What changed in this filing

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Item 1. Financial Statements

2021-11-12 compared with 2021-08-12 · 346 added, 290 removed, 1597 unchanged (28% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Cash and cash equivalents $ 51,975,601 $ 18,607,952

9 unchanged sentences

Operating lease right-of-use assets 27,398,786 16,105,888

Deal deposits 9,529,476 —

Interest receivable 2,692,367 2,509,589

18 unchanged sentences

Unearned income 424,976 677,856

Distributions payable 3,906 —

Other liabilities 1,231,289 429,123

3 unchanged sentences

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,

125 shares authorized and 125 shares issued and outstanding at both September

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

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

shares issued and outstanding at both September 30, 2021 and December 31,

2020, respectively 194,875 194,875

6 unchanged sentences

Consolidated Statements of Operations

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

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

2021 2020 2021 2020

1 unchanged sentence

Real estate operating revenue 2,191,178 2,990,919 6,468,519 7,555,065

Prepayment fee income 190,997 — 190,997 —

Other operating income 345,180 76,736 741,973 417,750

13 unchanged sentences

Other income and expenses

Interest expense from obligations under participation

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

Interest expense from obligations under

participation agreements ( 3,278,294 ) ( 1,975,269 ) ( 7,931,176 ) ( 6,358,657 )

Interest expense on repurchase agreement payable — ( 706,527 ) — ( 3,727,466 )

6 unchanged sentences

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 —

Net unrealized (losses) gains on marketable

securities ( 257,329 ) ( 38,527 ) ( 23,063 ) 28,995

Income from equity investment in a limited

partnership 1,824,825 — 4,563,491 —

Realized loss on loan repayments ( 517,989 ) — ( 517,989 ) —

Realized gains on marketable securities 22,428 75,055 22,428 1,160,162

11 unchanged sentences

Consolidated Statements of Comprehensive Income

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

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

2021 2020 2021 2020

3 unchanged sentences

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

Reclassification of net realized gains on marketable

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

— ( 184,025 ) — —

Reclassification of net realized gains on

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

Total comprehensive (loss) income $ ( 727,758 ) $ 2,143,130 $ 643,567 $ 5,368,135

20 unchanged sentences

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

Distributions declared on common shares ($0.20 per share) — — — — — — ( 3,893,594 ) — ( 3,893,594 )

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

Comprehensive loss:

Net loss — — — — — — ( 727,758 ) — ( 727,758 )

Balance at September 30, 2021 — 125 $ 125,000 19,487,460 $ 194,875 $ 373,443,672 $ ( 82,023,174 ) $ — $ 291,740,373

See notes to unaudited consolidated financial statements .

20 unchanged sentences

Comprehensive income:

— — — — — — —

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

2 unchanged sentences

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

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

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

Comprehensive income:

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

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

See notes to unaudited consolidated financial statements .

1 unchanged sentence

Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

4 unchanged sentences

Provision for loan losses 1,565,245 1,356,737

Lease termination fee income — ( 236,000 )

Amortization of net purchase premiums on loans 46,043 41,807

6 unchanged sentences

Amortization of above-market rent ground lease ( 97,762 ) ( 97,761 )

Realized loss on loan repayments 517,989 —

Realized gains on marketable securities ( 22,428 ) ( 1,160,162 )

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

Net unrealized losses (gains) on marketable securities 23,063 ( 28,995 )

Income from equity investment in a limited partnership ( 4,563,491 ) —

Distributions from equity investment in a limited partnership 4,563,491 —

Changes in operating assets and liabilities:

Deal deposits ( 9,529,476 ) —

Interest receivable ( 182,778 ) ( 983,769 )

5 unchanged sentences

Other liabilities 802,166 ( 805,229 )

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

Net cash (used in) provided by operating activities ( 5,167,585 ) 6,225,486

Cash flows from investing activities:

4 unchanged sentences

Proceeds from sale of marketable securities 3,328,157 6,023,723

Return of capital from equity investment in a limited partnership 415,172 —

Net cash used in investing activities ( 74,396,704 ) ( 57,084,192 )

See notes to unaudited consolidated financial statements .

Terra Property Trust, Inc.

Consolidated Statements of Cash Flows (Unaudited) (Continued)

Nine Months Ended September 30,

Cash flows from financing activities:

11 unchanged sentences

Repayment of borrowings under repurchase agreement — ( 103,994,570 )

Repayment of borrowings under revolving line of credit — ( 10,000,000 )

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

7 unchanged sentences

$ 66,118,332 $ 93,611,346

Terra Property Trust, Inc.

Consolidated Statements of Cash Flows (Continued)

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental Disclosure of Cash Flows Information:

Cash paid for interest $ 14,973,631 $ 12,030,182

See notes to unaudited consolidated financial statements .

Terra Property Trust, Inc.

Consolidated Statements of Cash Flows (Continued)

Supplemental Non-Cash Financing Activities:

27 unchanged sentences

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2021

September 30, 2021

Terra Property Trust, Inc.

6 unchanged sentences

On March 2, 2020, the Company engaged in a series of transactions pursuant to which the Company issued an aggregate of 4,574,470.35 shares of 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 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 ).

As of September 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.

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

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

The Company also operates its business in a manner that permits it to maintain its exemption from registration as an “investment company” under the Investment Company Act of 1940, as amended.

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

17 unchanged sentences

(a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) the holders of the equity investment at risk, as a group, lack either the direct or indirect ability through voting rights or similar rights to make decisions that have a significant effect on the success of the entity or the obligation to absorb the entity’s expected losses or right to receive the entity’s expected residual returns, or (c) the voting rights of some equity investors are disproportionate to their obligation to absorb losses of the entity, their rights to receive returns from an entity, or both and substantially all of the entity’s activities either involve or are conducted on behalf of an investor with disproportionately few voting rights.

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

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

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

68 unchanged sentences

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

Deal Deposits

When negotiating the acquisition of investments, the Company may be required a fund a refundable deposit in order to facilitate the transaction.

These deposits are not interest bearing and will either be applied to the purchase price at the time the investment closes or be refunded when the Company determines the transaction is not likely to close.

The Company classifies these deposits as deal deposits on the consolidated balance sheet

Revenue Recognition

27 unchanged sentences

Cash held in escrow by lender represents amounts funded to an escrow account for debt services and tenant improvements.

Notes to Unaudited Consolidated Financial Statements

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:

September 30,

Cash and cash equivalents $ 51,975,601 $ 65,729,695

3 unchanged sentences

statements of cash flows $ 66,118,332 $ 93,611,346

Notes to Unaudited Consolidated Financial Statements

Participation Interests

22 unchanged sentences

federal and state income taxes at regular corporate rates.

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.

Notes to Unaudited Consolidated Financial Statements

As of September 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 nine months ended September 30, 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 periods presented herein.

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

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

For the three and nine months ended September 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 2018 - 2020 federal tax returns remain subject to examination by the Internal Revenue Service.

Notes to Unaudited Consolidated Financial Statements

Earnings Per Share

10 unchanged sentences

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;

The Company believes the estimates and assumptions underlying its financial statements are reasonable and supportable based on the information available as of September 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.

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

Segment Information

10 unchanged sentences

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

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

The Company meets the definition of a smaller

Notes to Unaudited Consolidated Financial Statements

reporting company under the regulation of the Securities and Exchange Commission.

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

9 unchanged sentences

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 tenors, and of all non-U.S.

dollar LIBOR rates, after December 31, 2021.

17 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

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:

10 unchanged sentences

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.

16 unchanged sentences

Total identifiable net assets $ 40,749,378

Notes to Unaudited Consolidated Financial Statements

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

5 unchanged sentences

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

As of June 30, 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

As of September 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.

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 June 30, 2021 and December 31, 2020:

June 30, 2021 December 31, 2020

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

September 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 0.10 % 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.

Coupon rate shown was determined using LIBOR of 0.08 % and 0.14 % as of September 30, 2021 and December 31, 2020, respectively.

(2) As of September 30, 2021 and December 31, 2020, amounts included $ 162.8 million and $ 184.2 million of senior mortgages used as collateral for $ 93.6 million and $ 107.6 million of borrowings under a term loan, respectively ( Note 9 ).

Notes to Unaudited Consolidated Financial Statements

As of September 30, 2021, amounts also included $ 42.2 million of senior mortgages used as collateral for $ 25.3 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 June 30, 2021 and December 31, 2020, nine and twelve of these loans, respectively, are subject to a LIBOR floor.

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

Lending Activities

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

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

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

7 unchanged sentences

net 938,233 ( 44,053 ) 894,180

Realized loss on loan repayments (2)(3)

( 651,553 ) — ( 651,553 )

Provision for loan losses ( 1,565,245 ) — ( 1,565,245 )

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

Notes to Unaudited Consolidated Financial Statements

Balance, September 30, 2021 $ 480,462,652 $ — $ 480,462,652

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

7 unchanged sentences

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

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

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

_______________

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 $ 1.0 million and $ 0.6 million for the six months ended June 30, 2021 and 2020, respectively.

PIK interest related to obligations under participation agreements amounted to $ 1.0 million and $ 1.1 million for the nine months ended September 30, 2021 and 2020, respectively.

(2) On September 2, 2021, the Company foreclosed on a hotel property encumbered by a first mortgage and the related subordinated mezzanine loan, both of which were held by the Company, with an aggregate principal balance $ 14.6 million.

On September 23, 2021, the hotel property was sold to a third party for $ 13.8 million.

The net proceeds from the sale, together with a payment under a contractual guarantee of $ 0.8 million from the borrower, were used to pay off both loans in full.

In connection with the loan repayment, the related obligation under participation agreement of $ 6.4 million was simultaneously satisfied.

In connection with the loan repayment, the Company recorded a loss of $ 0.4 million related to the write-off of the interest accrued but uncollected in the third quarter of 2021, excluding the amount attributable to obligations under participation agreements of $ 0.1 million.

(3) Amount also included realized loss of $ 0.3 million related to the TDR transaction described below.

Notes to Unaudited Consolidated Financial Statements

Portfolio Information

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

June 30, 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 September 30, 2021 and December 31, 2020:

September 30, 2021 December 31, 2020

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

4 unchanged sentences

Total $ 482,089,565 $ 480,462,652 100.0 % $ 424,174,758 $ 422,280,515 100.0 %

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

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

Office $ 212,435,064 $ 213,199,243 44.4 % $ 182,698,225 $ 183,053,751 43.3 %

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

Infill land 79,495,651 79,895,793 16.6 % 10,442,567 10,537,512 2.5 %

Multifamily 78,724,866 79,265,718 16.5 % 150,873,173 151,768,347 35.9 %

Hotel - full/select service 56,847,381 57,365,987 11.9 % 49,142,809 49,393,251 11.7 %

Mixed use 16,586,603 16,586,603 3.5 % 16,767,984 16,767,984 4.0 %

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

Student housing 31,000,000 31,468,871 6.5 % 3,000,000 3,204,375 0.8 %

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

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

4 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

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

5 unchanged sentences

North Carolina 39,570,042 39,774,232 8.3 % 33,242,567 33,438,806 7.9 %

Washington 23,500,000 23,693,404 5.2 % 23,500,000 23,682,536 5.6 %

Massachusetts 7,000,000 7,000,000 1.5 % 7,000,000 7,000,000 1.7 %

Utah 28,000,000 28,308,646 5.9 % — — — %

Texas 13,625,000 13,721,970 2.9 % 3,848,712 3,887,200 0.9 %

Massachusetts 7,000,000 7,000,000 1.5 % 7,000,000 7,000,000 1.7 %

South Carolina 3,000,000 3,160,225 0.7 % 3,000,000 3,204,375 0.8 %

Washington 2,369,756 2,185,954 0.5 % 23,500,000 23,682,536 5.6 %

Allowance for loan losses — ( 4,319,563 ) ( 0.9 ) % — ( 3,738,758 ) ( 0.9 ) %

Total $ 482,089,565 $ 480,462,652 100.0 % $ 424,174,758 $ 422,280,515 100.0 %

Notes to Unaudited Consolidated Financial Statements

Loan Risk Rating

1 unchanged sentence

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

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

June 30, 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 September 30, 2021 and December 31, 2020:

September 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) 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,

(1) Because these loans have an event of default, they are removed from the pool of loans on which a general allowance is calculated and are evaluated for collectibility individually.

As of September 30, 2021 and December 31, 2020, the specific allowance for loan losses on these loans were $ 3.4 million and $ 2.5 million, respectively, as a result of a decline in the fair value of the collateral.

As of September 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 $ 0.4 million for the nine months ended September 30, 2021.

Additionally, as of September 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 $ 0.7 million and $ 2.0 million for the three and nine months ended September 30, 2021, respectively.

As of September 30, 2020, the Company had five loans with a loan risk rating of “4”, and recorded a general allowance for loan losses of $ 0.04 million and $ 1.4 million for the three and nine months ended September 30, 2020, respectively.

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

Nine Months Ended September 30,

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

1 unchanged sentence

Charge-offs (1)

( 984,440 ) —

Recoveries — —

Allowance for loan losses, end of period $ 4,319,563 $ 1,356,737

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

See Note 2 and Item 2.

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

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.

_______________

(1) Amount related to the TDR described below.

As of both September 30, 2021 and December 31, 2020, the Company had one loan that was in maturity default.

Additionally, for the three and nine months ended September 30, 2021, the Company suspended interest income accrual of $ 1.1 million and $ 2.4 million, respectively, on three loans, because recovery of such income was doubtful.

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

Notes to Unaudited Consolidated Financial Statements

Troubled Debt Restructuring

As of September 30, 2021, the Company had a recorded investment in troubled debt restructuring of $ 13.7 million.

There were no such loans as of December 31, 2020.

Due to financial difficulty resulting from the COVID-19 pandemic, a borrower defaulted on interest payments in May 2020 on a $ 3.5 million mezzanine loan and the Company subsequently suspended the interest accrual.

The Company purchased the senior loan from a third-party lender on September 3, 2021 in order to facilitate a refinancing.

Subsequently on September 23, 2021, the senior and mezzanine loans were refinanced and the Company issued a new senior loan with a committed amount of $ 14.7 million, of which $ 13.6 million was funded at closing.

The concession granted in the refinancing was the forgiveness of principal and accrued interest of $ 1.3 million on the mezzanine loan, of which $ 1.0 million was previously recorded as an allowance for loan losses, in addition to $ 0.4 million of nonaccrual interest.

The Company classified the refinancing as TDR as it met all the conditions to be considered TDR pursuant to ASC 310-40.

The following table summarizes the recorded investment of TDR as of the date of restructuring:

Number of loans modified 1

Pre-modified recorded carrying value $ 18,503,470

Post-modified recorded carrying value (1)

_______________

(1) As of September 30, 2021, the principal balance of this loan was $ 13.6 million and the carrying value of this loan, which includes the present value of the exit fee, was $ 13.7 million.

There is no allowance for loan losses recorded for this new senior loan.

Once classified as a TDR, the new senior loan is classified as an impaired loan until it is extinguished and the carrying value is evaluated at each reporting date for collectability based on the fair value of the underlying collateral.

Since the fair value of the collateral is greater than the carrying value of the new senior loan, no specific allowance was recorded as of September 30, 2021.

For the period ended September 30, 2021, interest income from the new senior loan was $ 0.2 million.

Equity Investment in a Limited Partnership

3 unchanged sentences

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

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

1 unchanged sentence

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

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.

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

As of September 30, 2021 and December 31, 2020, the carrying value of the Company ’ s investment in MAVIK RESOF was $ 49.9 million and $ 36.3 million, respectively.

For the three and nine months ended September 30, 2021, the Company recorded equity income from Mavik RESOF of $ 1.8 million and $ 4.6 million, respectively, and received distributions of $ 5.0 million from Mavik RESOF for both the three and nine months ended September 30, 2021.

There was no such equity income recorded or distributions received for the three and nine months ended September 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.

Notes to Unaudited Consolidated Financial Statements

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

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Investments at fair value (cost of $74,285,158 and $44,174,031, respectively) $ 74,891,687 $ 44,715,979

6 unchanged sentences

Partners’ capital $ 69,331,810 $ 39,496,194

Notes to Unaudited Consolidated Financial Statements

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

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

2021 2020 2021 2020

11 unchanged sentences

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

2021 — In September 2021, the Company signed a new lease for the vacant space in the office building.

The lease commences on December 1, 2021 and has term of 10 years with an option to extend the lease for 5 years .

Additionally, the lease provides for a fixed rental payment plus a percentage rent that is based on 6 % of the gross sales of the tenant’s business.

The lease also provides a 3 % increase in rental payment every year.

Notes to Unaudited Consolidated Financial Statements

Real Estate Owned, Net

1 unchanged sentence

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

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

14 unchanged sentences

Total real estate $ 70,699,927 $ ( 10,214,510 ) $ 60,485,417 $ 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 June 30, Six Months Ended June 30,

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

2021 2020 2021 2020

16 unchanged sentences

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.

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

Notes to Unaudited Consolidated Financial Statements

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.

2 unchanged sentences

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 .

Had the new base rent been recorded on November 1, 2020, lease expense including amortization of above-market ground lease would have been $ 1.3 million for the nine months ended September 30, 2021 and total real estate operating expenses would have been $ 3.4 million for the nine months ended September 30, 2021 .

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.

10 unchanged sentences

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

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 June 30, 2021 are as follows:

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

Years Ending December 31, Total

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

2021 (October 1 through December 31) $ 2,341,470

2022 7,504,551

4 unchanged sentences

Total $ 33,969,701

Notes to Unaudited Consolidated Financial Statements

Scheduled Annual Net Amortization of Intangibles

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:

Based on the intangible assets and liabilities recorded at September 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 (July 1 through December 31) $ ( 169,110 ) $ 1,031,030 $ ( 65,174 ) $ 796,746

2021 (October 1 through December 31) $ ( 84,555 ) $ 515,515 $ ( 32,587 ) $ 398,373

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

10 unchanged sentences

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Operating lease

6 unchanged sentences

(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 June 30, Six Months Ended June 30,

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

2021 2020 2021 2020

3 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

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

Six Months Ended June 30,

Nine Months Ended September 30,

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

4 unchanged sentences

Years Ending December 31, Operating Lease

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

2021 (October 1 through December 31) $ 519,750

2022 2,079,000

15 unchanged sentences

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

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 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.

Notes to Unaudited Consolidated Financial Statements

As of September 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 June 30, 2021 and December 31, 2020, according to the fair value hierarchy:

June 30, 2021

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

September 30, 2021

Fair Value Measurements

2 unchanged sentences

Equity securities $ 4,437,855 $ — $ — $ 4,437,855

Debt securities — — — —

Total $ 4,437,855 $ — $ — $ 4,437,855

4 unchanged sentences

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

Debt securities — — — —

Total $ 1,287,500 $ — $ — $ 1,287,500

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

Six Months Ended June 30,

Nine Months Ended September 30,

Beginning balance $ 1,287,500 $ —

2 unchanged sentences

Reclassification of net realized gains on marketable securities into earnings 22,428 1,160,162

Unrealized gains on marketable securities 234,266 67,522

Unrealized (losses) gains on marketable securities ( 23,063 ) 28,995

Ending balance $ 4,437,855 $ 1,205,001

2 unchanged sentences

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

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

14 unchanged sentences

Total liabilities $ 373,228,429 $ 368,189,495 $ 373,532,517 $ 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 June 30, 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 September 30, 2021 and December 31, 2020 due to their short-term nature.

Valuation Process for Fair Value Measurement

17 unchanged sentences

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 June 30, 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 September 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 June 30, 2021 Primary Valuation Technique Unobservable Inputs June 30, 2021

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

Asset Category Minimum Maximum Weighted Average

25 unchanged sentences

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,

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

2021 2020 2021 2020

21 unchanged sentences

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

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

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

Operating Expenses

5 unchanged sentences

Distributions Paid

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 ).

For the three months ended September 30, 2021 and 2020, the Company made distributions to Terra JV and Terra Offshore REIT totaling $ 3.9 million and $ 4.0 million, respectively, of which $ 3.9 million and $ 1.9 million were returns of capital, respectively.

For the nine months ended September 30, 2021 and 2020, the Company made distributions to Terra 5, Terra JV

and Terra Offshore REIT totaling $ 12.2 million and $ 17.3 million, respectively, of which $ 10.7 million and $ 12.0 million were returns of capital, respectively ( Note 11 ).

Due to 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.

As of September 30, 2021 and December 31, 2020, approximately $ 1.9 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

16 unchanged sentences

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.

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

December 31, 2020

7 unchanged sentences

Transfers of Participation Interest by the Company

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:

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

Transfers Treated as Obligations Under Participation Agreements as of

June 30, 2021

September 30, 2021

Principal Balance Carrying Value % Transferred Principal Balance Carrying Value

8 unchanged sentences

14,038,270 14,166,228 50.00 % 7,022,341 7,086,349

Stonewall Station Mezz LLC (2)

$ 163,329,252 $ 164,170,603 $ 105,566,232 $ 106,190,225

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)

23,500,000 23,693,404 21.28 % 5,000,000 5,041,150

$ 195,991,285 $ 197,157,665 $ 114,329,732 $ 115,021,242

Transfers Treated as Obligations Under Participation Agreements as of

20 unchanged sentences

(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.

(4) The obligation under participation agreement was repaid in 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 participation agreement.

, 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.

6 unchanged sentences

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

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

Transfers Treated as Secured Borrowing as of September 30, 2021

Principal Balance Carrying Value % Transferred Principal Balance Carrying Value

14 unchanged sentences

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

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 September 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 September 30, 2021:

September 30, 2021

Principal Balance Carrying Value (1)

10 unchanged sentences

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

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

As of September 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.

3 unchanged sentences

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

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

September 30, 2021

Borrowing Base Borrowings Under the Revolving Line of Credit

1 unchanged sentence

870 Santa Cruz, LLC $ 14,743,638 $ 14,812,462 $ 14,868,662 $ 10,324,046

D-G Acquistion #6, LLC and D-G Quimisa, LLC 8,355,853 8,379,936 8,428,907 5,500,000

606 Fayetteville LLC and 401 E, Lakewood LLC 16,770,042 16,865,626 16,910,927 7,816,840

The Lux Washington, LLC 2,369,756 2,185,954 2,389,495 1,658,827

$ 42,239,289 $ 42,243,978 $ 42,597,991 $ 25,299,713

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.

For the nine months ended September 30, 2021, the Company received proceeds from the Revolving Line of Credit of $ 25.3 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”)

16 unchanged sentences

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

As of June 30, 2021 and December 31, 2020, the Company is in compliance with these covenants.

As of September 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.

4 unchanged sentences

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 June 30, 2021 and December 31, 2020, there was no Term Loan Principal Trigger Event.

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

June 30, 2021

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

September 30, 2021

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

5 unchanged sentences

AGRE DCP Palm Springs, LLC 43,222,381 43,644,017 43,469,020 23,146,265

MSC Fields Peachtree Retreat, LLC 23,308,334 23,432,147 23,448,095 13,985,001

Patrick Henry Recovery Acquisition, LLC 18,000,000 18,040,664 18,049,598 10,800,000

14 unchanged sentences

_______________

(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.

(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 September 30, 2021 and December 31, 2020, using LIBOR of 0.08 % 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 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.

For the nine months ended September 30, 2021, the Company received proceeds from borrowings under the Term Loan of $ 2.6 million and made repayment of $ 16.6 million.

As of September 30, 2021, the remaining amount for Committed Advances and discretionary advances was $ 0.4 million and $ 6.9 million, respectively.

Repurchase Agreement

5 unchanged sentences

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.

3 unchanged sentences

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 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.

For the nine months ended September 30, 2020, the Company received proceeds from borrowings under the Master Repurchase Agreement of $ 22.9 million and made repayments of $ 104.0 million.

Revolving Credit Facility

7 unchanged sentences

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

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

For the nine months ended September 30, 2020, the Company received proceeds $ 35.0 million from borrowings under the Revolving Credit Facility and made repayments of $ 10.0 million.

Mortgage Loan Payable

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

As of September 30, 2021, the Company had a $ 32.2 million mortgage loan payable collateralized by a multi-tenant office building that the Company acquired through foreclosure.

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

September 30, 2021 December 31, 2020

Lender Current

1 unchanged sentence

Date Principal Amount Carrying Value Carrying Value of

Collateral Carrying Value Carrying Value of

Collateral Principal Amount Carrying Value Carrying Value of

Centennial Bank LIBOR + 3.85%

1 unchanged sentence

Scheduled Debt Principal Payments

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

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

Years Ending December 31, Total

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

2022 40,000,400

2021 (October 1 through December 31) 201,883

2022 31,962,692

4 unchanged sentences

Total $ 230,473,831

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

At September 30, 2021 and December 31, 2020, the unamortized deferred debt issuance costs were $ 5.7 million and $ 2.2 million, respectively.

Obligations Under Participation Agreements and Secured Borrowing

2 unchanged sentences

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 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.

As of September 30, 2021 and December 31, 2020, obligations under participation agreements had a carrying value of approximately $ 106.2 million and $ 71.6 million, respectively, and the carrying value of the loans that are associated with these obligations under participation agreements was approximately $ 164.2 million and $ 168.6 million, respectively, (see “ Participation Agreements ” in Note 8 ).

Additionally, as of September 30, 2021 and December 31, 2020, secured borrowing had a carrying value of approximately $ 31.5 million and $ 18.2 million, and the carrying value of the loan that is associated with the secured borrowing was $ 45.8 million and $ 26.4 million, respectively.

The weighted-average interest rate on the obligations under participation agreements and secured borrowing was approximately 11.3 % and 10.2 % as of September 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 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.

As of September 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 $ 48.0 million and $ 67.9 million as of June 30, 2021 and December 31, 2020, respectively.

These fundings amounted to approximately $ 80.7 million and $ 67.9 million as of September 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 June 30, 2021, the commitment was fully funded.

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

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

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Earnings Per Share

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,

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

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

2021 2020 2021 2020

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Net (loss) income allocable to common stock ( 731,664 ) 2,139,224 $ 631,849 $ 5,356,417

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

Weighted-average shares outstanding - basic

and diluted 19,487,460 19,487,461 19,487,460 18,586,627

(Loss) earnings per share - basic and diluted $ ( 0.04 ) $ 0.11 $ 0.03 $ 0.29

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

As of September 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.

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.

For the nine months ended September 30, 2021 and 2020, the Company made distributions to Terra 5, Terra JV and Terra Offshore REIT totaling $ 12.2 million and $ 17.3 million, respectively, of which $ 10.7 million and $ 12.0 million were returns of capital, respectively.

Additionally, for both the three and nine months ended September 30, 2021 and 2020, the Company made distributions to preferred stockholders of $ 3,906 and $ 11,718 , respectively.

Subsequent Events

Management has evaluated subsequent events through the date the consolidated financial statements were available to be issued.

Management has determined that there are no material events that would require adjustment to, or disclosure in, the Company’s consolidated financial statements.

Management has determined that there are no material events other than the one described below that would require adjustment to, or disclosure in, the Company’s consolidated financial statements.

On November 8, 2021, Terra Mortgage Capital III, LLC (the “Seller”), a special-purpose indirect wholly-owned subsidiary of the Company, entered into an Uncommitted Master Repurchase Agreement (the “UBS Master Repurchase Agreement”) with UBS AG ( the “Buyer”).

The UBS Master Repurchase Agreement provides for advances of up to $ 195 million in the aggregate, which the Company expects to use to finance certain secured performing commercial real estate loans, including senior mortgage loans, where the underlying mortgaged properties consist of value-added assets with loan-to-value ratio between 65 % and 80 % that are typically yielding between 2.5 % and 5.0 %.

Advances under the UBS Master Repurchase Agreement accrue interest at a per annum pricing rate equal to the sum of (i) the 30-day LIBOR and (ii) the applicable spread, which ranges from 1.60 % to 1.85 %, and have a maturity date of November 7, 2024 .

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

Subject to satisfaction of certain conditions, the Seller may extend the maturity date of the UBS Master Repurchase Agreement annually thereafter on mutually agreeable terms.

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

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

In connection with the UBS Master Repurchase Agreement, the Company entered into a Guarantee Agreement in favor of the Buyer (the “UBS Guarantee Agreement”).

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

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

(i) cash liquidity of at least the greater of $ 5 million or 5 % of the then-current outstanding amount under the Master Repurchase Agreement;

(ii) total liquidity of at least the greater of $ 15 million or 10 % of the then-current outstanding amount under the Master Repurchase Agreement (iii) tangible net worth at an amount equal to or greater than $ 215.7 million plus 75 % of new capital contributions thereafter;

(iv) an EBITDA to interest expense ratio of not less than 1.50 to 1.00;

and (v) a total indebtedness to tangible net worth ratio of not more than 3.50 to 1.00.

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

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federal, state and local government policies and the execution and impact of these actions, initiatives and policies;

• limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our exclusion from registration under the Investment Company Act of 1940, as amended (the “1940 Act”), and to maintain our qualification as a real estate investment trust (“REIT”) for U.S.

• limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our exemption from registration as an “investment company” under the Investment Company Act of 1940, as amended (the “1940 Act”), and to maintain our qualification as a real estate investment trust (“REIT”) for U.S.

federal income tax purposes;

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

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.

As of September 30, 2021, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 19 loans in ten states with an aggregate net principal balance of $345.0 million, a weighted average coupon rate of 7.4%, a weighted average loan-to-value ratio of 74.1% 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 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.

The profile of these properties ranges from stabilized and value-added properties to pre-

development and construction.

The portfolio includes diverse property types such as multifamily housing, condominiums, hotels, student housing, commercial offices, medical

offices and mixed-use properties.

The profile of these properties ranges from stabilized and value-added properties to pre-development and construction.

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

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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 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 of September 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 may pursue such a liquidity transaction as early as 2022, but 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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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 June 30, 2021 and December 31, 2020:

June 30, 2021

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

September 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 0.10% 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.

Coupon rate shown was determined using LIBOR of 0.08% and 0.14% as of September 30, 2021 and December 31, 2020.

(2) As of September 30, 2021 and December 31, 2020, amounts included $162.8 million and $184.2 million of senior mortgages used as collateral for $93.6 million and $107.6 million of borrowings under a term loan, respectively.

As of September 30, 2021, amounts also included $42.2 million of senior mortgages used as collateral for $25.3 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 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.

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

In addition to our net loan portfolio, as of September 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 $60.5 million and $62.9 million as of September 30, 2021 and December 31, 2020, respectively.

The mortgage loan payable encumbering the office building had an outstanding principal amount of $32.2 million and $44.0 million as of September 30, 2021 and December 31, 2020, respectively.

Additionally, as of September 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 September 30, 2021 and December 31, 2020, the equity interest had a carrying value of $49.9 million and $36.3 million, respectively.

Portfolio Investment Activity

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.

For the three months ended September 30, 2021 and 2020, we invested $56.5 million and $14.9 million in new and add-on investments and had $37.7 million and $13.2 million of repayments, resulting in net investments of $18.8 million and $1.7 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.

For the nine months ended September 30, 2021 and 2020, we invested $85.9 million and $31.7 million in new and add-on investments and had $69.0 million and $34.2 million of repayments, resulting in net investments of $16.9 million and net repayments of $2.5 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.

Net Loan Portfolio Information

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Loan Structure Principal Balance Carrying

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Total $ 345,045,451 $ 342,746,988 100.0 % $ 334,626,607 $ 332,510,955 100.0 %

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Property Type Principal Balance Carrying

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Office $ 160,510,265 $ 161,226,887 47.1 % $ 145,560,299 $ 146,010,011 43.9 %

Multifamily 80,045,747 80,665,972 25.3 % 103,057,678 103,678,464 31.1 %

Hotel - full/select service 56,847,381 57,365,987 16.7 % 49,142,809 49,393,251 14.9 %

Multifamily 40,605,551 40,942,045 11.9 % 103,057,678 103,678,464 31.1 %

Infill land 32,495,651 32,476,158 9.5 % 5,847,837 5,901,575 1.8 %

Student housing 31,000,000 31,468,871 9.3 % 3,000,000 3,204,375 1.0 %

Mixed use 16,586,603 16,586,603 4.8 % 16,767,984 16,767,984 5.0 %

Industrial 7,000,000 7,000,000 2.0 % 7,000,000 7,000,000 2.1 %

Infill land 13,038,852 13,157,959 4.1 % 5,847,837 5,901,575 1.8 %

Hotel - extended stay — — — % 4,250,000 4,294,053 1.3 %

Student housing 3,000,000 3,174,860 1.0 % 3,000,000 3,204,375 1.0 %

Allowance for loan losses — (4,319,563) (1.3) % — (3,738,758) (1.1) %

Total $ 345,045,451 $ 342,746,988 100.0 % $ 334,626,607 $ 332,510,955 100.0 %

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Geographic Location Principal Balance Carrying

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California $ 131,983,959 $ 133,027,214 38.8 % $ 143,454,602 $ 144,066,584 43.3 %

Georgia 75,167,030 75,556,746 23.7 % 74,116,787 74,505,752 22.4 %

New York 61,575,379 61,648,792 18.0 % 56,058,669 56,139,234 16.9 %

Georgia 52,921,315 53,194,876 15.5 % 74,116,787 74,505,752 22.4 %

North Carolina 39,570,042 39,774,232 11.6 % 28,647,837 28,802,869 8.7 %

Washington 18,500,000 18,652,254 5.9 % 18,500,000 18,643,699 5.5 %

Utah 28,000,000 28,308,646 8.4 % — — — %

Texas 13,625,000 13,721,970 4.0 % 3,848,712 3,887,200 1.2 %

Massachusetts 7,000,000 7,000,000 2.0 % 7,000,000 7,000,000 2.1 %

Pennsylvania 5,000,000 5,044,642 1.5 % — — — %

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

South Carolina 3,000,000 3,160,225 0.9 % 3,000,000 3,204,375 1.0 %

Washington 2,369,756 2,185,954 0.6 % 18,500,000 18,643,699 5.5 %

Allowance for loan losses — (4,319,563) (1.3) % — (3,738,758) (1.1) %

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Results of Operations

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,

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

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

2021 2020 Change 2021 2020 Change

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Real estate operating revenue 2,191,178 2,990,919 (799,741) 6,468,519 7,555,065 (1,086,546)

Prepayment fee income 190,997 — 190,997 190,997 — 190,997

Other operating income 345,180 76,736 268,444 741,973 417,750 324,223

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Interest expense on secured borrowing (467,957) (236,632) (231,325) (1,102,667) (446,745) (655,922)

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

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

2021 2020 Change 2021 2020 Change

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agreements — — — — (319,453) 319,453

Net change in unrealized gains on

Net unrealized (losses) gains on

marketable securities (257,329) (38,527) (218,802) (23,063) 28,995 (52,058)

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limited partnership 1,824,825 — 1,824,825 4,563,491 — 4,563,491

Realized loss on loan repayments (517,989) — (517,989) (517,989) — (517,989)

Realized gains on marketable

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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 and six months ended June 30, 2021 and 2020 :

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

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

Three Months Ended September 30, 2021 Three Months Ended September 30, 2020

Weighted Average Principal Amount (1)

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$ 120,346,425 10.2 % $ 138,061,841 12.2 %

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

Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020

Weighted Average Principal Amount (1)

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

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.

For the three and nine months ended September 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 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.

For the three and nine months ended September 30, 2021 as compared to the same periods in 2020, interest income decreased by $0.1 million and $2.4 million, respectively, primarily due to the suspension of interest income accrual of $1.1 million and $2.4 million on three loans, because recovery of such income was doubtful.

For the three months ended September 30, 2021 as compared to the same period in 2020, the decrease in interest income resulting from the suspension of interest income accrual was partially offset by an increase in interest income resulting from an increase in the weighted average principal balance of gross loans partially offset by a decrease in the weighted average coupon rate on gross loans.

Real Estate Operating Revenue

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.

For the three and nine months ended September 30, 2021 as compared to the same periods in 2020, real estate operating revenue decreased by $0.8 million and $1.1 million, respectively, as a result of a lease termination in the third quarter of 2020.

Prepayment Fee Income

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

For each of the three and nine months ended September 30, 2021, we received a prepayment fee income of $0.2 million on a loan that the borrower repaid one year before maturity.

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

Other Operating Income

For each of the three and nine months ended September 30, 2021 as compared to the same periods in 2020, other operating income increased by $0.3 million, as a result of dividend income earned on the marketable securities we invested in.

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.

For the three and nine months ended September 30, 2021 as compared to the same periods in 2020, operating expenses reimbursed to the Manager decreased by $0.2 million as a result of a decrease in the Manager’s overhead costs for the period and increased by $0.1 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 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.

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, net of participation interest sold to affiliates, for each real estate-related investment and cash held by us.

For the three and nine months ended September 30, 2021 as compared to the same periods in 2020, asset management fees increased by $0.3 million and $0.4 million, respectively, 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 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.

For each of the three and nine months ended September 30, 2021 as compared to the same periods 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 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.

As of September 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 as a result we reversed the previously recorded general allowance for loan losses of $0.4 million for the nine months ended September 30, 2021.

Additionally, as of September 30, 2021, the number of loans deemed impaired increased as compared to those as of December 31, 2020, and we recorded specific allowance for loan losses of $0.7 million and $2.0 million for the three and nine months ended September 30, 2021, respectively.

As of September 30, 2020, we had five loans with a loan risk rating of “4”, and recorded a general allowance for loan losses of $0.04 million and $1.4 million for the three and nine months ended September 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.

For the three and nine months ended September 30, 2021 as compared to the same periods in 2020, real estate operating expenses increased by $0.4 million and $1.1 million, respectively, primarily due to an increase in ground rent expense on the multi-tenant office building resulting from a recent rent reset.

Depreciation and Amortization

For each of the three and nine months ended September 30, 2021 as compared to the same periods in 2020, depreciation and amortization decreased by $0.9 million, primarily due to a lease termination in the third quarter of 2020, at which time we wrote off the related intangible assets and liabilities.

Professional Fees

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.

For the three and nine months ended September 30, 2021 as compared to the same periods in 2020, professional fees increased by $0.1 million and $0.5 million, respectively, primarily due to legal fees incurred in connection with a financing transaction that was terminated.

For the nine months ended September 30, 2021 as compared to the same period 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 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.

For the three and nine months ended September 30, 2021 as compared to the same periods in 2020, interest expense from obligations under participation agreements increased by $1.3 million and $1.6 million, respectively, primarily due to an increase in weighted average outstanding principal balance 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 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.

For the three and nine months ended September 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 nine months ended September 30, 2020, interest expense on repurchase agreement payable was $0.7 million and $3.7 million, respectively.

Interest Expense on Mortgage Loan Payable

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.

For the three and nine months ended September 30, 2021 as compared to the same periods in 2020, interest expense on mortgage loan payable decreased by $0.2 million and $0.3 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 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.

For both the three and nine months ended September 30, 2021, interest expense on the new revolving line of credit was $0.2 million and $0.4 million.

For the three and nine months ended September 30, 2020, interest expense on the old revolving line of credit was $0.5 million and $1.2 million, respectively.

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

Interest Expense on Term Loan Payable

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

and financed under the indenture and credit agreement.

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

For the 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.

For the three and nine months ended September 30, 2021 as compared to the same period in 2020, interest expense on term loan payable increased by $1.2 million and $4.5 million, respectively, as a result of an increase in the weighted average amount outstanding.

Interest Expense on Secured Borrowing

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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 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.

For the three and nine months ended September 30, 2021 as compared to the same periods in 2020, interest expense on secured borrowing increased by $0.2 million and $0.7 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.

For the three and nine months ended September 30, 2021, interest expense on unsecured notes payable was $1.4 million and $1.7 million, respectively.

There was not such interest expense for the three and nine months ended September 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 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.

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

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 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.

As of September 30, 2021, we owned an 71.1% interest in limited partnership and our investment in the limited partnership had a carrying value of $49.9 million.

For the three and nine months ended September 30, 2021, we recognized income from equity investment in a limited partnership of $1.8 million and $4.6 million, respectively.

There was no equity income from the limited partnership for the three and nine months ended September 30, 2020 because operations of the limited partnership began in December 2020.

Realized Loss on Repayment of Loans

For the three and nine months ended September 30, 2021, two previously defaulted loans were repaid at a discount and we recognized a net loss on loan repayment of $0.5 million, excluding previously accrued allowance for loan losses of $1.0 million.

There was no such loss recognized during the same period in 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.

For each of the three and nine months ended September 30, 2021, we sold marketable securities and recognized realized gains on marketable securities of less than $0.1 million.

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

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.

For the three months ended September 30, 2021, the resulting net loss was $0.7 million, compared to net income of $2.1 million for the same period in 2020.

For the nine months ended September 30, 2021 as compared to the same period in 2020, the resulting net income decreased by $4.7 million.

Financial Condition, Liquidity and Capital Resources

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These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for our business.

Obligations under participation agreements totaling $109.3 million will mature in the next twelve months.

Obligations under participation agreements totaling $105.6 million and secured borrowing of $31.5 million will mature in the next twelve months.

We expect to use the proceeds from the repayment of the corresponding investments to repay the participation obligations.

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

As of September 30, 2021, the amount outstanding under the indenture and credit agreement was $93.6 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.

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

As of September 30, 2021, the Revolving Line of Credit had an outstanding balance of $25.3 million.

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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.

For the nine months ended September 30, 2021 as compared to the same period in 2020, cash flows from operating activities decreased by $11.4 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 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.

For the nine months ended September 30, 2021, cash flows used in investing activities were $74.4 million, primarily related to origination and purchase of loans of $163.5 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 $105.9 million and proceeds from sale of marketable securities of $3.3 million.

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

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.

For the nine months ended September 30, 2021, cash flows from financing activities were $112.8 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 $70.3 million and proceeds from borrowings under the term loan and revolving line of credit of $27.9 million.

These cash inflows were partially offset by repayments on obligations under participation agreements of $23.6 million, distributions paid of $12.2 million, payment of mortgage principal of $11.9 million, repayment on borrowings under the term loan of $16.6 million, an decrease in interest reserve and other deposits hold on investments of $1.9 million and payment for deferred financing costs of $1.7 million.

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

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

Critical Accounting Policies and Use of Estimates

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

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

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

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

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

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

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

federal income tax on income and gains distributed to our stockholders as long as certain asset, income and share ownership tests are met.

To maintain our qualification as a REIT, we must annually distribute at least 90% of our net taxable income to our stockholders and meet certain other requirements.

We may also be subject to certain state, local and franchise taxes.

Under certain circumstances, U.S.

federal income and excise taxes may be due on our undistributed taxable income.

If we were to fail to meet these requirements, we would be subject to U.S.

federal corporate income tax, which could have a material adverse impact on our results of operations and amounts available for distributions to our stockholders.

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

We did not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10-25, Income Taxes, nor did we have any unrecognized tax benefits as of the periods presented herein.

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

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.

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

We will furnish annually to each stockholder a statement setting forth distributions paid during the preceding year and their U.S.

federal income tax treatment.

Contractual Obligations

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

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

Total Less than

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

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

(6) Interest was calculated using the applicable annual variable interest rate and balance outstanding at September 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 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.

As of September 30, 2021, we had nine of such loans with total funding commitments of $305.4 million, of which $224.7 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.

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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 June 30, Six Months Ended June 30,

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

2021 2020 2021 2020

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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 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.

As of September 30, 2021, the principal balance of our participation obligations totaled $105.6 million, consisting of $48.5 million in participation obligations to Terra Fund 6 and $57.1 million in participation obligations to third-parties.

Additionally, as of September 30, 2021, the principal balance of our secured borrowing was $31.5 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 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.

For the three and nine months ended September 30, 2021, the weighted average outstanding principal balance on obligations under participation agreements was approximately $136.0 million and $113.1 million, and the weighted average interest rate was approximately 11.4% and 10.9%, respectively, compared to weighted average outstanding principal balance of approximately $81.5 million and $81.3 million, and weighted average interest rate of approximately 10.7% 11.1% for the three and nine months ended September 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