

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

As of March 31, 2021, the Company is in compliance with these covenants.

As of June 30, 2021, the Company is in compliance with these covenants.

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

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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 $ 11.9 million first mortgage to the borrowing base and drew down $ 8.0 million on the Revolving Line of Credit.

The Company also incurred financing fees of $ 0.6 million in connection with the Revolving Line of Credit, to be amortized to interest expense over the life of the Revolving Line of Credit.

The following tables present detailed information with respect to each borrowing under the Revolving Line of Credit as of March 31, 2021:

March 31, 2021

In connection with the closing of the Revolving Line of Credit, the Company also incurred financing fees of $ 0.6 million, to be amortized to interest expense over the life of the Revolving Line of Credit.

The following tables present detailed information with respect to each borrowing under the Revolving Line of Credit as of June 30, 2021:

June 30, 2021

Borrowing Base Borrowings Under the Revolving Line of Credit

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$ 13,152,513 $ 13,182,479 $ 13,262,020 $ 9,213,759

For the three months ended March 31, 2021, the Company received proceeds from the Revolving Line of Credit of $ 8.0 million and did not make any repayments.

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”).

For the six months ended June 30, 2021, the Company received proceeds from the Revolving Line of Credit of $ 9.2 million and did not make any repayments.

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”).

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

As of March 31, 2021 and December 31, 2020, the Company is in compliance with these covenants.

As of June 30, 2021 and 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.

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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 March 31, 2021 and December 31, 2020, there was no Term Loan Principal Trigger Event.

As of June 30, 2021 and 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 March 31, 2021 and December 31, 2020:

March 31, 2021

The following tables present detailed information with respect to each borrowing under the Term Loan as of June 30, 2021 and December 31, 2020:

June 30, 2021

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

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_______________

(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 both March 31, 2021 and December 31, 2020, using LIBOR of 0.11 % and 0.14 %, respectively.

(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 both June 30, 2021 and December 31, 2020, using LIBOR of 0.10 % and 0.14 %, respectively.

(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 three months ended March 31, 2021, the Company received proceeds from borrowings under the Term Loan of $ 1.5 million and made repayment of $ 2.6 million.

As of March 31, 2021, the remaining amount for Committed Advances and discretionary advances was $ 0.8 million and $ 8.3 million, respectively.

For the six months ended June 30, 2021, the Company received proceeds from borrowings under the Term Loan of $ 2.0 million and made repayment of $ 2.6 million.

As of June 30, 2021, the remaining amount for Committed Advances and discretionary advances was $ 0.5 million and $ 8.0 million, respectively.

Repurchase Agreement

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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.

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.

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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.

For the three months ended March 31, 2020, the Company received proceeds from borrowings under the Master Repurchase Agreement of $ 14.8 million and made repayments of $ 3.4 million.

For the six months ended June 30, 2020, the Company received proceeds from borrowings under the Master Repurchase Agreement of $ 17.6 million and made repayments of $ 3.4 million.

Revolving Credit Facility

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There were no amounts outstanding under the Revolving Credit Facility at December 31, 2020.

For the three months ended March 31, 2020, the Company received proceeds $ 35.0 million from borrowings under the Revolving Credit Facility.

For the six months ended June 30, 2020, the Company received proceeds $ 35.0 million from borrowings under the Revolving Credit Facility.

Mortgage Loan Payable

As of March 31, 2021, the Company had a $ 40.6 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 March 31, 2021 and December 31, 2020:

March 31, 2021 December 31, 2020

As of June 30, 2021, the Company had a $ 40.4 million mortgage loan payable collateralized by a multi-tenant office building that the Company acquired through foreclosure.

The following table presents certain information about the mortgage loan payable as of June 30, 2021 and December 31, 2020:

June 30, 2021 December 31, 2020

Lender Current

Interest Rate Maturity

Principal Amount Carrying Value Carrying Value of

Date Principal Amount Carrying Value Carrying Value of

Collateral Carrying Value Carrying Value of

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Scheduled Debt Principal Payments

Scheduled debt principal payments for each of the five calendar years following March 31, 2021 are as follows:

Scheduled debt principal payments for each of the five calendar years following June 30, 2021 are as follows:

Years Ending December 31, Total

2021 (April 1 through December 31) $ 596,580

2021 (July 1 through December 31) $ 400,727

2022 40,000,400

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2025 37,561,533

Thereafter 85,125,000

Unamortized deferred financing costs ( 5,971,891 )

Total $ 235,784,018

At March 31, 2021 and December 31, 2020, the unamortized deferred financing costs were $ 2.7 million and $ 2.2 million, respectively.

At June 30, 2021 and December 31, 2020, the unamortized deferred debt issuance costs were $ 6.0 million and $ 2.2 million, respectively.

Obligations Under Participation Agreements and Secured Borrowing

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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 March 31, 2021 and December 31, 2020, obligations under participation agreements had a carrying value of approximately $ 71.6 million and $ 71.6 million, respectively, and the carrying value of the loans that are associated with these obligations under participation agreements was approximately $ 146.4 million and $ 168.6 million, respectively, (see “ Participation Agreements ” in Note 8 ).

Additionally, as of March 31, 2021 and December 31, 2020, secured borrowing had a

carrying value of approximately $ 22.0 million and $ 18.2 million, and the carrying value of the loan that is associated with the secured borrowing was $ 31.9 million and $ 26.4 million, respectively.

The weighted-average interest rate on the obligations under participation agreements and secured borrowing was approximately 10.0 % and 10.2 % as of March 31, 2021 and December 31, 2020, respectively.

As of June 30, 2021 and December 31, 2020, obligations under participation agreements had a carrying value of approximately $ 115.0 million and $ 71.6 million, respectively, and the carrying value of the loans that are associated with these obligations under participation agreements was approximately $ 197.2 million and $ 168.6 million, respectively, (see “ Participation Agreements ” in Note 8 ).

Additionally, as of June 30, 2021 and December 31, 2020, secured borrowing had a carrying value of approximately $ 25.8 million and $ 18.2 million, and the carrying value of the loan that is associated with the secured borrowing was $ 37.6 million and $ 26.4 million, respectively.

The weighted-average interest rate on the obligations under participation agreements and secured borrowing was approximately 11.5 % and 10.2 % as of June 30, 2021 and December 31, 2020, respectively.

Commitments and Contingencies

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The full extent of the impact of the COVID-19 pandemic on the global economy generally, and the Company’s business in particular, will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

As of March 31, 2021, no contingencies have been recorded on the Company’s consolidated balance sheet as a result of the COVID-19 pandemic, however as the pandemic continues, it may have long-term impacts on the Company’s financial condition, results of operations, and cash flows.

As of June 30, 2021, no contingencies have been recorded on the Company’s consolidated balance sheet as a result of the COVID-19 pandemic, however as the pandemic continues, 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.

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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 $ 55.5 million and $ 67.9 million as of March 31, 2021 and December 31, 2020, respectively.

These fundings amounted to approximately $ 48.0 million and $ 67.9 million as of June 30, 2021 and December 31, 2020, 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.

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As discussed in Note 7 , On August 3, 2020, the Company entered into a subscription agreement with Mavik RESOF whereby the Company committed to fund up to $ 50.0 million to purchase limited partnership interests in Mavik RESOF.

As of March 31, 2021 and December 31, 2020, the unfunded investment commitment was $ 1.3 million and $ 14.1 million, respectively.

As of June 30, 2021, the commitment was fully funded.

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

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

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Earnings Per Share

The following table presents earnings per share for the three months ended March 31, 2021 and March 31, 2020:

Three Months Ended March 31,

Net income $ 1,476,096 $ 578,963

The following table presents earnings per share for the three and six months ended June 30, 2021 and June 30, 2020:

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

2021 2020 2021 2020

Net (loss) income $ ( 104,771 ) $ 2,646,042 $ 1,371,325 $ 3,225,005

Series A preferred stock dividend declared ( 3,906 ) ( 3,906 ) ( 7,812 ) ( 7,812 )

Net income allocable to common stock $ 1,472,190 $ 575,057

Net (loss) income allocable to common stock ( 108,677 ) 2,642,136 $ 1,363,513 $ 3,217,193

Weighted-average shares outstanding - basic and diluted 19,487,460 19,555,241 19,487,460 18,131,260

Earnings per share - basic and diluted $ 0.08 $ 0.03

(Loss) earnings per share - basic and diluted $ ( 0.01 ) $ 0.14 $ 0.07 $ 0.18

Preferred Stock Classes

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

As of March 31, 2021 and December 31, 2020, there were no Preferred Stock issued or outstanding.

As of June 30, 2021 and December 31, 2020, there were no Preferred Stock issued or outstanding.

Series A Preferred Stock

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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.

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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.

Additionally, for both the three months ended March 31, 2021 and 2020, the Company made distributions to preferred stockholders of $ 3,906 .

For the six months ended June 30, 2021 and 2020, the Company made distributions to Terra 5, Terra JV and Terra Offshore REIT totaling $ 8.3 million and $ 13.3 million, respectively, of which $ 6.8 million and $ 10.1 million were returns of capital, respectively.

Additionally, for both the three and six months ended June 30, 2021 and 2020, the Company made distributions to preferred stockholders of $ 3,906 and $ 7,812 , respectively.

Subsequent Events

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FORWARD-LOOKING STATEMENTS

We make forward-looking statements in this quarterly report on Form 10-Q within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

We make forward-looking statements in this quarterly report on Form 10-Q within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

For these statements, we claim the protections of the safe harbor for forward-looking statements contained in such Sections.

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• our expected financial performance, operating results and our ability to make distributions to our stockholders in the future;

• the potential negative impacts of COVID-19 on the global economy and the impacts of COVID-19 on our financial condition, results of operations, liquidity and capital resources and business operations;

• actions that may be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impact;

• the potential negative impacts of the coronavirus ( “ COVID-19 ” ) pandemic on the global economy and the impacts of the COVID-19 pandemic on our financial condition, results of operations, liquidity and capital resources and business operations;

• actions that may be taken by governmental authorities to contain the COVID-19 pandemic or to treat its impact;

• the efficacy of the vaccines or other remedies and the speed of their distribution and administration;

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• our dependence on our Manager or its affiliates and the availability of its senior management team and other personnel;

• liquidity transactions that may be available to us in the future, including a liquidation of our assets, a sale of our company or an initial public offering and listing of our shares of common stock on a national securities exchange, and the timing of any such transactions;

• liquidity transactions that may be available to us in the future, including a liquidation of our assets, a sale of our company, a listing of our shares of common stock on a national securities exchange, or an adoption of a share repurchase plan, in each case, which may include the distribution of our common stock indirectly owned by certain Terra Funds to the ultimate investors in the Terra Funds, and the timing of any such transactions;

• actions and initiatives of the U.S.

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

As of March 31, 2021, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 19 loans in eight states with an aggregate net principal balance of $314.4 million, a weighted average coupon rate of 7.8%, a weighted average loan-to-value ratio of 77.0% and a weighted average remaining term to maturity of 1.6 years.

As of June 30, 2021, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 19 loans in nine states with an aggregate net principal balance of $321.1 million, a weighted average coupon rate of 7.8%, a weighted average loan-to-value ratio of 74.9% and a weighted average remaining term to maturity of 1.4 years.

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

Our portfolio is diversified geographically with underlying properties located in 19 markets across eight states and by loan structure and property type.

Our portfolio is diversified geographically with underlying properties located in 19 markets across nine states and by loan structure and property type.

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

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

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

Securities Act of 1933, as amended (the “Securities Act”), and the rules and regulations promulgated thereunder.

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

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

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

As of March 31, 2021, Terra JV held 87.4% of the issued and outstanding shares of our common stock with the remainder held by Terra Offshore REIT, and Terra Fund 5 and Terra Fund 7 owned an 87.6% and 12.4% interest, respectively, in Terra JV.

As of June 30, 2021, Terra JV held 87.4% of the issued and outstanding shares of our common stock with the remainder held by Terra Offshore REIT, and Terra Fund 5 and Terra Fund 7 owned an 87.6% and 12.4% interest, respectively, in Terra JV.

As previously disclosed, we continue to explore alternative liquidity transactions on an opportunistic basis to maximize stockholder value.

Examples of the alternative liquidity transactions that, depending on market conditions, may be available to us include a listing of our shares of common stock on a national securities exchange, adoption of a share repurchase plan, a liquidation of our assets, a sale of our company or a strategic business combination, in each case, which may include the in-kind distribution of our shares of common stock indirectly owned by certain Terra Funds to the ultimate investors in the Terra Funds.

We cannot provide any assurance that any alternative liquidity transaction will be available to us or, if available, that we will pursue or be successful in completing any such alternative liquidity transaction.

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

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Recent Developments

The coronavirus (COVID-19) pandemic has had, and is expected to continue to have, a significant impact on local, national and global economies and has resulted in a world-wide economic slowdown.

While certain economies have exhibited growth of late when compared to earlier months of 2020, the amount of economic recovery will continue to be impacted by reductions and restrictions in economic activity resulting from increased coronavirus cases.

We continue to closely monitor the impact of the coronavirus pandemic on all aspects of our investments and operations.

The extent to which the coronavirus pandemic may impact our investments and operations going forward will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

These developments include the duration of the outbreak, the impact of the global vaccination effort, any new strains of the virus that are resistant to available vaccines, the impact of government stimulus, new information that may emerge concerning the severity of the coronavirus, and actions taken by federal, state and local agencies as well as the general public to contain the coronavirus or treat its impact, among others.

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

While it has had a demonstrable effect on employment, the economy and the national psyche, the impact of the pandemic on property values has yet to be fully realized because property values are the result of slow moving forces, including consumer behavior, supply and demand for space, availability and pricing of mortgage financing and investor demand for property.

The COVID-19 pandemic has had a significant impact on local, national and global economies and has resulted in a world-wide economic slowdown.

While certain economies have exhibited growth as a result of vaccine distributions when compared to 2020, the amount of economic recovery will continue to be impacted by reductions and restrictions in economic activity resulting from increased coronavirus cases.

We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our investments and operations.

The extent to which the COVID-19 pandemic may impact our investments and operations going forward will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

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

While it has had a demonstrable effect on employment, the economy and the national psyche, the impact of the COVID-19 pandemic on property values has yet to be fully realized because property values are the result of slow moving forces, including consumer behavior, supply and demand for space, availability and pricing of mortgage financing and investor demand for property.

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

Portfolio Summary

The following tables provide a summary of our net loan portfolio as of March 31, 2021 and December 31, 2020:

March 31, 2021

The following tables provide a summary of our net loan portfolio as of June 30, 2021 and December 31, 2020:

June 30, 2021

Fixed Rate Floating

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

Coupon rate shown was determined using LIBOR of 0.11% and 0.14% as of March 31, 2021 and December 31, 2020.

(2) As of March 31, 2021 and December 31, 2020, amounts included $183.7 million and $184.2 million of senior mortgages used as collateral for $106.5 million and $107.6 million of borrowings under a term loan, respectively.

As of March 31, 2021, amounts also included $11.9 million of senior mortgages used as collateral for $8.0 million of borrowings under a revolving line of credit.

Coupon rate shown was determined using LIBOR of 0.10% and 0.14% as of June 30, 2021 and December 31, 2020.

(2) As of June 30, 2021 and December 31, 2020, amounts included $184.3 million and $184.2 million of senior mortgages used as collateral for $107.0 million and $107.6 million of borrowings under a term loan, respectively.

As of June 30, 2021, amounts also included $13.2 million of senior mortgages used as collateral for $9.2 million of borrowings under a revolving line of credit.

Borrowings under the term loan bear interest at an annual rate of LIBOR plus 4.25% with a LIBOR floor of 1.00%.

Borrowings under the revolving line of credit bear interest at a minimum rate of 4.0%.

(3) As of March 31, 2021 and December 31, 2020, eleven and twelve of these loans, respectively, are subject to a LIBOR floor.

In addition to our net loan portfolio, as of March 31, 2021 and December 31, 2020, we owned 4.9 acres of adjacent land acquired via deed in lieu of foreclosure and a multi-tenant office building acquired via foreclosure.

The land and building and related lease intangible assets and liabilities had a net carrying value of $62.1 million and $62.9 million as of March 31, 2021 and December 31, 2020, respectively.

The mortgage loan payable encumbering the office building had an outstanding principal amount of $40.6 million and $44.0 million as of March 31, 2021 and December 31, 2020, respectively.

Additionally, as of March 31, 2021 and December 31, 2020, we owned 83.5% and 90.3%, respectively, of equity interest in a limited partnership that invests in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets.

As of March 31, 2021 and December 31, 2020, the equity interest had a carrying value of $50.5 million and $36.3 million, respectively.

(3) As of June 30, 2021 and December 31, 2020, nine and twelve of these loans, respectively, are subject to a LIBOR floor.

In addition to our net loan portfolio, as of June 30, 2021 and December 31, 2020, we owned 4.9 acres of adjacent land acquired pursuant to a deed in lieu of foreclosure and a multi-tenant office building acquired pursuant to a foreclosure.

The land and building and related lease intangible assets and liabilities had a net carrying value of $61.3 million and $62.9 million as of June 30, 2021 and December 31, 2020, respectively.

The mortgage loan payable encumbering the office building had an outstanding principal amount of $40.4 million and $44.0 million as of June 30, 2021 and December 31, 2020, respectively.

Additionally, as of June 30, 2021 and December 31, 2020, we owned 71.1% and 90.3%, respectively, of equity interest in a limited partnership that invests in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets.

As of June 30, 2021 and December 31, 2020, the equity interest had a carrying value of $53.1 million and $36.3 million, respectively.

Portfolio Investment Activity

For the three months ended March 31, 2021 and 2020, we invested $15.5 million and $12.6 million in new investments and had $25.0 million and $10.0 million of repayments, resulting in net repayments of $9.4 million and net investments of $2.6 million, respectively.

For the three months ended June 30, 2021 and 2020, we invested $13.8 million and $4.1 million in new and add-on investments and had $6.4 million and $10.9 million of repayments, resulting in net investments of $7.4 million and net repayments of $6.8 million, respectively.

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

For the six months ended June 30, 2021 and 2020, we invested $29.3 million and $16.8 million in new and add-on investments and had $31.3 million and $20.9 million of repayments, resulting in net repayments of $2.0 million and net investments of $4.2 million, respectively.

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

In June 2021, we issued $85.1 million in aggregate principal amount of its 6.00% notes due 2026, for net proceeds of $82.5 million after deducting underwriting commissions of $2.7 million, but before offering expenses payable by us.

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

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

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Loan Structure Principal Balance Carrying

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Total $ 321,087,174 $ 318,458,203 100.0 % $ 334,626,607 $ 332,510,955 100.0 %

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Property Type Principal Balance Carrying

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Total $ 321,087,174 $ 318,458,203 100.0 % $ 334,626,607 $ 332,510,955 100.0 %

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Geographic Location Principal Balance Carrying

8 unchanged sentences

Massachusetts 7,000,000 7,000,000 2.2 % 7,000,000 7,000,000 2.1 %

Pennsylvania 5,000,000 5,042,987 1.6 % — — — %

Texas 3,890,140 3,926,665 1.2 % 3,848,712 3,887,200 1.2 %

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(ii) the value of real estate-related loans to increase;

(iii) coupons on variable rate real estate-related loans to reset, although on a delayed basis, to lower interest rates (iv) to the extent applicable under the terms of our

investments, prepayments on real estate-related loans to increase, and (v) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to decrease.

(iii) coupons on variable rate real estate-related loans to reset, although on a delayed basis, to lower interest rates (iv) to the extent applicable under the terms of our investments, prepayments on real estate-related loans to increase, and (v) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to decrease.

Prepayment Risk

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Results of Operations

The following table presents the comparative results of our operations for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

2021 2020 Change

The following table presents the comparative results of our operations for the three and six months ended June 30, 2021 and 2020:

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

2021 2020 Change 2021 2020 Change

Interest income $ 8,750,466 $ 9,585,175 $ (834,709) $ 16,871,415 $ 19,237,040 $ (2,365,625)

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Operating expenses

Operating expenses reimbursed to Manager 1,342,758 1,367,189 (24,431)

Operating expenses reimbursed to

Manager 2,007,069 1,694,875 312,194 3,349,827 3,062,064 287,763

Asset management fee 1,156,696 1,140,426 16,270 2,313,239 2,169,959 143,280

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Other income and expenses

Interest expense from obligations under participation agreements (1,880,081) (2,560,267) 680,186

Interest expense on repurchase agreement payable — (1,551,270) 1,551,270

Interest expense on mortgage loan payable (686,150) (750,636) 64,486

Interest expense on revolving line of credit (17,846) (174,989) 157,143

Interest expense from obligations

under participation agreements (2,772,801) (1,823,121) (949,680) (4,652,882) (4,383,388) (269,494)

Interest expense on repurchase

agreement payable — (1,469,669) 1,469,669 — (3,020,939) 3,020,939

Interest expense on mortgage loan

payable (656,859) (749,753) 92,894 (1,343,009) (1,500,389) 157,380

Interest expense on revolving line of

credit (162,651) (599,989) 437,338 (180,497) (774,978) 594,481

Interest expense on term loan payable (1,646,182) — (1,646,182) (3,318,950) — (3,318,950)

Interest expense on secured borrowing (334,905) (169,622) (165,283) (634,710) (210,113) (424,597)

Net loss on extinguishment of obligations under participation

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

2021 2020 Change 2021 2020 Change

Other income and expenses

Interest expense on unsecured notes

payable (336,861) — (336,861) (336,861) — (336,861)

Net loss on extinguishment of

obligations under participation

agreements — — — — (319,453) 319,453

Unrealized losses on marketable securities (14,608) — (14,608)

Income from equity investment in a limited partnership 1,337,827 — 1,337,827

Realized gains on marketable securities — 8,894 (8,894)

Net change in unrealized gains on

marketable securities 248,874 67,522 181,352 234,266 67,522 166,744

Income from equity investment in a

limited partnership 1,400,839 — 1,400,839 2,738,666 — 2,738,666

Realized gains on marketable

securities — 1,076,213 (1,076,213) — 1,085,107 (1,085,107)

(4,260,546) (3,668,419) (592,127) (7,493,977) (9,056,631) 1,562,654

Net income $ 1,476,096 $ 578,963 $ 897,133

Net (loss) income $ (104,771) $ 2,646,042 (2,750,813) $ 1,371,325 $ 3,225,005 $ (1,853,680)

Net Loan Portfolio

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

The following tables presents a reconciliation of our loan portfolio from a gross basis to net basis for the three months ended March 31, 2021 and 2020 :

Three Months Ended March 31, 2021 Three Months Ended March 31, 2020

The following tables presents a reconciliation of our loan portfolio from a gross basis to net basis for the three and six months ended June 30, 2021 and 2020 :

Three Months Ended June 30, 2021 Three Months Ended June 30, 2020

Weighted Average Principal Amount (1)

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$ 100,077,908 11.6 % $ 144,934,856 12.2 %

Six Months Ended June 30, 2021 Six Months Ended June 30, 2020

Weighted Average Principal Amount (1)

Weighted Average Coupon Rate (2)

Weighted Average Principal Amount (1)

Weighted Average Coupon Rate (2)

Total portfolio

Gross loans $ 417,362,153 8.5 % $ 395,636,304 9.4 %

Obligations under participation agreements

and secured borrowing (100,798,932) 10.4 % (81,213,576) 11.5 %

Repurchase agreement payable — — % (94,617,024) 3.9 %

Term loan payable (107,441,217) 5.3 % — — %

Revolving line of credit (5,102,351) 4.0 %

Net loans (3)

$ 204,019,653 9.4 % $ 219,805,704 11.0 %

Gross loans 259,783,669 6.4 % 201,392,405 6.7 %

Obligations under participation agreements

and secured borrowing (48,600,589) 8.6 % (23,368,896) 9.7 %

Repurchase agreement payable — — % (94,617,024) 3.8 %

Term loan payable (107,441,217) 5.3 % — — %

Revolving line of credit (5,102,351) 4.0 % — — %

Net loans (3)

$ 98,639,512 6.6 % $ 83,406,485 9.2 %

Subordinated loans (4)

Gross loans 157,578,484 11.9 % 194,243,899 12.2 %

Obligations under participation agreements (52,198,343) 12.2 % (57,844,680) 12.2 %

Net loans (3)

$ 105,380,141 11.8 % $ 136,399,219 12.2 %

_______________

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

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

For the three months ended March 31, 2021 as compared to the same period in 2020, the decrease in weighted average coupon rate was primarily due to a higher volume of loan originations with lower coupon rates.

For the three and six months ended June 30, 2021 as compared to the same period in 2020, the decrease in weighted average coupon rate was primarily due to a higher volume of loan originations with lower coupon rates.

Interest Income

For the three months ended March 31, 2021 as compared to the same period in 2020, interest income decreased by $1.5 million, primarily due to a decrease in contractual interest income as a result of a decrease in the weighted average interest rate on gross loans driven by new loan originations having lower coupon rates than those of the loans that were repaid, partially offset by an increase in the weighted average principal balance of gross loans driven by higher volume of new loan originations than repayments.

For the three and six months ended June 30, 2021 as compared to the same periods in 2020, interest income decreased by $0.8 million and $2.4 million, respectively, primarily due to the suspension of interest income accrual of $0.7 million and $1.3 million on two loans, respectively, because recovery of such income was doubtful.

Additionally, for the six months ended June 30, 2021 as compared to the same period in 2020, interest income decreased as a result of a decrease in the weighted average coupon rate on gross loans, partially offset by an increase in the weighted average principal balance of gross loans.

Real Estate Operating Revenue

For the three months ended March 31, 2021 as compared to the same period in 2020, real estate operating revenue decreased by $0.3 million, primarily due to a lease terminated in the third quarter of 2020 and a decrease in parking income.

For the three months ended June 30, 2021 as compared to the same period in 2020, real estate operating revenue remained substantially the same.

The decrease in rental income resulting from a lease termination in the third quarter of 2020 was substantially offset by the increase in parking income as the economy slowly recovered from the global pandemic.

For the six months ended June 30, 2021 as compared to the same period in 2020, real estate operating revenue decreased by $0.3 million, primarily due to a lease terminated in the third quarter of 2020.

Operating Expenses Reimbursed to Manager

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

For both the three and six months ended June 30, 2021 as compared to the same periods in 2020, operating expenses reimbursed to the Manager increased by $0.3 million, as a result of an increase in the Manager’s overhead costs, primarily related to professional fees.

Asset Management Fee

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

For the three months ended March 31, 2021 as compared to the same period in 2020, asset management fee increased by $0.1 million, primarily due to an increase in total funds under management.

For the three months ended June 30, 2021 as compared to the same period in 2020, asset management fees were substantially the same.

For the six months ended June 30, 2021 as compared to the same period in 2020, asset management fees increased by $0.1 million, primarily due to an increase in total funds under management.

Asset Servicing Fee

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

For the three months ended March 31, 2021 as compared to the same period in 2020, asset servicing fee increased by $0.04 million, primarily due to an increase in total funds under management.

For the three months ended June 30, 2021 as compared to the same period in 2020, asset servicing fees were substantially the same.

For the three and six months ended June 30, 2021 as compared to the same period in 2020, asset servicing fees increased by $0.1 million, primarily due to an increase in total funds under management.

Provision for Loan Losses

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

As of both March 31, 2021 and December 31, 2020, we had three loans with a loan risk rating of “4”, one loan with a loan risk rating of “5” and one loan that was deemed impaired.

For the three months ended March 31, 2021, we recorded allowance of loan losses of $0.28 million, including $0.24 million of specific allowance for loan losses and $0.04 million of general allowance for loan losses, as a result of an increase in the principal balance of the loans we reserved for.

As of March 31, 2020, we had three loans with a loan risk rating of “4” and recorded a general allowance for loan losses of $1.1 million for the three months ended March 31, 2020.

There was no specific allowance for loan losses recorded for the three months ended March 31, 2020.

As of June 30, 2021, we had one loan with a loan risk rating of “4” and no loan with a loan risk rating of “5”, representing a decrease in loans with loan risk ratings of “4” and “5” from those as December 31, 2020, and we reversed the previously recorded general provision for loan losses of $0.5 million and $0.4 million for the three and six months ended June 30, 2021, respectively.

Additionally, as of June 30, 2021, the number of loans deemed impaired increased as compared to those as of December 31, 2020, and we recorded specific provision for loan losses of $1.0 million and $1.3 million for the three and six months ended June 30, 2021, respectively.

As of June 30, 2020, the Company had five loans with a loan risk rating of “4”, and recorded a general provision for loan losses of $0.2 million and $1.3 million for the three and six months ended June 30, 2020, respectively.

Real Estate Operating Expenses

For the three and six months ended June 30, 2021 as compared to the same periods in 2020, real estate operating expenses increased by $0.6 million and $0.7 million, respectively, primarily due to an increase in ground rent expense on the multi-tenant office building resulting from a recent rent reset.

Professional Fees

For the three months ended March 31, 2021 as compared to the same period in 2020, professional fees increased by $0.2 million, primarily due to legal fees incurred in connection with a financing transaction that was terminated.

For the three and six months ended June 30, 2021 as compared to the same periods in 2020, professional fees increased by $0.1 million and $0.3 million, respectively, primarily due to legal fees incurred in connection with a financing transaction that was terminated.

For both the three and six months ended June 30, 2021 as compared to the same periods in 2020, other operating expenses decreased by $0.1 million as a result of un-reimbursed transaction-related costs incurred in 2020.

There were no such costs incurred in 2021.

Interest Expense from Obligations under Participation Agreements

For the three months ended March 31, 2021 as compared to the same period in 2020, interest expense from obligations under participation agreements decreased by $0.7 million, primarily due to a decrease in weighted average outstanding principal balance on obligations under participation agreements as a result of the Merger and Issuance of Common Stock to Terra Offshore REIT transactions as well as a decrease in the weighted average coupon rate on obligations under participation agreements.

For the three and six months ended June 30, 2021 as compared to the same periods in 2020, interest expense from obligations under participation agreements increased by $0.9 million and $0.3 million, respectively, primarily due to an increase in weighted average outstanding principal balance on obligations under participation agreements, partially offset by a decrease in the weighted average coupon rate on obligations under participation agreements.

Interest Expense on Repurchase Agreement Payable

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

For the three months ended March 31, 2021, there was no interest expense on repurchase agreement payable because the repurchase agreement was terminated on September 3, 2020.

For the three months ended March 31, 2020, interest expense on repurchase agreement payable was $1.6 million.

For the three and six months ended June 30, 2021, there was no interest expense on repurchase agreement payable because the repurchase agreement was terminated on September 3, 2020.

For the three and six months ended June 30, 2020, interest expense on repurchase agreement payable was $1.5 million and $3.0 million, respectively.

Interest Expense on Mortgage Loan Payable

For the three months ended March 31, 2021 as compared to the same period in 2020, interest expense on mortgage loan payable decreased by $0.1 million as a result of a decrease in the weighted average amount outstanding.

For the three and six months ended June 30, 2021 as compared to the same periods in 2020, interest expense on mortgage loan payable decreased by $0.1 million and $0.2 million, respectively, as a result of a decrease in the weighted average amount outstanding.

Interest Expense on Revolving Line of Credit

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On March 12, 2021, we entered into a business loan and security agreement 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.

For the three months ended March 31, 2021, interest expense on the new revolving line of credit was $0.02 million.

For the three months ended March 31, 2020, interest expense on the old revolving line of credit was $0.2 million.

For both the three and six months ended June 30, 2021, interest expense on the new revolving line of credit was $0.2 million.

For the three and six months ended June 30, 2020, interest expense on the old revolving line of credit was $0.6 million and $0.8 million, respectively.

The decrease in interest expense on revolving line of credit was due to a decrease in weighted average amount outstanding.

2 unchanged sentences

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

For the three months ended March 31, 2021, interest expense on term loan payable was $1.7 million.

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

For the three and six months ended June 30, 2021, interest expense on term loan payable was $1.6 million and $3.3 million, respectively.

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

Interest Expense on Secured Borrowing

2 unchanged sentences

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

For the three months ended March 31, 2021, interest expense on secured borrowing increased by $0.3 million as a result of an increase in the weighted average amount outstanding.

For the three and six months ended June 30, 2021 as compared to the same periods in 2020, interest expense on secured borrowing increased by $0.2 million and $0.4 million, respectively, as a result of an increase in the weighted average amount outstanding.

Interest Expense on Unsecured Notes Payable

In June 2021, we issued $85.1 million in aggregate principal amount of 6.00% notes due 2026, for net proceeds of $82.5 million after deducting underwriting commissions of $2.7 million, but before offering expenses payable by us.

For both the three and six months ended June 30, 2021, interest expense on unsecured notes payable was $0.3 million.

There was not such interest expense for the three and six months ended June 30, 2020 because the notes were not yet issued.

Net Loss on Extinguishment of Obligations under Participation Agreements

In March 2020, as a result of the Merger and Issuance of Common Stock to Terra Offshore REIT transactions, we settled an aggregate of $49.8 million of participation interests in loans that we owned with affiliates and recognized a net loss on extinguishment of obligations under participation agreements of $0.3 million, which was primarily related to transaction costs incurred in connection with both transactions.

There was no such loss recognized for the three months ended March 31, 2021.

There was no such loss recognized for the three and six months ended June 30, 2021.

Net Change in Unrealized Gains on Marketable Securities

For both the three and six months ended June 30, 2021 as compared to the same periods in 2020, net change in unrealized gains on marketable securities increased by $0.2 million, representing the increase in fair value of our marketable securities.

Income from Equity Investment in a Limited Partnership

In August 2020, we entered into a subscription agreement whereby the Company committed to fund up to $50.0 million to purchase partnership interest in a limited partnership.

As of March 31, 2021, we owned an 83.5% interest in limited partnership and our investment in the limited partnership had a carrying value of $50.5 million.

For the three months ended March 31, 2021, we recognized income from equity investment in a limited partnership of $1.3 million.

There was no such income for the three months ended March 31, 2020 because the investment was entered into in August 2020.

For the three months ended March 31, 2021 as compared to the same period in 2020, the resulting net income increased by $0.9 million.

As of June 30, 2021, we owned an 71.1% interest in limited partnership and our investment in the limited partnership had a carrying value of $53.1 million.

For the three and six months ended June 30, 2021, we recognized income from equity investment in a limited partnership of $1.4 million and $2.7 million, respectively.

There was no such income for the three and six months ended June 30, 2020 because the investment was entered into in August 2020.

Realized Gains on Marketable Securities

For the three and six months ended June 30, 2021, we did not sell any marketable securities and did not recognize any realized gains on marketable securities.

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

Net (Loss) Income

For the three months ended June 30, 2021, the resulting net loss was $0.1 million, compared to net income of $2.6 million for the same period in 2020.

For the six months ended June 30, 2021 as compared to the same period in 2020, the resulting net income decreased by $1.9 million.

Financial Condition, Liquidity and Capital Resources

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

As of March 31, 2021, the amount outstanding under the indenture and credit agreement was $106.5 million.

As of June 30, 2021, the amount outstanding under the indenture and credit agreement was $107.0 million.

On March 12, 2021, we entered into a Business Loan and Security Agreement (the “Revolving Line of Credit”) 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.

1 unchanged sentence

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.

As of March 31, 2021, the Revolving Line of Credit had an outstanding balance of $8.0 million.

Cash Flows (Used in) From Operating Activities

For the three months ended March 31, 2021 as compared to the same period in 2020, cash flows from operating activities decreased by $5.1 million, primarily due to a decrease in contractual interest income and payment for real estate tax on our operating real estate.

As of June 30, 2021, the Revolving Line of Credit had an outstanding balance of $9.2 million.

We expect to use the net proceeds from the notes issuance to make new investments as well as for general corporate purposes.

Cash Flows From Operating Activities

For the six months ended June 30, 2021 as compared to the same period in 2020, cash flows from operating activities decreased by $4.8 million, primarily due to a decrease in contractual interest income, payment for real estate tax on our operating real estate as well as payment for additional ground rent as a result of the rent reset.

Cash Flows Used In Investing Activities

For the three months ended March 31, 2021, cash flows used in investing activities were $0.8 million, primarily related to origination and purchase of loans of $14.4 million, purchase of partnership interest in a limited partnership of $12.9 million and purchase of marketable securities of $5.0 million, partially offset by proceeds from repayments of loans of $31.5 million.

For the three months ended March 31, 2020, cash flows used in investing activities were $28.3 million, primarily related to

origination and purchase of loans of $38.4 million and the purchase of marketable securities of $3.4 million, partially offset by

proceeds from repayments of loans of $13.4 million.

Cash Flows (Used In) From Financing Activities

For the three months ended March 31, 2021, cash flows used in financing activities were $2.8 million, primarily due to repayments on obligations under participation agreements of $4.0 million, distributions paid of $3.9 million, payment of mortgage principal of $3.4 million and a decrease in interest reserve and other deposits hold on investments of $5.0 million, partially offset by proceeds from borrowing under the revolving line of credit of $8.0 million, proceeds from obligations under participation agreements and secured borrowing of $7.3 million.

Additionally, we received proceeds of borrowings under the term loan of $1.5 million and made repayment on borrowings under the term loan of $2.6 million.

We also made payment for deferred financing costs of $0.6 million in connection with obtaining the revolving line of credit.

For the three months ended March 31, 2020, cash flows from financing activities were $74.9 million, primarily due to proceeds from borrowings under revolving credit facility of $35.0 million, proceeds from borrowings under our repurchase agreement of $14.8 million, cash acquired from Terra Property Trust 2 of $16.9 million, cash contributed by Terra Offset REIT of $8.6 million and proceeds from obligations under participation agreements and secured borrowing of $14.3 million, partially offset by distributions paid of $8.8 million, repayment of borrowings under repurchase agreement of $3.4 million and a decrease in interest reserve and other deposits hold on investments of $2.3 million.

For the six months ended June 30, 2021, cash flows used in investing activities were $56.3 million, primarily related to origination and purchase of loans of $82.1 million, purchase of partnership interest in a limited partnership of $14.1 million and purchase of marketable securities of $6.5 million, partially offset by proceeds from repayments of loans of $46.4 million.

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

Cash Flows From Financing Activities

For the six months ended June 30, 2021, cash flows from financing activities were $128.0 million, primarily due to proceeds from issuance of unsecured notes payable, net of discount, of $82.5 million;

proceeds from obligations under participation agreements and secured borrowing of $62.6 million;

proceeds from borrowings under the term loan and revolving line of credit of $11.2 million;

and an increase in interest reserve and other deposits hold on investments of $0.7 million.

These cash inflows were partially offset by repayments on obligations under participation agreements of $12.4 million, distributions paid of $8.3 million, payment of mortgage principal of $3.6 million, repayment on borrowings under the term loan of $2.6 million and payment for deferred financing costs of $1.5 million.

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

Critical Accounting Policies and Use of Estimates

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

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

Our consolidated financial statements are prepared in conformity with United States generally accepted accounting principles, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

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

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and (iv) loan to value.

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 we modify a loan by granting the borrower a concession that we might not otherwise consider when a borrower is experiencing financial difficulty or is expected to experience financial difficulty in the foreseeable future.

1 unchanged sentence

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

We elected to be taxed as a REIT and to comply with the related provisions of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”).

We elected to be taxed as a REIT and to comply with the related provisions of the Internal Revenue Code of 1986, as amended.

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

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We recognize interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in our consolidated statements of operations.

For the three months ended March 31, 2021 and 2020, we did not incur any interest or penalties.

For the three and six months ended June 30, 2021 and 2020, we did not incur any interest or penalties.

Our 2017-2019 federal tax returns remain subject to examination and consequently, the taxability of the distributions and other tax positions taken by us may be subject to change.

3 unchanged sentences

Contractual Obligations

The following table provides a summary of our contractual obligations at March 31, 2021:

The following table provides a summary of our contractual obligations at June 30, 2021:

Total Less than

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107,016,023 — 58,654,490 48,361,533 —

Unsecured notes payable — principal (4)

85,125,000 — — 85,125,000 —

Revolving Line of Credit payable —

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

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

We have no direct liability to a participant under our participation agreements with respect to the underlying loan, and the participants’ share of the loan is repayable only from the proceeds received from the related borrower/issuer of the loans.

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(3) Amount excludes unamortized deferred financing costs of $2.1 million.

(4) Amount excludes unamortized debt insurance costs of $3.5 million.

(5) Amount excludes unamortized deferred financing costs of $0.5 million.

(5) Interest was calculated using the applicable annual variable interest rate and balance outstanding at March 31, 2021.

(6) Interest was calculated using the applicable annual variable interest rate and balance outstanding at June 30, 2021.

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

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

As of March 31, 2021, we had seven of such loans with total funding commitments of $256.0 million, of which $200.5 million had been funded.

As of June 30, 2021, we had seven of such loans with total funding commitments of $256.7 million, of which $208.7 million had been funded.

(8) Represents rental obligation under the ground lease, inclusive of imputed interest, for our office building that it acquired through foreclosure.

The table above does not include our commitment under a subscription agreement with Mavik RESOF to fund up to $50.0 million to purchase the limited partnership interests in Mavik RESOF as the subscription agreement does not have fixed or determinable payments.

As of March 31, 2021, the unfunded commitment was $1.3 million.

Management Agreement with Terra REIT Advisors

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

We currently pay the following fees to Terra REIT Advisors pursuant to the Management Agreement:

Origination and Extension Fee .

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

Three Months Ended March 31,

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

2021 2020 2021 2020

Origination and extension fee expense (1)

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

As of March 31, 2021, the principal balance of our participation obligations totaled $71.3 million, consisting of $37.0 million in participation obligations to Terra Fund 6 and $34.3 million in participation obligations to third-parties.

Additionally, as of March 31, 2021, the principal balance of our secured borrowing was $22.0 million.

As of June 30, 2021, the principal balance of our participation obligations totaled $114.3 million, consisting of $53.0 million in participation obligations to Terra Fund 6 and $61.3 million in participation obligations to third-parties.

Additionally, as of June 30, 2021, the principal balance of our secured borrowing was $25.9 million.

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

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

For the three months ended March 31, 2021, the weighted average outstanding principal balance on obligations under participation agreements was approximately $88.6 million, and the weighted average interest rate was approximately 10.1%, compared to weighted average outstanding principal balance of approximately $88.1 million, and weighted average interest rate of approximately 11.7% for the three months ended March 31, 2020.

For the three and six months ended June 30, 2021, the weighted average outstanding principal balance on obligations under participation agreements was approximately $112.6 million and $100.8 million, and the weighted average interest rate was approximately 10.6% and 10.4%, respectively, compared to weighted average outstanding principal balance of approximately $73.1 million and $81.2 million, and weighted average interest rate of approximately 10.9% 11.5% for the three and six months ended June 30, 2020, respectively.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements