−Removed: We are a real estate credit focused company that originates, structures, funds and manages high yielding commercial real estate credit investments, including mezzanine loans, first mortgage loans, subordinated mortgage loans and preferred equity investments throughout the United States, which we collectively refer to as our targeted assets.
+Added: We are a real estate credit focused company that originates, structures, funds and manages commercial real estate credit investments, including mezzanine loans, first mortgage loans, subordinated mortgage loans and preferred equity investments throughout the United States, which we collectively refer to as our targeted assets.
Our loans finance the acquisition, construction, development or redevelopment of quality commercial real estate in the United States.
We focus on the origination of middle market loans in the approximately $10 million to $50 million range, to finance properties primarily in primary and secondary markets.
−Removed: We believe loans of this size are subject to less competition, offer higher risk adjusted returns than larger loans with similar risk metrics and facilitate portfolio diversification.
−Removed: Our objective is to continue to provide attractive risk-adjusted returns to our stockholders, primarily through regular distributions.
−Removed: There can be no assurances that we will be successful in meeting our objective.
+Added: We believe loans in this size range are subject to less competition, offer higher risk adjusted returns than larger loans with similar risk metrics and facilitate portfolio diversification.
+Added: Our investment objective is to provide attractive risk-adjusted returns to our stockholders, primarily through regular distributions.
+Added: There can be no assurances that we will be successful in meeting our investment objective.
Each of our loans was originated by Terra Capital Partners or its affiliates.
−Removed: Our portfolio is diversified geographically with underlying properties located in 20 markets across eight states and by loan structure and property type.
−Removed: The portfolio includes diverse property types such as multifamily housing, condominiums, hotels, student housing, commercial offices, medical offices and mixed-use properties.
+Added: Our portfolio is diversified based on location of the underlying properties, loan structure and property type.
+Added: As of December 31, 2021, our portfolio included underlying properties located in 21 markets, across nine states and includes property types such as multifamily housing, hotels, student housing, commercial offices, medical offices, mixed-use and industrial properties.
The profile of these properties ranges from stabilized and value-added properties to pre-development and construction.
−Removed: Our loans are structured across mezzanine debt, first mortgages, and preferred equity investments.
−Removed: We believe that compelling opportunities for us will emerge as a result of the economic downtown caused by the COVID-19 pandemic.
−Removed: While it has had a demonstrable effect on employment, the economy and the national psyche, the impact of the pandemic on property values has yet to be fully realized.
−Removed: The reason is that property values are the result of slow moving forces, including consumer behavior, supply and demand for space, availability and pricing of mortgage financing and investor demand for property.
−Removed: 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.
−Removed: We believe that we are well positioned to capitalize on these opportunities through our relationship with our Manager and Terra Capital Partners.
−Removed: Our Manager’s debt finance professionals maintain extensive relationships within the real estate industry, including with real estate developers, institutional real estate sponsors and investors, real estate funds, investment and commercial banks, private equity funds, asset originators and broker-dealers, as well as the capital and financing markets generally.
−Removed: We leverage the many years of experience and well-established contacts of our Manager’s debt finance professionals to grow our portfolio and expand our business.
+Added: Our loans are structured across mezzanine debt, first mortgages, preferred equity investments and credit facilities.
+Added: We believe that compelling opportunities for us will emerge as a result of the economic downturn caused by the ongoing COVID-19 pandemic.
+Added: While the COVID-19 pandemic has had a demonstrable effect on employment, the economy and the public’s morale, its impact 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.
+Added: As these factors become clear and commercial real estate is repriced accordingly, we believe there will be abundant opportunities available to experienced alternative lenders like us to provide financing for property acquisition, refinancing, development and redevelopment on attractive terms that reflect the new realities of the economy.
We were incorporated under the general corporation laws of the State of Maryland on December 31, 2015.
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and Terra Fund 5 and Terra Fund 7 owned an 87.6% and 12.4% interest, respectively, in Terra JV.
+Added: As previously disclosed, we continue to explore alternative liquidity transactions on an opportunistic basis to maximize stockholder value.
+Added: 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.
+Added: 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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federal income tax on our net taxable income to the extent that we annually distribute all of our net taxable income to our stockholders.
−Removed: Our Manager and Terra Capital Partners
−Removed: We are externally managed by our Manager, which is registered as an investment adviser under the Investment Advisers Act of 1940 (the “Advisers Act”).
−Removed: Our Manager is a subsidiary of Terra Capital Partners, a real estate credit focused investment manager based in New York City with a 18-year track record focused primarily on the origination and management of mezzanine loans, as well as first mortgage loans, bridge loans, and preferred equity investments in all major property types through multiple public and private pooled investment vehicles.
−Removed: Since its formation in 2001 and its commencement of operations in 2002, Terra Capital Partners has been engaged in providing financing on commercial properties of all major property types throughout the United States.
−Removed: In the lead up to the global financial crisis in 2007, believing that the risks associated with commercial real estate markets had grown out of proportion to the potential returns from such markets, Terra Capital Partners sold 100% of its investment management interests prior to the global financial crisis.
−Removed: It was not until mid-2009, after its assessment that commercial mortgage markets would begin a period of stabilization and growth, that Terra Capital Partners began to sponsor new investment vehicles, which included the predecessor private partnerships, to again provide debt capital to commercial real estate markets.
−Removed: The financings provided by all vehicles managed by Terra Capital Partners from January 2004 through December 31, 2020 have been secured by approximately 13.5 million square feet of office properties, 3.6 million square feet of retail properties, 3.8 million square feet of industrial properties, 4,855 hotel rooms and 26,854 apartment units.
−Removed: The value of the properties underlying this capital was approximately $9.6 billion based on appraised values as of the closing dates of each financing.
−Removed: In addition to its extensive experience originating and managing debt financings, Terra Capital Partners and its affiliates owned and operated over six million square feet of office and industrial space between 2005 and 2007, and this operational experience further informs its robust origination and underwriting standards and enables our Manager to effectively operate property underlying a financing upon a foreclosure.
−Removed: An affiliate of Axar Capital Management L.P.
−Removed: (“Axar Capital Management”) owns 100% of the voting interest and, together with certain members of the senior management of Terra Capital Partners, 100% of the economic interest in Terra Capital Partners.
−Removed: Axar Capital Management is an investment manager registered under the Advisers Act with over $750 million in assets under management as of December 31, 2020, headquartered in New York City and founded by Andrew M.
−Removed: Axar Capital Management focuses on value-oriented and opportunistic investing across the capital structure and multiple sectors.
−Removed: The firm seeks attractive prices relative to intrinsic value and invests in event-driven situations with clear catalysts and asymmetric return potential.
−Removed: Axar Capital Management’s senior real estate team, which joined Terra Capital Partners in February 2018, has worked together for over five years, having previously built the $3 billion real estate business at Mount Kellett Capital Management, LP.
−Removed: Axar Capital Management has a deep network of industry relationships including institutional investors (for both public and private investments), operators, advisers and senior lenders.
+Added: Our Manager, MAVIK Capital Management, LP and Terra Capital Partners
+Added: We are externally managed by our Manager, which is registered as an investment adviser under the Investment Advisers Act of 1940 (the “Advisers Act”), and is a subsidiary of Terra Capital Partners.
+Added: On April 1, 2021, MAVIK Capital Management, LP (“Mavik”), an entity controlled by Vikram S.
+Added: Uppal, our Chief Executive Officer, completed a series of related transactions that resulted in all of the outstanding interests in Terra Capital Partners being acquired by Mavik for a combination of cash and interests in Mavik (the “Recapitalization”).
+Added: As part of the Recapitalization, a private fund managed by a division of a publicly-traded alternative asset manager, acquired a passive interest consisting of “non-voting securities,” as that term is defined under the 1940 Act, in Mavik.
Terra Capital Partners is led by Vikram S.
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Pinkus (Chief Financial Officer) and Daniel Cooperman (Chief Originations Officer).
−Removed: Uppal was a Partner of Axar Capital Management and its Head of Real Estate.
+Added: Uppal was a Partner of Axar Capital Management L.P.
+Added: (“Axar Capital Management”) and its Head of Real Estate.
Prior to Axar Capital Management, Mr.
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The entire senior management team has held leadership roles at many top international real estate and investment banking firms, including Mount Kellett Capital Management and Fortress Investment Group.
+Added: Terra Capital Partners is a real estate credit focused investment manager based in New York City with a 19-year track record focused primarily on the origination and management of mezzanine loans, as well as first mortgage loans, bridge loans, and preferred equity investments in all major property types through multiple public and private pooled investment vehicles.
+Added: Since its formation in 2001 and its commencement of operations in 2002, Terra Capital Partners has been engaged in providing financing on commercial properties of all major property types throughout the United States.
+Added: In the lead up to the global financial crisis in 2007, believing that the risks associated with commercial real estate markets had grown out of proportion to the potential returns from such markets, Terra Capital Partners sold 100% of its investment management interests prior to the global financial crisis.
+Added: It was not until mid-2009, after its assessment that commercial mortgage markets would begin a period of stabilization and growth, that Terra Capital Partners began to sponsor new investment vehicles, which included the predecessor private partnerships, to again provide debt capital to commercial real estate markets.
+Added: The financings provided by all vehicles managed by Terra Capital Partners from January 2004 through December 31, 2021 have been secured by approximately 13.9 million square feet of office properties, 3.7 million square feet of retail properties, 5.5 million square feet of industrial properties, 5,058 hotel rooms and 27,925 apartment units.
+Added: The value of the properties underlying this capital was approximately $10.6 billion based on appraised values as of the closing dates of each financing.
+Added: In addition to its extensive experience originating and managing debt financings, Terra Capital Partners and its affiliates owned and operated over six million square feet of office and industrial space between 2005 and 2007, and this operational experience further informs its robust origination and underwriting standards and enables our Manager to effectively operate property underlying a financing upon a foreclosure.
Our Investment Strategy
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As part of our investment strategy, we:
−Removed: • focus on middle market loans of approximately $10 million to $50 million;
+Added: • target middle market loans of approximately $10 million to $50 million;
• focus on the origination of new loans, not on the acquisition of loans originated by other lenders;
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One of the reasons we completed the REIT formation transactions, as described under “—Overview,” is to expand our financing options, access to capital and capital flexibility in order to position us for future growth.
−Removed: We deploy moderate amounts of leverage as part of our operating strategy, which consists of borrowings under first mortgage financings, a revolving credit facility, repurchase agreements and a term loan.
+Added: We deploy moderate amounts of leverage as part of our operating strategy, which currently consists of unsecured notes payable, borrowings under first mortgage financings, a revolving line of credit, repurchase agreements and a term loan.
We may in the future also deploy leverage through other credit facilities and senior notes and we may divide the loans we originate into senior and junior tranches and dispose of the more senior tranches as an additional means of providing financing to our business.
In addition, we intend to match our use of floating rate leverage with floating rate investments.
−Removed: In December 2018, we entered into a master repurchase agreement with Goldman Sachs Bank USA (“Goldman”) that provided for advances of up to $150 million in the aggregate, which we used to finance certain secured performing commercial real estate loans, primarily senior mortgage loans.
−Removed: In September 2020, we terminated the master repurchase agreement and replaced it with a term loan from Goldman of $103.0 million.
−Removed: In addition, Goldman has agreed to provide $3.6 million of additional future advances and may provide up to $11.6 million of additional future discretionary advances under the term loan.
−Removed: In June 2019, we entered into a credit facility with Israel Discount Bank that provided for revolving credit loans of up to $35.0 million in the aggregate.
−Removed: In October 2020, we amended the credit facility and reduced the amount available for borrowing to $15.0 million.
−Removed: In March 2021, the credit facility was terminated.
−Removed: The credit facility was used for short term financing needed to bridge the timing of anticipated loan repayments and funding obligations.
−Removed: As of December 31, 2020, we had outstanding indebtedness, consisting of borrowings under a mortgage loan of $44.0 million and borrowings under the term loan of $107.6 million.
−Removed: As of December 31, 2020, the amount remaining available under the credit facility was $15.0 million.
+Added: As of December 31, 2021, we had outstanding indebtedness, consisting of borrowings under a mortgage loan of $32.0 million, unsecured notes payable of $85.1 million, the term loan of $93.8 million, a line of credit of $38.6 million and the repurchase agreement of $44.6 million.
+Added: As of December 31, 2021, the amount remaining available under the line of credit and the repurchase agreement was $36.4 million and $150.4 million, respectively.
Additionally, as of December 31, 2021, we had obligations under participation agreements and secured borrowing with an aggregate outstanding principal amount of $76.6 million.
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By originating, not purchasing, loans, we are able to structure and underwrite financings that satisfy our standards, utilize our proprietary documentation and establish a direct relationship with our borrower.
−Removed: Described below are some of the
−Removed: types of loans we own and seek to originate with respect to high-quality properties in the United States.
+Added: Described below are some of the types of loans we own and seek to originate with respect to high-quality properties in the United States.
We continue to see attractive lending opportunities, and we expect market conditions to remain favorable for our strategy for the foreseeable future.
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These loans generally pay interest on a specified due date (although there may be a portion of the interest that is deferred) and may, to the extent consistent with our qualification as a REIT, provide for participation in the value or cash flow appreciation of the underlying property as described below.
−Removed: Generally, we invest in mezzanine loans with last dollar loan-to-value ratios ranging from 60% to 85%.
−Removed: As of December 31, 2020, we owned five mezzanine loans with a total net principal amount of $23.9 million, which constituted 7.2% of our net loan investment portfolio.
+Added: Generally, we invest in mezzanine loans with last dollar loan-to-value ratios ranging
+Added: from 60% to 85%.
+Added: As of December 31, 2021, we owned three mezzanine loans with a total net principal amount of $17.4 million, which constituted 4.3% of our net loan investment portfolio.
Preferred Equity Investments .
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These investments are expected to have characteristics and returns similar to mezzanine loans.
−Removed: As of December 31, 2020, we owned six preferred equity investments with a total net principal amount of $101.0 million, which constituted 30.2% of our net loan investment portfolio.
+Added: As of December 31, 2021, we owned three preferred equity investments with a total net principal amount of $63.4 million, which constituted 15.7% of our net loan investment portfolio.
First Mortgage Loans .
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However, such loans typically generate lower returns than subordinate debt such as mezzanine loans, B-notes, or preferred equity investments.
−Removed: As of December 31, 2020, we owned nine first mortgage loans with a total net principal amount of $209.7 million, which constituted 62.7% of our net loan investment portfolio.
+Added: As of December 31, 2021, we owned 14 first mortgage loans with a total net principal amount of $310.9 million, which constituted 77.0% of our net loan investment portfolio.
As of December 31, 2021, we used $163.1 million of senior mortgage loans as collateral for $93.8 million of borrowings under a term loan;
+Added: $60.1 million of senior mortgage loans as collateral for $38.6 million of borrowings under a revolving line of credit and $67.4 million of senior mortgage loans as collateral for $44.6 million of borrowings under a repurchase agreement.
Subordinated Mortgage Loans (B-notes) .
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Equity participation can also take the form of a conversion feature, permitting the lender to convert a loan or preferred equity investment into equity in the borrower at a negotiated premium to the current net asset value of the borrower.
−Removed: We expect to obtain equity participations in certain instances where the loan collateral consists of a property that is being repositioned, expanded or improved in some
−Removed: fashion which is anticipated to improve future cash flow.
+Added: We expect to obtain equity participations in certain instances where the loan collateral consists of a property that is being repositioned, expanded or improved in some fashion which is anticipated to improve future cash flow.
In such case, the borrower may wish to defer some portion of the debt service or obtain higher leverage than might be merited by the pricing and leverage level based on historical performance of the underlying property.
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Other Real Estate-Related Investments .
−Removed: We may invest in other real estate-related investments, which may include commercial mortgage-backed securities (“CMBS”) or other real estate debt or equity securities, so long as such investments do not constitute more than 15% of our assets.
−Removed: Certain of our real estate-related loans require the borrower to make payments of interest on the fully committed principal amount of the loan regardless of whether the full loan amount is outstanding.
−Removed: As of December 31, 2020, we owned a 90.3% equity interest, or $35.9 million, in a limited partnership that invests in performing and non-performing mortgages, loans, mezzanines, B-notes and other credit instruments supported by underlying commercial real estate assets.
+Added: We may invest in other real estate-related investments, which may include CMBS or other real estate debt or equity securities, so long as such investments do not constitute more than 15% of our assets.
+Added: of our real estate-related loans require the borrower to make payments of interest on the fully committed principal amount of the loan regardless of whether the full loan amount is outstanding.
+Added: As of December 31, 2021, we owned a 50.0% equity interest in a limited partnership that invests in performing and non-performing mortgages, loans, mezzanines, B-notes and other credit instru ments supported by underlying commercial real estate assets.
+Added: Additionally, we owned equity interests in two joint ventures that invest in real estate properties.
+Added: We also owned a credit facility that is collateralized by underlying commercial real estate assets.
+Added: These equity interests had a total carrying value of $69.7 million and the credit facility had a net principal balance of $11.8 million as of December 31, 2021 .
Operating Real Estate
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Investment Guidelines
−Removed: Our board of directors adopts investment guidelines from time to time relating to the criteria to be used by the Manager’s senior management team to evaluate specific investments as well as our overall portfolio composition.
−Removed: Our board of directors will review our compliance with the investment guidelines periodically and receive an investment report at each quarter-end in conjunction with the review of our quarterly results by our board of directors.
+Added: Our board of directors has adopted investment guidelines, which may be amended from time to time, that set forth certain criteria for the Manger to use when evaluating specific investment opportunities as well as our overall portfolio composition.
+Added: Our board of directors will review the Manager’s compliance with the investment guidelines periodically and receive an investment report at each quarter-end in conjunction with the review of our quarterly results by our board of directors.
Our board of directors adopted the following investment guidelines:
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The period we hold our investments in real estate-related loans varies depending on the type of asset, interest rates and other factors.
−Removed: Our Manager has developed a well-defined exit strategy for each investment we make.
+Added: Our Manager has developed a well-defined exit strategy for each of our investments.
Our Manager continually performs a hold-sell analysis on each asset in order to determine the optimal time to hold the asset and generate a strong return to our stockholders.
−Removed: Economic and market conditions may influence us to hold investments for different periods of time.
+Added: Economic and market conditions may influence us to hold investments for longer or shorter periods of time.
We may sell an asset before the end of the expected holding period if we believe that market conditions have maximized its value to us or the sale of the asset would otherwise be in our best interests.
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REIT Qualification
−Removed: We elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”) commencing with our taxable year ended December 31, 2016.
−Removed: We believe that we have been organized and have operated in conformity with the
−Removed: requirements for qualification and taxation as a REIT under the Code, and that our manner of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT.
+Added: We elected to be taxed as a REIT under the Code commencing with our taxable year ended December 31, 2016.
+Added: We believe that we have been organized and have operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and that our manner of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT.
To qualify as a REIT, we must meet on a continuing basis, through our organization and actual investment and operating results, various requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of shares of our stock.
If we fail to qualify as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S.
−Removed: federal income tax at regular corporate rates and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which we failed to qualify as a REIT.
+Added: income tax at regular corporate rates and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which we failed to qualify as a REIT.
Even if we qualify for taxation as a REIT, we may be subject to some U.S.
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Pursuant to this guidance, and depending on the characteristics of the specific investments, certain mortgage loans, participations in mortgage loans, mortgage-backed securities, mezzanine loans, joint venture investments, preferred equity and the equity securities of other entities may not constitute qualifying real estate assets and therefore our investments in these types of assets may be limited.
−Removed: assurance can be given that the SEC or its staff will concur with our classification of the assets we hold for purposes of the 3(c)(5)(C) exclusion or any other exclusion or exemption under the 1940 Act.
+Added: No assurance can be given that the SEC or its staff will concur with our classification of the assets we hold for purposes of the 3(c)(5)(C) exclusion or any other exclusion or exemption under the 1940 Act.
Future revisions to the 1940 Act or further guidance from the SEC or its staff may cause us to lose our exclusion from registration or force us to re-evaluate our portfolio and investment strategy.
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Risk Factors — New entrants in the market for commercial loan originations and acquisitions could adversely impact our ability to originate and acquire real estate-related loans at attractive risk-adjusted returns” in this Annual Report on Form 10-K.
+Added: Governmental Regulations
+Added: As an owner of real estate, our operations are subject, in certain instances, to supervision and regulation by U.S.
+Added: and other governmental authorities, and may be subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, which, include among other things:
+Added: (i) federal and state securities laws and regulations;
+Added: (ii) federal, state and local tax laws and regulations, (ii) state and local laws relating to real property;
+Added: (iv) federal, state and local environmental laws, ordinances, and regulations, and (v) various laws relating to housing, including permanent and temporary
+Added: rent control and stabilization laws, the Americans with Disabilities Act of 1990 and the Fair Housing Amendment Act of 1988, among others.
+Added: Compliance with the federal, state and local laws described above has not had a material, adverse effect on our business, assets, results of operations, financial condition and ability to pay distributions, and we do not believe that our existing portfolio will require us to incur material expenditures to comply with these laws and regulations.
Human Capital
We are supervised by our board of directors consisting of four directors.
−Removed: We have entered into a management agreement with our Manager pursuant to which certain services are provided by our Manager and paid for by us.
+Added: We have entered into a management agreement (“Management Agreement”) with our Manager pursuant to which certain services are provided by our Manager and paid for by us.
Our Manager is not obligated under the Management Agreement to dedicate any of its personnel exclusively to us, nor is it or its personnel obligated to dedicate any specific portion of its or their time to our business.
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Therefore, we file periodic reports and other information with the SEC.
−Removed: The SEC maintains a website at www.sec.gov where our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other filings we make with the SEC, including amendments to such filings, may be obtained free of charge.
+Added: Stockholders may obtain copies of our filings with the SEC, free of charge from the website maintained by the SEC at www.sec.gov or from our website at www.terrapropertytrust.com.
+Added: We will provide without charge a copy of this Annual Report on Form 10-K, including financial statements and schedules, upon written request delivered to our principal executive offices.
+Added: We are providing the address to our website solely for the information of investors.
+Added: The information on our website is not a part of, nor is it incorporated by reference into, this Annual Report on Form 10-K.
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.