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Item 9A. Controls and Procedures

2022-03-11 compared with 2021-03-19 · 639 added, 600 removed, 1333 unchanged (48% of the section changed)

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As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2021.

Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we would meet our disclosure obligations.

Based on that evaluation, our chief

executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we would meet our disclosure obligations.

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

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

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

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

Changes in Internal Control Over Financial Reporting

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Other Information.

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

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

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

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

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

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

(ii) a $2.0 million quarterly operating profit;

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

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

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

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

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

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

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

On February 18, 2022, Terra Mortgage Capital I, LLC (the “Seller”), a special-purpose indirect wholly-owned subsidiary of our company, entered into an Uncommitted Master Repurchase and Securities Contract Agreement (the “Repurchase Agreement”) with Goldman Sachs Bank USA ( the “Buyer”).

The Repurchase Agreement provides for advances of up to $ 200.0 million in the aggregate, which we expect to use to finance the originations of certain secured performing commercial real estate loans and the acquisitions of certain secured non-performing commercial real estate loans.

The Repurchase Agreement replaced the term loan, at which time all mortgage assets under the term loan were assigned as purchased assets under the Repurchase Agreement.

Advances under the Repurchase Agreement accrue interest at a per annum pricing rate equal to the sum of (i) Term SOFR (subject to underlying loan floors on a case-by-case basis) and (ii) the applicable spread, which ranges from 1.75 % to 3.00 %, and have a maturity date of February 18, 2024 .

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

Subject to satisfaction of certain conditions, the Seller may extend the maturity date of the Repurchase Agreement for another 12-month term.

The Repurchase Agreement contains margin call provisions that provide the Buyer with certain rights in the event of a decline in debt yield, loan-to-value ratio, and value of the underlying loans purchased under the Repurchase Agreement.

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 Repurchase Agreement, we entered into a Guarantee Agreement in favor of the Buyer (the “Guarantee Agreement”), pursuant to which we will guarantee the obligations of the Seller under the Repurchase Agreement.

Subject to certain exceptions, the maximum liability under the Repurchase Agreement will not exceed 25 % of the then currently outstanding repurchase obligations for performing loans and 50 % of the then currently outstanding repurchase obligations for non-performing loans under the Repurchase Agreement

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

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

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

(ii) total liquidity in an amount equal to or greater than the lesser of $ 15 million of the then-current outstanding amount under the Repurchase Agreement (iii) tangible net worth at an amount no less than 75 % of that at closing;

(iv) an EBITDA to adjusted 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 3.00 to 1.00.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

Directors, Executive Officers and Corporate Governance.

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Board of Directors

Our board of directors consists of four members.

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

Axelrod, our Chairman and Vikram S.

Uppal our and our Manager’s Chief Executive Officer.

Our board of directors consists of three members.

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

Uppal, our Chairman and our Chief Executive Officer.

Our bylaws provide that a majority of the entire board of directors may at any time increase or decrease the number of directors.

However, the number of directors may never be less than the minimum number required by the MGCL (which is currently one) nor, unless our bylaws are amended, more than 15.

However, the number of directors may never be less than the minimum number required by the Maryland General Corporation Law (which is currently one) nor, unless our bylaws are amended, more than 15.

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

Name Age Position held

Axelrod 38 Chairman of the Board of Directors

Uppal 37 Chief Executive Officer, Chief Investment Officer and Director

Uppal* 38 Chairman of the Board of Directors, Chief Executive Officer, Chief Investment Officer

Beless 60 Director

Evans 69 Director

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

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

He has been the Chief Executive Officer and Executive Chairman of the board of directors of Axar Acquisition Corp.

since October 2016.

Before founding Axar Capital Management in 2015, Mr.

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

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

Prior to joining Mount Kellett Capital Management, Mr.

Axelrod worked at Kohlberg Kravis Roberts & Co.

from 2007 to 2008 and The Goldman Sachs Group, Inc.

from 2005 to 2006.

Axelrod graduated magna cum laude with a B.S.

in Economics from Duke University.

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

*On November 10, 2021, Andrew M.

Axelrod, the then Chairman of the Board of Directors, resigned as our director effectively immediately.

Following Mr.

Axelrod’s resignation, our board of directors designated Vikram S.

Uppal as our Chairman of the Board of Director and the size of our board of directors was reduced from four directors to three directors.

Uppal has served as the Chairman of the Board of Directors since November 2021, one of our directors February 2018 to November 2021 and served as Chief Executive Officer for our company, our Manager, Terra Fund Advisors and Terra Capital Partners since December 2018 and as a director of RESOF since October 2020.

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

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Since May 2016, Mr.

Beless has served as Chief Operating Officer at Street Lights Residential, where he oversees capital markets, asset and portfolio management and acquisitions, and company operations.

Beless has served as Chief Operating Officer at StreetLights Residential, where he oversees capital markets, asset and portfolio

management and acquisitions/dispositions, and company operations.

From June 2012 until March 2016, Mr.

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Beless also spent four years in Tokyo, Japan where he led the startup of Goldman Sachs Realty Japan, Ltd.

He currently serves on the board of Lion Heart Children’s Academy and the advisory board of Apartment Life.

He currently serves on the board of Waymaker Value and Real Estate and the advisory board of Apartment Life.

Beless holds a Bachelor’s of B.A.

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Executive Officers

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

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

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

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

Uppal 37 Chief Executive Officer, Chief Investment

Officer Chief Executive Officer, Chief Investment

Pinkus 56 Chief Operating Officer and Chief Financial

Officer Chief Operating Officer and Chief Financial

Cooperman 46 Chief Originations Officer Chief Originations Officer

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

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

For biographical information regarding Messrs.

Axelrod and Uppal, see “Item 10.

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

Name Age Position(s) Held with the Company

Uppal 38 Chairman of the Board of Directors, Chief Executive Officer, Chief Investment

Pinkus 57 Chief Operating Officer and Chief Financial Officer

Cooperman 47 Chief Originations Officer

For biographical information regarding Mr.

Uppal, see “Item 10.

— Board of Directors” above.

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

February 2018.

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

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

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

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

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

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

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

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

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

and several private real estate development partnerships.

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

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

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

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

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

from Harvard Business School.

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

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

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

and (vi) a director of RESOF since October 2020.

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

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

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

Cooperman has 18 years’ experience in the

acquisition, financing, leasing and asset management of commercial real estate with an aggregate value of over $5 billion.

Prior to the formation of Terra Capital Partners in 2001 and its commencement of operations in 2002, Mr.

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Audit Committee

We have established an audit committee of the board of directors (the “Audit Committee”) that operates pursuant to a charter and consists of three members.

We have established an audit committee of the board of directors (the “Audit Committee”) that operates pursuant to a charter and consists of two members.

The Audit Committee is responsible for selecting, engaging and supervising our independent accountants, reviewing the plans, scope and results of the audit engagement with our independent accountants, approving professional services provided by our independent accountants (including compensation therefor), reviewing the independence of our independent accountants and reviewing the adequacy of our internal controls over financial reporting.

The members of the Audit Committee are Messrs.

Beless and Evans, each of whom is independent.

Beless and Evans.

Evans serves as the chairman of the Audit Committee.

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

Delinquent Section 16(a) Reports

Pursuant to Section 16(a) of the Exchange Act, our directors and executive officers, and any persons holding more than 10% of its common stock, are required to report their beneficial ownership and any changes therein to us and the SEC.

Specific due dates for those reports have been established, and we are required to report herein any failure to file such reports by those due dates.

Based solely on a review of the copies of such reports and written representations delivered to us by such persons, we believe that there were no violations of Section 16(a) by such persons during the year ended December 31, 2021.

Executive Compensation.

We have entered into a management agreement with our Manager, pursuant to which our Manager provides certain services to our company and we pay fees associated with such services.

We are externally managed and currently have no employees.

Pursuant to the Management Agreement, our Manager provides certain services to our company, and we pay fees associated with such services.

The officers of our Manager do not receive any compensation from us.

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Name Fees Earned or Paid in Cash All Other Compensation Total

$ 17,500 $ — $ 17,500

Beless $ 70,000 $ — $ 70,000

Evans $ 75,000 $ — $ 75,000

Goldenberg (1)

$ 17,500 $ — $ 17,500

Gregorits (1)

$ 15,000 $ — $ 15,000

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

Altman, Goldenberg and Gregorits was terminated.

Compensation Committee Interlocks and Insider Participation

We currently do not have a compensation committee of our board of directors because we do not plan to pay any compensation to our officers.

There are no interlocks or insider participation as to compensation decisions required to be disclosed pursuant to SEC regulations.

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

The following table sets forth certain information regarding the ownership of shares of our common stock by:

The following table sets forth, as of March 11, 2022, certain information regarding the ownership of shares of our common stock by:

(1) each of our directors;

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(3) all shares the investor has the right to acquire within 60 days;

Unless otherwise indicated, we believe that each beneficial owner set forth in the table below has sole voting and investment power.

Unless otherwise indicated, all shares are owned directly, and the indicated person has sole voting and investment power.

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

Name Number of Shares Beneficially Owned Percentage of

Shares Beneficially Owned as of

March 11, 2022

Name Number of Shares Percentage (3)

Cooperman — —

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Uppal exercises voting and investment control.

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

The shares of our common stock indicated on this report as being held

indirectly by Mr.

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

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Certain Relationships and Related Transactions.” The inclusion of these shares of our common stock shall not be deemed an admission of beneficial ownership of the reported securities for purposes of Section 16 or for any other purposes.

(3) Based on a total of 19,487,460 shares of common stock issued and outstanding as of March 11, 2022.

Securities Authorized for Issuance under Equity Compensation Plans

Certain Relationships and Related Transactions, and Director Independence.

Potential conflicts include those set forth below.

The Axar Transaction

On February 8, 2018, an entity (“Axar”), wholly owned by a pooled investment vehicle advised by Axar Capital Management, a Delaware limited partnership, entered into an investment agreement with Terra Capital Partners and its affiliates

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

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

In addition, as a result of the Axar transaction and subsequent transactions on November 30, 2018 and April 30, 2019, Axar acquired 100% of the equity interests of Terra Capital Partners, 49% of the economic interests in Terra Fund Advisors, and 100% of the equity interests in Terra Income Advisors.

The Axar Transaction was approved unanimously by the independent directors of our company and the independent directors of Terra Fund 6, with each having formed a special committee to evaluate the Axar Transaction.

In connection with the transaction, Andrew M.

Axelrod, Founder of Axar Capital Management, was appointed as Chairman of Terra Capital Partners and as Chairman of the board of directors of our company and Vikram S.

Uppal, Head of Real Estate of Axar Capital Management prior to the Axar Transaction, was appointed as Chief Investment Officer of Terra Capital Partners and as a member of the board of directors of Terra Capital Partners and our company.

Axar Capital Management received certain approval rights over certain major decisions impacting Terra Fund Advisors and Terra Income Advisors and also arranged for certain nomination and voting rights in respect of the board of directors of our company.

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

Director Independence

For information relating to our independent directors, see Item 10, “Directors, Executive Officers and Corporate Governance” of this Annual Report on Form 10-K.

Certain Relations and Related Transactions

Terra International Fund 3, L.P.

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

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

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

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

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

In addition, on March 2, 2020, we entered into two separate contribution agreements, one by and among us, Terra Offshore REIT and Terra Income Fund International, and another by and among us, Terra Offshore REIT and Terra Secured Income Fund 5 International, pursuant to which we issued 2,457,684.59 shares of our common stock to Terra Offshore REIT in exchange for the settlement of $32.1 million of participation interests in loans also held by the Company, $8.6 million in cash and other net working capital.

In addition, on March 2, 2020, we entered into two separate contribution agreements, one by and among us, Terra Offshore REIT and TIFI, and another by and among us, Terra Offshore REIT and Fund 5 International, pursuant to which we issued 2,457,684.59 shares of our common stock to Terra Offshore REIT in exchange for the settlement of $32.1 million of participation interests in loans also held by us, $8.6 million in cash and other net working capital.

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

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Voting Agreement

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

Voting Agreement to Terra JV.

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

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Other than with respect to the election of directors, the Voting Agreement requires that Terra Fund 5 vote all shares of our common stock directly or indirectly owned by Terra Fund 5 in accordance with the recommendations made by our board of directors.

Management Agreement

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

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

Receipt of Fees and Other Compensation by Our Manager and its Affiliates

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Further, we must reimburse our Manager for costs incurred by it in managing us and our portfolio of real estate-related loans.

We have entered into a management agreement with our Manager pursuant to which our Manager provides certain management services to us, subject to oversight by our board of directors.

Pursuant to the Management Agreement, our Manager provides certain management services to us, subject to oversight by our board of directors.

Our Manager’s responsibilities to us include, among others, investing in, and disposing of, assets, borrowing money, entering into contracts and agreements in connection with our business and purpose, providing administrative support and performing such other services as are delegated to our Manager by our board of directors.

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In consideration for providing such services, our Manager is entitled to certain fees from as described below.

The original management agreement between Terra Capital Advisors and us was entered into on January 1, 2016.

On September 1, 2016, our company terminated the original management agreement and entered a management agreement with Terra Income Advisors.

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

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

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

During the years ended December 31, 2021 and 2020, we paid our Manager in the aggregate the following fees under the Management Agreement:

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$1.0 million and $0.5 million in disposition, respectively, and $6.9 million and $6.0 million of operating expense reimbursements, respectively.

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

It is anticipated that our Manager will exercise its discretion through our Management Agreement.

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

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

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

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

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

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

If the proposed investment

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

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

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

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We rely on our Manager to manage our day-to-day activities and to implement our investment strategy.

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

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

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

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

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Competition and Allocation of Investment Opportunities

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

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

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

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

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

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

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

To mitigate these conflicts, our Manager will seek to execute such transactions on a fair and equitable basis and in accordance with its allocation policies, taking into account various factors, which may include:

the source of origination of the investment opportunity;

the source of origination of the

investment opportunity;

objectives and strategies;

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Our Manager receives fees for their services, including an origination fee, asset management fee, asset servicing fee, disposition fee and transaction break-up fee.

To the extent the terms of the management arrangement with our Manager are amended in the future, including if we enter into a new management agreement with our Manager or its affiliates, the terms of any such arrangement will not have been determined through arm’s-length negotiations and may be payable, in whole or in part, regardless of profitability.

To the extent the Management Agreement is amended in the future, including if we enter into a new management agreement with our Manager or its affiliates, the terms of any such arrangement will not have been determined through arm’s-length negotiations and may be payable, in whole or in part, regardless of profitability.

Other Conflicts of Interest

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

In addition to fees for the audit of our annual financial statements and the review of our quarterly financial statements in accordance with standards of the Public Company Accounting Oversight Board (“PCAOB”), this category contains fees for comfort letters, statutory audits, consents, and assistance with and review of documents filed with the SEC.

In addition to fees for the audit of our annual financial statements and the review of our quarterly financial statements in accordance with standards of the Public Company Accounting Oversight Board, this category contains fees for comfort letters, statutory audits, consents, and assistance with and review of documents filed with the SEC.

Audit-Related Fees .

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The Audit Committee’s charter provides that the Audit Committee shall review and pre-approve the engagement fees and the terms of all auditing and non-auditing services to be provided by our external auditors and evaluate the effect thereof on the independence of the external auditors.

All audit and tax services provided to us were reviewed and pre-approved by the Audit Committee, which concluded that the provision of such services by KPMG LLP was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions.

All audit and tax services provided to us were reviewed and pre-approved by the Audit Committee, which concluded that the provision of such services by KPMG was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions.

Exhibits and Financial Statement Schedules.

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(1) Financial Statements

The index to our financial statements and schedule is on page F-1 of this Annual Report on Form 10-K.

The index to our financial statements is on page F-1 of this Annual Report on Form 10-K.

(2) Financial Statement Schedule

The index to our financial schedules is on page F-1 of this Annual Report on Form 10-K.

The following exhibits are filed with this report.

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

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

4.1 * Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934.

4.2 Indenture, dated June 10, 2021, by and between Terra Property Trust, Inc.

Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A (File No.

001-40496) filed with the SEC on June 14, 2021).

Description and Method of Filing

4.3 First Supplemental Indenture, dated June 10, 2021, by and between Terra Property Trust, Inc.

Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form 8-A (File No.

001-40496) filed with the SEC on June 14, 2021).

4.4 Form of Global Note representing the notes (included in Exhibit 4.2).

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

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

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

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

10.8 Business Loan and Security Agreement, dated as of March 12, 2021, by and among Terra Mortgage Portfolio II, LLC, as the Borrower, and Western Alliance Bank, as the Lender (incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K filed with the SEC on March 18, 2021).

10.9 Limited Guaranty, dated as of March 12, 2021, by and among Terra Property Trust, Inc., as Guarantor, for the benefit of Western Alliance Bank (incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K filed with the SEC on March 18, 2021).

10.10* First Amendment to Loan Documents dated as of June 9, 2021, by and amount Terra Mortgage Portfolio II, LLC, as Borrower, Terra Property Trust, Inc., as Guarantor, and Western Alliance Bank, as Lender .

10.11* Uncommitted Master Repurchase Agreement dated as of November 8, 2021, by and amount Terra Mortgage Capital III, LLC, as Seller, UBS AG, as Buyer.

10.12* Guarantee Agreement dated as of November 8, 2021, by and amount Terra Property Trust, Inc., as Guarantor, in favor of UBS AG, as Buyer.

10.13* Second Amendment to Loan Documents dated as of January 4, 2022, by and amount Terra Mortgage Portfolio II, LLC, as Borrower, Terra Property Trust, Inc., as Guarantor, and Western Alliance Bank, as Lender.

10.14* Uncommitted Master Repurchase and Securities Contract Agreement dated as of February 18, 2022, by and amount Terra Mortgage Capital I, LLC, as Seller, Goldman Saches Bank USA, as Buyer.

10.15* Guarantee Agreement dated as of February 18, 2022, by and amount Terra Property Trust, Inc., as Guarantor, in favor of Goldman Saches Bank USA, as Buyer.

21.1 * Subsidiaries

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

Description and Method of Filing

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

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

101.DEF** Inline XBRL Taxonomy Extension Definition Linkbase Document

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

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Report of Independent Registered Public Accounting Firm

KPMG LLP New York, NY PCAOB ID:

Consolidated Financial Statements:

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Consolidated Statements of Operations for the years ended December 31, 2021 and 2020

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

Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2021 and 2020

Consolidated Statements of Changes in Equity for the years ended December 31, 2021 and 2020

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

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

and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive (loss) income, changes in equity, and cash flows for the years then ended, and the related notes and financial statement schedules III and IV (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with U.S.

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Loans held for investment acquired through participation, net 12,343,732 4,294,053

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

Equity investment in unconsolidated investments 69,713,793 36,259,959

Real estate owned, net ( Note 6 )

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Lease intangible assets, net 7,451,771 9,793,600

Operating lease right-of-use assets 16,105,888 16,112,925

Operating lease right-of-use asset 27,394,936 16,105,888

Interest receivable 2,463,037 2,509,589

Due from related party 2,605,639 —

Other assets 3,505,953 3,934,468

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Term loan payable, net of deferred financing fees $ 91,940,062 $ 105,245,801

Unsecured notes payable, net of debt issuance cost 81,856,799 —

Repurchase agreement payable, net of deferred financing fees 43,974,608 —

Obligations under participation agreements ( Note 8 )

42,232,027 71,581,897

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

Mortgage loan payable, net of deferred financing fees and other 32,134,295 44,117,293

Revolving line of credit payable, net of deferred financing fees 38,186,472 —

Secured borrowing 34,586,129 18,187,663

Interest reserve and other deposits held on investments 7,411,811 12,145,616

Operating lease liabilities 16,105,888 16,112,925

Operating lease liability 27,394,936 16,105,888

Lease intangible liabilities, net ( Note 6 )

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Commitments and contingencies ( Note 10 )

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

none issued — —

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

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

both December 31, 2020 and 2019 125,000 125,000

Preferred stock, $0.01 par value, 50,000,000 shares authorized and none issued — —

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

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

31, 2021 and 2020 125,000 125,000

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

19,487,460 and 15,125,681 shares issued and outstanding at

December 31, 2020 and 2019, respectively 194,875 151,257

shares issued and outstanding at both December 31, 2021 and 2020, respectively 194,875 194,875

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

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Professional fees 1,795,856 1,695,876

1,695,876 3,373,554

Directors fees 145,000 190,000

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Interest expense on mortgage loan payable ( 2,449,239 ) ( 2,976,913 )

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

Interest expense on revolving line of credit ( 911,811 ) ( 1,398,103 )

Interest expense on term loan payable ( 6,835,877 ) ( 2,137,651 )

Interest expense on unsecured notes payable ( 3,173,673 ) —

Interest expense on secured borrowing ( 1,576,502 ) ( 633,850 )

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

Net unrealized gains on marketable securities 22,500 111,494

Income from equity investment in unconsolidated investments 5,925,802 38,640

Realized loss on loan repayments ( 517,989 ) —

Realized gains on marketable securities 129,248 1,160,162

Unrealized gains on marketable securities 111,494 —

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

( 20,126,581 ) ( 18,397,944 )

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

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

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

Earnings per share — basic and diluted

Net (loss) income $ ( 12,355,727 ) $ 5,255,730

Series A preferred stock dividend declared ( 15,624 ) ( 15,624 )

Net (loss) income allocable to common stock $ ( 12,371,351 ) $ 5,240,106

(Loss) earnings per share — basic and diluted

$ ( 0.63 ) $ 0.28

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Distributions declared per common share $ 0.88 $ 1.16

_______________

(1) Amount for the year ended December 31, 2019 included $ 2.4 million of professional fees directly incurred, and which were previously deferred, in contemplation of the Company becoming a public entity.

In the second quarter of 2019, Management decided to postpone indefinitely the Company’s public offering.

See notes to consolidated financial statements.

Terra Property Trust, Inc.

Consolidated Statements of Comprehensive Income

Consolidated Statements of Comprehensive (Loss) Income

Years Ended December 31,

Comprehensive income, net of tax

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

Other comprehensive income

Comprehensive (loss) income, net of tax

Net (loss) income $ ( 12,355,727 ) $ 5,255,730

Other comprehensive loss

Net unrealized gains on marketable securities — 192,919

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

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

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

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

Total comprehensive (loss) income $ ( 12,355,727 ) $ 5,255,730

Series A preferred stock dividend declared ( 15,624 ) ( 15,624 )

Comprehensive (loss) income attributable to common shares $ ( 12,371,351 ) $ 5,240,106

See notes to consolidated financial statements.

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Balance at January 1, 2021 $ — 125 $ 125,000 19,487,460 $ 194,875 $ 373,443,672 $ ( 70,438,482 ) $ — $ 303,325,065

Issuance of common stock ( Note 3 )

— — — 4,574,470 45,745 75,334,248 — 75,379,993

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

Distributions declared on common shares ($0.88 per share) — — — — — — ( 17,110,136 ) — ( 17,110,136 )

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

Comprehensive income:

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

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

Reclassification of net realized gains on marketable securities

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

Comprehensive loss:

Net loss — — — — — — ( 12,355,727 ) — ( 12,355,727 )

Balance at December 31, 2021 $ — 125 $ 125,000 19,487,460 $ 194,875 $ 373,443,672 $ ( 99,919,969 ) $ — $ 273,843,578

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Balance at January 1, 2020 $ — 125 $ 125,000 15,125,681 $ 151,257 $ 301,727,297 $ ( 54,459,821 ) $ — $ 247,543,733

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

Issuance of common stock ( Note 3 )

— — — 4,574,470 45,745 75,334,248 — — 75,379,993

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

Distributions declared on common shares ($1.16 per share) — — — — — — ( 21,218,767 ) — ( 21,218,767 )

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Cash flows from operating activities:

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

Net (loss) income $ ( 12,355,727 ) $ 5,255,730

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

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Amortization of deferred financing costs 963,986 1,644,944

Amortization of discount on unsecured notes payable 248,108 —

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

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Amortization of above-market rent ground lease ( 130,349 ) ( 130,348 )

Realized loss on loan repayments 517,989 —

Realized gains on marketable securities ( 129,248 ) ( 1,160,162 )

Unrealized gains on marketable securities ( 111,494 ) —

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

Net unrealized gains on marketable securities ( 22,500 ) ( 111,494 )

Income from equity investment in excess of distributions received ( 1,276,726 ) ( 38,640 )

Changes in operating assets and liabilities:

Interest receivable 46,552 ( 632,790 )

Due from related party ( 2,605,639 ) —

Other assets 574,832 ( 956,735 )

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Proceeds from repayments of loans 196,780,456 66,144,729

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

Purchase of equity interests in unconsolidated investments ( 32,177,108 ) ( 35,862,692 )

Purchase of marketable securities ( 6,479,148 ) ( 6,039,567 )

Proceeds from sale of marketable securities 6,608,396 6,023,723

Capital expenditures on real estate — ( 242,071 )

Net cash used in investing activities ( 87,705,137 ) ( 78,222,218 )

Terra Property Trust, Inc.

Consolidated Statements of Cash Flows (Continued)

Years Ended December 31,

Cash flows from financing activities:

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

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

Repayments of obligations under participation agreements ( 101,722,161 ) ( 5,855,759 )

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

Proceeds from obligations under participation agreements 71,682,634 22,498,765

Proceeds from borrowings under repurchase agreement 44,569,600 22,860,134

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

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

Proceeds from secured borrowing 18,281,848 —

Proceeds from borrowings under revolving line of credit 38,575,895 35,000,000

Distributions paid ( 17,125,760 ) ( 21,234,391 )

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

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

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

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

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

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

Repayment of borrowings under the term loan ( 16,585,001 ) —

Proceeds from secured borrowing 16,239,256 18,281,848

Repayment of mortgage principal ( 12,057,533 ) ( 594,255 )

Proceeds from borrowings under the term loan 2,764,020 107,584,451

Change in interest reserve and other deposits held on investments ( 4,733,805 ) ( 6,396,547 )

Payment of financing costs ( 2,295,347 ) ( 2,361,369 )

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

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

Repayment of borrowings under revolving line of credit — ( 35,000,000 )

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

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

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

Net cash provided by financing activities 101,776,642 52,665,381

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

Net increase in cash, cash equivalents and restricted cash 18,178,324 (17,629,377)

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

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$ 51,098,647 $ 32,920,323

Terra Property Trust, Inc.

Consolidated Statements of Cash Flows (Continued)

Years Ended December 31,

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Cash paid for interest $ 22,219,386 $ 16,317,378

See notes to consolidated financial statements .

Terra Property Trust, Inc.

Consolidated Statements of Cash Flows (Continued)

Supplemental Non-Cash Financing Activities:

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

In connection with the Merger, the Company issued 2,116,785.76 shares of common stock, par value $ 0.01 per share, were issued to Terra Fund 7 ( Note 3 ).

In connection with the Merger, the Company issued 2,116,785.76 shares of common stock, par value $ 0.01 per share, to Terra Fund 7 ( Note 3 ).

The following table presents a summary of the consideration exchanged and settlement of the Company’s obligations under participation agreements as a result of the Merger:

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

In addition, on March 2, 2020, the Company entered into two separate contribution agreements, one by and among the Company, Terra Offshore Funds REIT, LLC (formerly known as Terra International Fund 3 REIT, LLC) (the “Terra Offshore REIT”) and Terra Income Fund International, and another by and among the Company, Terra Offshore REIT and Terra Secured Income Fund 5 International, pursuant to which the Company issued an aggregate of 2,457,684.59 shares of common stock in exchange for the settlement of $ 32.1 million of participation interests in loans held by the Company, $ 8.6 million in cash, and other net working capital (“Issuance of Common Stock to Terra Offshore REIT”) ( Note 3 ).

In addition, on March 2, 2020, the Company entered into two separate contribution agreements, (i) by and among the Company, Terra Offshore Funds REIT, LLC (the “Terra Offshore REIT”) and Terra Income Fund International (“TIFI”), and (ii) by and among the Company, Terra Offshore REIT and Terra Secured Income Fund 5 International (“Fund 5 International”), pursuant to which the Company issued an aggregate of 2,457,684.59 shares of common stock in exchange for the settlement of $ 32.1 million of participation interests in loans held by the Company, $ 8.6 million in cash, and other net working capital (“Issuance of Common Stock to Terra Offshore REIT”) ( Note 3 ).

The following table presents a summary of the consideration exchanged and settlement of the Company’s obligations under participation agreements as a result of the Issuance of Common Stock to Terra Offshore REIT:

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Lease Termination Fees:

Cash $ 142,620

Furniture & Fixture

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Rent receivable

Deed in Lieu of Foreclosure

On January 9, 2019, the Company acquired 4.9 acres of adjacent land encumbering a $ 14.3 million first mortgage via deed in lieu of foreclosure in exchange for the payment of the first mortgage and related fees and expenses ( Note 6 ).

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

Carrying Value of First Mortgage

Loan held for investment $ 14,325,000

Interest receivable 439,300

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

Assets Acquired at Fair Value

Land $ 14,703,359

See notes to consolidated financial statements .

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

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

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

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

The Company 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 ).

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

Services necessary for the Company’s business are provided by individuals who are employees of the Manager or by individuals who were contracted by the Company or by the Manager to work on behalf of the Company pursuant to the terms of the Management Agreement.

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

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

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

Summary of Significant Accounting Policies

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

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

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

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

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

F-10 (Preliminary and Confidential V1)

Notes to Consolidated Financial Statements

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

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

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

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

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5 Highest risk

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

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

Notes to Consolidated Financial Statements

foreseeable future.

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

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

Equity Investment in a Limited Partnership

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

Equity Investment in Unconsolidated Investments

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

The Company evaluates its equity investment unconsolidated investments on a periodic basis to determine if there are any indicators that the value of its equity investments may be impaired and whether or not that impairment is other-than-temporary.

To the extent an impairment has occurred and is determined to be other-than-temporary, the Company measures the charge as the excess of the carrying value of its investment over its estimated fair value, which is determined by calculating its share of the estimated fair market value of the underlying net assets based on the terms of the applicable partnership or joint venture agreements.

Marketable Securities

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

Notes to Consolidated Financial Statements

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

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

Notes to Consolidated Financial Statements

Revenue Recognition

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

Notes to 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:

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Loan participations from the Company which do not qualify for sale treatment remain on the Company’s consolidated balance sheets and the proceeds are recorded as obligations under participation agreements.

For the investments for which

Notes to Consolidated Financial Statements

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

For the investments for which participation has been granted, the interest earned on the entire loan balance is recorded within “ Interest income ” and the interest related to the participation interest is recorded within “ Interest expense from obligations under participation agreements ” in the consolidated statements of operations.

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

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

The Company has not elected the fair value option for its financial instruments, including loans held for investment, loans held for investment acquired through participation, obligations under participation agreements, mortgage loan payable, repurchase agreement payable and revolving credit facility payable.

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, unsecured notes, mortgage loan payable, term loan payable, repurchase agreement payment and revolving line of credit.

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

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

The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with the taxable year ended December 31, 2016.

The Company has elected to be taxed as a REIT under the Internal Revenue Code commencing with the taxable year ended December 31, 2016.

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

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If the Company fails to continue to qualify as a REIT in any taxable year and does not qualify for certain statutory relief provisions, the Company will be subject to U.S.

federal and state income taxes at regular corporate rates (including any applicable alternative minimum tax for taxable years before 2018) beginning with the year in which it fails to qualify and may be precluded from being able to elect to be treated as a REIT for the Company’s four subsequent taxable years.

federal and state income taxes at regular corporate rates (including any

Notes to Consolidated Financial Statements

applicable alternative minimum tax for taxable years before 2018) beginning with the year in which it fails to qualify and may be precluded from being able to elect to be treated as a REIT for the Company’s four subsequent taxable years.

Any gains from the sale of foreclosed properties within two years are subject to U.S.

1 unchanged sentence

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

No provision for federal income taxes has been included in the consolidated financial statements for the years ended December 31, 2020 and 2019.

The Company did not have any uncertain tax positions that met the recognition or measurement criteria of Accounting Standards Codification (“ASC”) 740-10-25, Income Taxes , nor did the Company have any unrecognized tax benefits as of the periods presented herein.

3 unchanged sentences

The Company’s 2018 - 2020 federal tax returns remain subject to examination by the Internal Revenue Service.

Notes to Consolidated Financial Statements

Earnings Per Share

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

As of December 31, 2020, there has been an ongoing global outbreak of a novel coronavirus (“COVID-19”), which has spread to over 200 countries and territories, including the United States, and has spread to every state in the United States.

The World Health Organization has designated COVID-19 as a pandemic, and numerous countries, including the United States, have declared national emergencies with respect to COVID-19.

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

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

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

The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions.

The Company believes the estimates and assumptions underlying its consolidated financial statements are reasonable and supportable based on the information available as of December 31, 2020, however uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of December 31, 2020 inherently less certain than they would be absent the current and potential impacts of COVID-19.

Actual results may ultimately differ from those estimates.

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

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

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

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

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

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

Segment Information

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

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

In October 2019, the FASB decided that for smaller reporting companies, ASU 2016-13 and related amendments will be effective for fiscal years beginning

Notes to Consolidated Financial Statements

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.

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

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

Disclosure framework — Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”).

The objective of ASU 2018-13 is to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of information required by U.S.

The amendments in ASU 2018-13 added, removed and modified certain fair value measurement disclosure requirements.

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

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

Notes to Consolidated Financial Statements

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

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

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

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

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

As a result, LIBOR could be discontinued.

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

In July 2017, the U.K.

Financial Conduct Authority, which regulates the LIBOR administrator, ICE Benchmark Administration Limited (“IBA”), announced that it would cease to compel banks to participate in setting LIBOR as a benchmark by the end of 2021, which has subsequently been delay to June 30, 2023.

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

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

The provisions of optional relief include:

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

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

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

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

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

The Company is currently evaluating the impact of the reference rate reform and ASU 2020-04 on its consolidated financial statements and disclosures.

The amendments in ASU 2020-04 provide optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

In January 2021, the FASB issued ASU No.

2021-01, Reference Rate Reform (Topic 848), which expanded the scope of Topic 848 to include derivative instruments impacted by discounting transition (“ASU 2021-01”).

ASU 2020-04 and ASU 2021-01 are effective for all entities through December 31, 2022.

The expedients and exceptions provided by the amendments do not apply to contract modifications and hedging relationships entered into or evaluated after December 31, 2022, except for hedging transactions as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship.

In the event LIBOR is unavailable, the Company’s investment documents provide for a substitute index, on a basis generally consistent with market practice, intended to put the Company in substantially the same economic position as LIBOR.

As a result, the Company does not expect the reference rate reform and the adoption of ASU 2020-04 and ASU 2021-01 to have a material impact on its consolidated financial statements and disclosures.

Merger and Issuance of Common Stock to Terra Offshore REIT

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Total identifiable net assets $ 34,630,615

Notes to Consolidated Financial Statements

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

working capital of the Company during the period from January 1, 2020 through March 1, 2020, the effective time of the Merger.

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

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Evans continuing as directors of the Company.

On November 10, 2021, Andrew M.

Axelrod, resigned as the Company’s director effectively immediately.

Following Mr.

Axelrod’s resignation, the size of the board of directors of the Company was reduced from four directors to three directors.

Issuance of Common Stock to Terra Offshore REIT

In addition, on March 2, 2020, the Company entered into two separate contribution agreements, one by and among the Company, Terra Offshore REIT and Terra Income Fund International, and another by and among the Company, Terra Offshore REIT and Terra Secured Income Fund 5 International, pursuant to which the Company issued 2,457,684.59 shares of common stock of the Company to Terra Offshore REIT in exchange for the settlement of $ 32.1 million of participation interests in loans also held by the Company, $ 8.6 million in cash and other net working capital.

In addition, on March 2, 2020, the Company entered into two separate contribution agreements, one by and among the Company, Terra Offshore REIT and TIFI, and another by and among the Company, Terra Offshore REIT and Fund 5 International, pursuant to which the Company issued 2,457,684.59 shares of common stock of the Company to Terra Offshore REIT in exchange for the settlement of $ 32.1 million of participation interests in loans also held by the Company, $ 8.6 million in cash and other net working capital.

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

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

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

These borrowings bear interest at an annual rate of LIBOR plus 4.25 % with a LIBOR floor of 1.00 % as of December 31, 2020.

As of December 31, 2019, amounts included $ 114.8 million of senior mortgages used as collateral for $ 81.1 million of borrowings under a repurchase agreement ( Note 9 ).

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

The repurchase agreement was terminated in September 2020.

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

(2) As of December 31, 2021 and 2020, amounts included $ 163.1 million and $ 184.2 million of senior mortgages used as collateral for $ 93.8 million and $ 107.6 million of borrowings under a term loan, respectively ( Note 9 ).

As of December 31, 2021, amounts also included $ 60.1 million of senior mortgages used as collateral for $ 38.6 million of borrowings under a revolving line of credit and $ 67.4 million of senior mortgages used as collateral for $ 44.6 million of borrowings under a repurchase agreement.

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 %.

Borrowings under the repurchase agreement bears interest at an annual rate of LIBOR plus an applicable spread which ranges from 1.60 % to 1.85 %.

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

Notes to Consolidated Financial Statements

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net 1,405,206 ( 7,687 ) 1,397,519

Realized loss on loan repayments (2)(3)

( 651,553 ) — ( 651,553 )

Provision for loan losses ( 10,904,163 ) — ( 10,904,163 )

4 unchanged sentences

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

Foreclosure of collateral (2)

( 14,325,000 ) — ( 14,325,000 )

PIK interest (1)

2 unchanged sentences

Accrual, payment and accretion of investment-related fees, net 667,060 14,395 681,455

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

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

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

3 unchanged sentences

PIK interest related to obligations under participation agreements amounted to $ 1.0 million and $ 1.5 million for the years ended December 31, 2021 and 2020, respectively.

(2) On January 9, 2019, the Company acquired 4.9 acres of adjacent land encumbering a $ 14.3 million first mortgage via deed in lieu of foreclosure in exchange for the relief of the first mortgage and related fees and expenses ( Note 6 ).

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

(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 Consolidated Financial Statements

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Mezzanine loans 17,444,357 17,622,804 3.8 % 28,541,279 28,923,140 6.8 %

Credit facility 25,000,000 25,206,964 5.4 % — — — %

Allowance for loan losses — ( 13,658,481 ) ( 2.9 ) % — ( 3,738,758 ) ( 0.9 ) %

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Multifamily 80,805,787 81,835,756 17.4 % 150,873,173 151,768,347 35.9 %

Hotel - full/select service 56,847,381 57,395,682 12.2 % 49,142,809 49,393,251 11.7 %

Industrial 32,000,000 32,206,964 6.9 % 7,000,000 7,000,000 1.7 %

Student housing 31,000,000 31,565,670 6.7 % 3,000,000 3,204,375 0.8 %

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

Infill land 28,960,455 28,923,827 6.2 % 10,442,567 10,537,512 2.5 %

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

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

Mixed use 28,940,658 28,977,024 6.2 % 16,767,984 16,767,984 4.0 %

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

Allowance for loan losses — ( 13,658,481 ) ( 2.9 ) % — ( 3,738,758 ) ( 0.9 ) %

Total $ 480,151,151 $ 469,673,314 100.0 % $ 424,174,758 $ 422,280,515 100.0 %

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

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

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

December 31, 2021 December 31, 2020

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North Carolina 44,492,971 44,704,699 9.5 % 33,242,567 33,438,806 7.9 %

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

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

Utah 28,000,000 28,420,056 6.1 % — — — %

Texas 13,625,000 13,725,690 2.9 % 3,848,712 3,887,200 0.9 %

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

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

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

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

Washington 3,523,401 3,382,683 0.7 % 23,500,000 23,682,536 5.6 %

South Carolina 3,000,000 3,145,614 0.7 % 3,000,000 3,204,375 0.8 %

Allowance for loan losses — ( 13,658,481 ) ( 2.9 ) % — ( 3,738,758 ) ( 0.9 ) %

Total $ 480,151,151 $ 469,673,314 100.0 % $ 424,174,758 $ 422,280,515 100.0 %

_______________

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

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

Notes to Consolidated Financial Statements

Loan Risk Rating

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

Notes to Consolidated Financial Statements

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

11 unchanged sentences

_______________

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

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

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

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

In March 2020, this loan was repaid in full.

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

(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 December 31, 2021 and 2020, the specific allowance for loan losses on these loans were $ 12.8 million and $ 2.5 million, respectively, as a result of a decline in the fair value of the respective collateral.

As of December 31, 2021, the Company had one loan with a loan risk rating of “4” and no loans with a loan risk rating of “5” and recorded general allowance for loan losses of $ 0.6 million for the year ended December 31, 2021.

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

Additionally, as of December 31, 2021 and 2020, the Company had three and one loans, respectively, deemed impaired and recorded specific allowance for loan losses of $ 10.3 million and $ 2.5 million, respectively, as a result of a decline in the value of the underlying collateral.

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

3 unchanged sentences

Charge-offs (1)

( 984,440 ) —

Recoveries — —

Allowance for loan losses, end of period $ 13,658,481 $ 3,738,758

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

See Note 2 for further discussion of COVID-19.

_______________

(1) Amount related to the TDR described below.

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

Additionally, for the year ended December 31, 2021, the Company suspended interest income accrual of $ 3.6 million on three loans, because recovery of such income was doubtful.

There was no suspension of such interest income for the year ended December 31, 2020.

Notes to Consolidated Financial Statements

Troubled Debt Restructuring

As of December 31, 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 a TDR as it met all the conditions to be considered a 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 December 31, 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 December 31, 2021.

For the period ended December 31, 2021, interest income from the new senior loan was $ 0.3 million.

Equity Investment in Unconsolidated Investments

The Company owns interests in a limited partnership and two joint ventures.

The Company accounts for its interests in these investments under the equity method of accounting ( Note 2 ).

The Company classifies distributions received from equity method investments using the cumulative earnings approach.

Distributions received are considered returns on the investment and classified as cash inflows from operating activities.

If, however, the investor’s cumulative distributions received, less distributions received in prior periods determined to be returns of investment, exceeds cumulative equity in earnings recognized, the excess is considered a return of investment and is classified as cash inflows from investing activities.

Equity Investment in a Limited Partnership

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

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

Terra RECO may also opportunistically originate high-yield mortgages or loans in real estate special situations including rescue financings, bridge loans, restructurings and bankruptcies (including debtor-in-possession loans).

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

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

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

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

RESOF may also opportunistically originate high-yield mortgages or loans in real estate special situations including rescue financings, bridge loans, restructurings and bankruptcies (including debtor-in-possession loans).

The general partner of 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 December 31, 2021 and 2020, the unfunded commitment was $ 15.1 million and $ 14.1 million, respectively.

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

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

As of December 31, 2021 and 2020, the Company owned 50.0 % and 90.3 % of equity interest in RESOF, respectively.

As of December 31, 2021 and 2020, the carrying value of the Company ’ s investment in RESOF was $ 40.5 million and $ 36.3 million, respectively.

For the year ended December 31, 2021, the Company recorded equity income from RESOF of $ 6.2 million and

Notes to Consolidated Financial Statements

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

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

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

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

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

received distributions of $ 3.5 million from RESOF.

For the year ended December 31, 2020, the Company recorded equity income from RESOF of $ 0.04 million and did not received any distributions.

In connection with the equity investment in 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 RESOF.

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

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

December 31, 2020

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

Investments at fair value (cost of $107,261,022 and $44,174,031, respectively) $ 108,359,898 $ 44,715,979

Other assets 5,484,087 5,331,840

Total assets 113,843,985 50,047,819

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

Revolving line of credit, net of financing costs 14,909,717 —

Obligations under participation agreement (proceeds of $14,252,357 and $6,295,100,

respectively) 14,351,617 6,347,478

Other liabilities 5,296,603 4,204,147

1 unchanged sentence

Partners’ capital $ 79,286,048 $ 39,496,194

December 31, 2020

Years Ended December 31,

Total investment income $ 11,769,083 $ 239,837

Total expenses 2,381,145 614,362

Net investment loss ( 374,525 )

Net investment income (loss) 9,387,938 ( 374,525 )

Unrealized appreciation on investments 524,113 417,300

Net increase in partners' capital resulting from operations $ 9,912,051 $ 42,775

Equity Investment in Joint Ventures

In the fourth quarter of 2021, the Company purchased equity interests in two joint ventures that invest in real estate properties.

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

Accordingly, the equity interests in the joint ventures are accounted for as equity method investments.

The following table presents the Company’s ownership interests in its equity investments in the joint ventures and their respective carrying values:

Ownership Interest at December 31, 2021 Carrying Value at December 31,

Entity Co-owner 2021 2020

LEL Arlington JV LLC Third party 80 % $ 23,949,044 $ —

LEL NW 49th JV LLC Third party 80 % 5,306,467 —

$ 29,255,511 $ —

Notes to Consolidated Financial Statements

The following tables present estimated combined summarized financial information of the Company’s equity investment in the joint ventures.

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

Net investments in real estate $ 115,636,424 $ —

Other assets 4,856,249 —

Total assets 120,492,673 —

Mortgage loan payable 83,445,235 —

Other liabilities 1,305,572 —

Total liabilities 84,750,807 —

Members’ capital $ 35,741,866 $ —

Years Ended December 31,

Revenues $ 1,448,431 $ —

Expenses 1,752,076 —

Net loss $ ( 303,645 ) $ —

For the year ended December 31, 2021, the Company recorded equity loss from the joint ventures of $ 0.2 million and did not receive any distributions.

There was no such equity income or loss recorded or distributions received for the year ended December 31, 2020.

In connection with these investments, the Company paid origination fee to the Manager totaling $ 0.3 million, to be amortize to equity income over the life of the respective joint venture.

Real Estate Owned, Net

Real Estate Activities

2020 — In June 2020, the Company received a notice from a tenant occupying a portion of the office building that the Company acquired in July 2018 via foreclosure of their intention to terminate the lease.

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.

In November 2021, the Company received notice from a tenant of their intention to terminate its lease effective November 30, 2022.

In connection with the lease termination, the Company received a termination fee of $ 3.1 million, to be amortized to income over the remaining life of the lease.

For the year ended December 31, 2021, the Company recorded an impairment charge on $ 3.4 million on the 4.9 acres of adjacent land in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost of sale.

2020 — In June 2020, the Company received a notice from a tenant occupying a portion of the office building that the Company acquired in July 2018 pursuant to a foreclosure of their intention to terminate the lease.

In connection with the lease termination effective September 4, 2020, the Company received from the tenant lease termination fee of $ 0.4 million, which included approximately $ 0.2 million of cash and $ 0.2 million of the furniture and fixtures in the office space.

2 unchanged sentences

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

2019 — On January 9, 2019, the Company acquired 4.9 acres of adjacent land encumbering a first mortgage via deed in lieu of foreclosure in exchange for the payment of the first mortgage and related fees and expenses.

The following table summarizes the carrying value of the first mortgage prior to the deed in lieu of foreclosure on January 9, 2019:

Carrying Value of First Mortgage

Loan held for investment $ 14,325,000

Interest receivable 439,300

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

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

Notes to Consolidated Financial Statements

Assets Acquired

Real estate owned:

Land $ 14,703,359

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

For the year ended December 31, 2019, the Company recorded an impairment charge of $ 1.6 million on the land in order to reduce the carrying value of the land to its estimated fair value, which was the estimated selling price less the cost of sale.

Real Estate Owned, Net

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Total real estate $ 67,304,497 $ ( 11,237,368 ) $ 56,067,129 $ 70,953,229 $ ( 8,024,066 ) $ 62,929,163

Notes to Consolidated Financial Statements

Real Estate Operating Revenues and Expenses

11 unchanged sentences

Lease expense, including amortization of above-market ground lease (1)

2,084,402 1,134,152

Other operating expenses 393,495 394,299

Total $ 5,003,893 $ 4,505,119

_______________

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

The last rent reset was on November 1, 2020.

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

Notes to Consolidated Financial Statements

to accrue and pay rent at the then-existing rate.

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

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

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

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

Had the new base rent been recorded on November 1, 2020, lease expense including amortization of above-market ground lease would have been $ 1.7 million for the year ended December 31, 2021 and total real estate operating expenses would have been $ 4.7 million for the year ended December 31, 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.

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

These four tenant leases had remaining lease terms ranging from 6.3 years to 8.8 years as of July 30, 2018 and provide for annual fixed rent increase.

Three of the tenant leases each provides two options to renew the lease for five years each and the remaining tenant lease provides one option to renew the lease for five years.

These four tenant leases had remaining lease terms ranging from 6.3 years to 8.8 years as of July 30, 2018 and provide for annual fixed rent increases.

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

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

The ground lease had a remaining lease term of 68.3 years and provides for a new base rent every 5 years based on the greater of the annual base rent for the prior lease year or 9 % of the fair market value of the land.

The next rent reset on the ground lease was scheduled for November 1, 2020, however the Company is currently negotiating with the landlord to determine the fair value of the land, on which the ground rent is based.

Since future rent increase on the ground lease is unknown, the Company did not include the future rent increase in calculating the present value of future rent payments.

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

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

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

The ground lease does not provide for renewal options.

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

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

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

As a result, the leases continue to be classified as operating leases under ASC 842, Leases .

The adoption of ASU 2016-02 did not have any impact on the tenant leases;

however, for the ground lease, the Company recognized $ 16.1 million of both operating lease right-of-use assets and operating lease liabilities on its consolidated balance sheets.

No cumulative effect adjustment was recorded because there was no change to operating lease cost.

In addition, as of January 1, 2019, the Company had $ 0.5 million of unamortized leasing commission (initial direct costs) on the tenant leases.

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

Notes to Consolidated Financial Statements

Scheduled Future Minimum Rent Income

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2024 4,380,043

2024 7,600,861

2025 4,111,257

Thereafter 2,414,440

12 unchanged sentences

Total $ ( 1,162,238 ) $ 7,355,212 $ ( 8,450,913 ) $ ( 2,257,939 )

Notes to Consolidated Financial Statements

_______________

5 unchanged sentences

Operating lease

Operating lease right-of-use assets $ 16,105,888 $ 16,112,925

Operating lease liabilities $ 16,105,888 $ 16,112,925

Operating lease right-of-use asset (1)

$ 27,394,936 $ 16,105,888

Operating lease liability $ 27,394,936 $ 16,105,888

Weighted average remaining lease term — operating lease (years) 64.8 65.8

Weighted average discount rate — operating lease 7.6 % 7.9 %

Notes to Consolidated Financial Statements

_______________

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

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

1 unchanged sentence

Operating lease cost (1)

$ 2,214,750 $ 1,264,500

_______________

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

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

Years Ended December 31,

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

Operating cash flows from operating leases $ 1,264,500 $ 1,265,445

Right-of-use assets obtained in exchange for lease obligations

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

Maturities of operating lease liabilities are as follows:

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

Operating cash flows from an operating lease $ 2,214,750 $ 1,264,500

Right-of-use asset obtained in exchange for lease obligations:

Operating lease $ 2,214,750 $ 1,264,500

Maturities of operating lease liability are as follows:

Years Ending December 31, Operating Lease

8 unchanged sentences

Total $ 27,394,936

Notes to Consolidated Financial Statements

Fair Value Measurements

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

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

Notes to Consolidated Financial Statements

financing transactions subsequent to the acquisition of the investment.

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

2 unchanged sentences

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

As of December 31, 2020 and 2019, the Company has not elected the fair value option for its financial instruments, including loans held for investment, loans held for investment acquired through participation, obligations under participation agreements, term loan payable, mortgage loan payable, repurchase agreement payable and revolving credit facility payable.

As of December 31, 2021 and 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, repurchase agreement 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.

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

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

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

December 31, 2021

3 unchanged sentences

Equity securities $ 1,310,000 $ — $ — $ 1,310,000

Debt securities — — — —

Total $ 1,310,000 $ — $ — $ 1,310,000

Notes to Consolidated Financial Statements

December 31, 2020

Fair Value Measurements

Level 1 Level 2 Level 3 Total

Marketable Securities:

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

Total $ 1,287,500 $ — $ — $ 1,287,500

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

3 unchanged sentences

Proceeds from sale ( 6,608,396 ) ( 6,023,723 )

Realized gains on marketable securities 1,160,162 —

Reclassification of net realized gains on marketable securities into earnings 129,248 1,160,162

Unrealized gains on marketable securities 22,500 111,494

Ending balance $ 1,310,000 $ 1,287,500

Notes to Consolidated Financial Statements

Financial Instruments Not Carried at Fair Value

2 unchanged sentences

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

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

Loans held for investment 3 $ 467,843,785 $ 470,988,063 $ 454,840,551 $ 419,924,758 $ 421,725,220 $ 415,113,225

Loans held for investment

acquired through

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

participation 3 12,307,366 12,343,732 12,361,068 4,250,000 4,294,053 4,293,969

Allowance for loan losses — ( 13,658,481 ) — — ( 3,738,758 ) —

1 unchanged sentence

Term loan payable 3 $ 93,763,470 $ 91,940,062 $ 94,344,595 $ 107,584,451 $ 105,245,801 $ 107,248,555

Unsecured notes payable 1 85,125,000 81,856,799 85,210,125 — — —

Repurchase agreement payable 3 44,569,600 43,974,608 44,569,600 — — —

Obligations under participation

2 unchanged sentences

Secured borrowing 3 34,521,104 34,586,129 34,425,029 18,281,848 18,187,663 17,037,032

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

Revolving line of credit

payable 3 38,575,895 38,186,472 38,575,895 — — —

Total liabilities $ 370,566,055 $ 364,910,392 $ 370,793,089 $ 241,152,827 $ 239,132,654 $ 239,327,483

1 unchanged sentence

Valuation Process for Fair Value Measurement

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

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

Notes to Consolidated Financial Statements

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

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

In following this methodology, investments are evaluated individually, and management takes into account, in determining the risk-adjusted discount rate for each of the Company’s investments, relevant factors, including available current market data on applicable yields of comparable debt/preferred equity instruments;

In following this methodology, investments are evaluated individually, and management takes into account, in determining the risk-adjusted discount rate for each of the Company’s investments, relevant factors, which may include available current market data on applicable yields of comparable debt/preferred equity instruments;

market credit spreads and yield curves;

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

Notes to Consolidated Financial Statements

The fair values of the Company’s mortgage loan payable, repurchase agreement payable, term loan payable and revolving credit facility payable are determined by discounting the contractual cash flows at the interest rate the Company estimates such arrangements would bear if executed in the current market.

The 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 December 31, 2021 and 2020.

7 unchanged sentences

Term loan payable $ 94,344,595 Discounted cash flow Discount rate 4.00 % 4.00 % 4.00 %

Repurchase agreement payable 44,569,600 Discounted cash flow Discount rate 2.45 % 2.74 % 2.57 %

Obligations under participation agreements 41,475,060 Discounted cash flow Discount rate 12.37 % 15.00 % 14.31 %

1 unchanged sentence

Secured borrowing 34,425,029 Discounted cash flow Discount rate 6.64 % 6.64 % 6.64 %

Revolving line of credit 38,575,895 Discounted cash flow Discount rate 4.00 % 4.00 % 4.00 %

Total Level 3 Liabilities $ 285,582,964

Notes to Consolidated Financial Statements

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

1 unchanged sentence

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

Loans held for investment acquired

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

Loans held for investment acquired through

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

Total Level 3 Assets $ 419,407,194

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

Obligations under participation agreements 70,693,207 Discounted cash flow Discount rate 9.75 % 20.05 % 12.58 %

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

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

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

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

Total Level 3 Liabilities $ 239,327,483

15 unchanged sentences

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

Any excess is deferred

Notes to Consolidated Financial Statements

and amortized to interest income over the term of the loan.

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

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

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

(2) Amount for the years ended December 31, 2021 and 2020 excluded $ 0.3 million and $ 0.5 million of origination fee, respectively, paid to the Manager in connection with the Company’s equity investment in unconsolidated investments.

These origination fees were capitalized to the carrying value of the unconsolidated investments as transaction costs.

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

4 unchanged sentences

Under the terms of the Management Agreement, the Manager or its affiliates provides the Company with certain investment management services in return for a management fee.

The Company pays a monthly asset management fee at an annual rate of 1 % of the aggregate funds under management, which includes the loan origination price or aggregate gross acquisition price, as defined in the Management Agreement, for each real estate related loan and cash held by the Company.

The Company pays a monthly asset management fee at an

annual rate of 1 % of the aggregate funds under management, which includes the loan origination price or aggregate gross acquisition price, as defined in the Management Agreement, for each real estate related loan and cash held by the Company.

Asset Servicing Fee

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Distributions Paid

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

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

Notes to Consolidated Financial Statements

For the years ended December 31, 2021 and 2020, the Company made distributions to Terra 5, Terra JV and Terra Offshore REIT totaling $ 17.1 million and $ 21.2 million, respectively, of which $ 14.6 million and $ 16.0 million were returns of capital, respectively ( Note 11 ).

Due to Manager

As of December 31, 2021 and 2020, approximately $ 2.4 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.

Due from Related Party

As of December 31, 2021, amount due from a related party was $ 2.6 million, primarily related to the reserve funding on a loan that was held by an affiliate.

The reserve funding was transferred to the Company in February 2022.

There was no due from related party as of December 31, 2020.

Merger and Issuance of Common Stock to Terra Offshore REIT

2 unchanged sentences

In addition, on March 2, 2020, Terra Offshore REIT contributed cash and released obligations under the participation agreements to the Company ( Note 3 ) in exchange for the issuance of 2,457,684.59 shares of common stock of the Company.

As described in Note 3 , Terra Fund 7 contributed the shares of the Company’s common stock received as consideration in the Merger to Terra JV and became a co-managing member of Terra JV pursuant to the JV Agreement.

As described in Note 3 , Terra Fund 7 contributed the shares of the Company’s common stock received as consideration in the Merger to Terra JV and became a co-managing member of

Terra JV pursuant to the JV Agreement.

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.

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

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

Terra Real Estate Credit Opportunities Fund, LP

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

As of December 31, 2021, Terra JV owns 87.4 % of the issued and outstanding shares of the Company’s common stock with the remainder held by Terra Offshore REIT, and Terra Fund 5 and Terra Fund 7 own an 87.6 % and 12.4 % interest, respectively, in Terra JV.

Mavik Real Estate Special Opportunities Fund, LP

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

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

Terra International Fund 3, L.P.

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

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

Pursuant to this agreement, Terra International 3, through Terra Offshore REIT, contributed cash in the amount of $ 3.6 million to the Company in exchange for 212,691 shares of common stock, at a price of $ 17.02 per share.

In addition, Terra International 3 agreed to contribute to the Company future cash proceeds, if any, raised from time to time by it, and the Company agreed to issue shares of common stock to Terra International 3 in exchange for any such future cash proceeds, in each case pursuant to and in accordance with the terms and conditions specified in the agreement.

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

Under Cayman securities law, when there is a change in the terms of the offering, previously admitted partners have rights to rescind their subscription.

On September 24, 2019, Terra International 3 amended its private placement memorandum to change its term from finite life to perpetual life with limited opportunity for liquidity, as well as to change the selling commission structure and to provide for a dividend reinvestment plan.

As a result of the change in the terms of the offering, Terra International 3 received requests to rescind all of the units of its limited partnership interest at a price of $ 100,000 per unit.

On September 30, 2019, Terra International Fund 3, L.P.

(“Terra International 3”), through Terra Offshore REIT, a wholly-owned subsidiary of Terra International 3, contributed cash in the amount of $ 3.6 million to the Company in exchange for 212,691 shares of common stock, at a price of $ 17.02 per share.

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

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

Participation Agreements

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

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

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

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

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

1 unchanged sentence

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

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

Notes to Consolidated Financial Statements

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

The Company has determined that the participation agreements it enters into are accounted for as secured borrowings under ASC 860 (See “ Participation interests ” in Note 2 and “ Obligations under Participation Agreements ” in ( Note 9 ).

Participation Interests Purchased by the Company

The below table lists the loan interests participated in by the Company via PAs as of December 31, 2020 and 2019.

In accordance with the terms of each PA, each Participant’s rights and obligations, as well as the proceeds received from the related borrower/issuer of the loan, are based upon their respective pro rata participation interest in the loan.

December 31, 2020 December 31, 2019

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

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

In accordance with the terms of each participation agreement, each Participant’s rights and obligations, as well as the proceeds received from the related borrower/issuer of the loan, are based upon their respective pro rata participation interest in the loan.

The table below lists the participation interests purchased by the Company pursuant to participation agreements as of December 31, 2021 and 2020.

December 31, 2021

Participating Interests Principal Balance Carrying Value

Hillsborough Owners LLC (1)

30.00 % $ 4,863,009 $ 4,866,542

UNJ Sole Member, LLC (2)

40.80 % 7,444,357 7,477,190

$ 12,307,366 $ 12,343,732

December 31, 2020

Participating Interests Principal Balance Carrying Value

LD Milpitas Mezz, LP (3)

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________________

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

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

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

(1) The loan is held in the name of Terra Income Fund 6, Inc.

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

(2) The loan is held in the name of Mavik Real Estate Special Opportunities Fund REIT, LLC, a related-party REIT managed by the Manager.

(3) On June 27, 2018, the Company entered into a participation agreement with Terra Fund 6 to purchase a 25 % participation interest, or $ 4.3 million, in a $ 17.0 million mezzanine loan.

This loan was repaid in full in May 2021.

Transfers of Participation Interest by the Company

The following tables summarize the loans that were subject to PAs with affiliated entities as of December 31, 2020 and 2019:

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

Transfers Treated as Obligations Under Participation Agreements as of

December 31, 2021

Principal Balance Carrying Value % Transferred Principal Balance (6)

Carrying Value (6)

14th & Alice Street Owner, LLC (5)

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

Principal Balance Carrying Value % Transferred Principal Balance Carrying Value

370 Lex Part Deux, LLC (1)

$ 60,012,639 $ 60,012,639 35.00 % $ 21,004,424 $ 21,004,423

City Gardens 333 LLC (2)

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

Orange Grove Property Investors, LLC (2)

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

RS JZ Driggs, LLC (1)

15,606,409 15,754,641 50.00 % 7,806,370 7,880,516

Stonewall Station Mezz LLC (2)

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

The Bristol at Southport, LLC (5)

Shopoff & Cindy I.

25,000,000 25,206,964 52.95 % 13,237,500 13,347,088

$ 100,619,048 $ 100,974,244 $ 42,048,294 $ 42,232,027

Notes to Consolidated Financial Statements

Transfers Treated as Obligations Under Participation Agreements as of

December 31, 2020

Principal Balance Carrying Value % Transferred Principal Balance (6)

Carrying Value (6)

Principal Balance Carrying Value % Transferred Principal Balance Carrying Value

14th & Alice Street Owner, LLC (2)(3)(4)

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

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

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

370 Lex Part Deux, LLC (1)

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

Owner LLC (1)(7)

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

City Gardens 333 LLC (1)(4)

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

High Pointe Mezzanine Investments,

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

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

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

Orange Grove Property Investors, LLC (1)(4)

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

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

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

Stonewall Station Mezz LLC (1)(4)

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

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

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

________________

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

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

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

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

(1) Participant is Terra Fund 6.

(2) Participant is a third-party.

(6) Amounts transferred may not agree to the proportionate share of the principal balance and fair value due to the rounding of percentage transferred.

(7) As discussed in Note 3 , in March 2020, the Company settled an aggregate of $ 49.8 million of participation interests in loans held by the Company with TPT2 and Terra Offshore REIT, which Terra Offshore REIT received from Terra Secured Income Fund 5 International and Terra Income Fund International.

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

(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 2021.

These investments are held in the name of the Company, but each of the Participant’s rights and obligations, including interest income and other income ( e.g.

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

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

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

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

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

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

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

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

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

However, the sale of the A-note position did not qualify for sale accounting under ASC 860 and therefore, the gross amount of the loan remains in the consolidated balance sheets and the proceeds are recorded as secured borrowing.

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

Notes to Consolidated Financial Statements

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

secured borrowing.

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 December 31, 2021 and 2020:

Transfers Treated as Secured Borrowing as of December 31, 2021

2 unchanged sentences

$ 49,954,068 $ 50,264,568 $ 34,521,104 $ 34,586,129

Co-investment

In January 2018, the Company and Terra Fund 6 co-invested in an $ 8.9 million mezzanine loan that bears interest at an annual fixed rate of 12.75 % and matured on March 31, 2019.

In March 2019, the maturity of this loan was extended to July 1, 2019.

In June 2019, the maturity of this loan was further extended to September 30, 2019.

In August 2019, the loan was repaid in full.

Transfers Treated as Secured Borrowing as of December 31, 2020

Principal Balance Carrying Value % Transferred Principal Balance Carrying Value

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

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

Unsecured Notes Payable

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

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

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

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

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

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

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

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

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

As of December 31, 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 December 31, 2021:

December 31, 2021

Principal Balance Carrying Value (1)

Unsecured notes payable $ 85,125,000 $ 81,856,799 $ 85,210,125

_______________

(1) Amount is net of unamortized issue discount of $ 2.4 million and unamortized deferred financing costs of $ 0.9 million.

Revolving Line of Credit

On March 12, 2021, Terra Mortgage Portfolio II, LLC, an indirect wholly-owned subsidiary of the Company, entered into a Business Loan and Security Agreement (the “Revolving Line of Credit”) with Western Alliance Bank (“WAB”) to provide for advances up to the lesser of $ 75.0 million or the amount determined by the borrowing base, which is based on the eligible assets pledged to the lender.

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

The Revolving Line of Credit was scheduled to mature on March 12, 2023 .

On January 4, 2022, the Company amended the Revolving Line of Credit and the Security Agreement to increase the maximum amount available to $ 125.0 million and extended the maturity date of the facility to March 12, 2024 with an annual 12-month extension available at the Company’s option, which are subject to certain conditions.

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

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

(ii) a $ 2.0 million quarterly operating profit, as defined within the agreement;

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

As of December 31, 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.

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

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

In connection with the closing of the Revolving Line of Credit, the Company 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 December 31, 2021:

December 31, 2021

Borrowing Base Borrowings Under the Revolving Line of Credit

Principal Amount Carrying Value Fair

870 Santa Cruz, LLC $ 17,540,875 $ 17,669,303 $ 17,781,285 $ 12,278,613

606 Fayetteville LLC and 401 E.

Lakewood LLC 16,829,962 16,935,803 16,974,601 10,312,187

Borrower LLC 13,625,000 13,725,690 13,735,569 7,493,750

D-G Acquistion #6, LLC and D-G Quimisa, LLC 8,607,092 8,605,341 8,645,413 6,024,965

The Lux Washington, LLC 3,523,401 3,382,683 3,553,330 2,466,380

$ 60,126,330 $ 60,318,820 $ 60,690,198 $ 38,575,895

For the year ended December 31, 2021, the Company received proceeds from the Revolving Line of Credit of $ 38.6 million and did not make any repayments.

On September 3, 2020, Terra Mortgage Capital I, LLC (the “Issuer” or the “Seller”), a special-purpose indirect wholly-owned subsidiary of the Company, entered into an Indenture and Credit Agreement (the “Indenture and Credit Agreement”) with Goldman Sachs Bank USA, as initial lender (“Goldman”) and Wells Fargo Bank, National Association, as the trustee, custodian, collateral agent, loan agent and note administrator (“Wells Fargo”).

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The Class B Holder is the parent of the Issuer and a wholly-owned subsidiary of the Company, and the sole holder of the Class B Notes.

The Class B Holder is consolidated by the Company and the Term Loan represents amount due to Goldman under the Indenture and Credit Agreement.

The Class B Holder is consolidated by the Company and the Term Loan represents amount

due to Goldman under the Indenture and Credit Agreement.

In addition, pursuant to the terms and conditions of the Indenture and Credit Agreement, Goldman has agreed to provide $ 3.6 million of additional future advances (the “Committed Advances”), and may provide up to $ 11.6 million of additional future discretionary advances, in connection with certain outstanding funding commitments under mortgage assets owned by the Issuer and financed under the Indenture and Credit Agreement (the “Mortgage Assets”).

The stated maturity date of the Debt is March 14, 2025 .

The Term Loan bears interest at a variable rate initially equal to LIBOR (the “Benchmark Rate”) (but not less than 1.0 % per annum), plus a margin of 4.25 % per annum (plus 0.50 % on and after the payment date in October 2022, plus 0.25 % on and after the payment date in October 2023), payable each month, on the day specified in the Indenture and Credit Agreement beginning in September 2020 (each a “Payment Date”).

The Benchmark Rate will convert to an alternate index rate following the occurrence of certain transition events (the “Alternate Benchmark Rate”).

Except as described below, and provided there is no default under the Indenture and Credit Agreement, the Class B Notes are entitled to residual amounts collected by the Issuer in respect of Mortgage Assets, after payment of debt service on the Term Loan.

The stated maturity date of the Debt was March 14, 2025 .

On February 18, 2022, the Company refinanced the Term Loan with a new repurchase agreement (see Note 12 ).

The Term Loan bore interest at a variable rate initially equal to LIBOR (the “Benchmark Rate”) (but not less than 1.0 % per annum), plus a margin of 4.25 % per annum (plus 0.50 % on and after the payment date in October 2022, plus 0.25 % on and after the payment date in October 2023), payable each month, on the day specified in the Indenture and Credit Agreement beginning in September 2020 (each a “Payment Date”).

The Indenture and Credit Agreement is a term loan and does not contain any mark-to-market or margin provisions.

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The Issuer also pays, with respect to the Committed Advances, an annual fee, payable monthly, equal to the Benchmark Rate or Alternate Benchmark Rate, as applicable, subject to a floor of 1.0 % per annum, plus 4.25 %.

In connection with the Indenture and Credit Agreement, the Company entered into a non-recourse carveout Guaranty (the "Guaranty") in favor of Goldman, pursuant to which the Company guarantees the payment of certain losses, damages, costs, expenses, and other obligations incurred by Goldman in connection with the occurrence of fraud, intentional misrepresentation,

Notes to Consolidated Financial Statements

or willful misconduct by the Issuer, Class B Holder or the Company, and certain other occurrences including breaches of certain provisions under the Indenture and Credit Agreement.

In connection with the Indenture and Credit Agreement, the Company entered into a non-recourse carveout Guaranty (the “Guaranty”) in favor of Goldman, pursuant to which the Company guarantees the payment of certain losses, damages, costs, expenses, and other obligations incurred by Goldman in connection with the occurrence of fraud, intentional misrepresentation, or willful misconduct by the Issuer, Class B Holder or the Company, and certain other occurrences including breaches of certain provisions under the Indenture and Credit Agreement.

The Company also guarantees the payment of the aggregate outstanding amount of the Term Loan upon the occurrence of certain bankruptcy events.

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

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

On February 18, 2022, the Company refinanced the Term Loan with a new repurchase agreement (see Note 12 ) and expects continued covenant compliance under the terms of the new repurchase agreement.

As of December 31, 2020, the Company was in compliance with these covenants.

The Term Loan is secured by first-priority security interests in substantially all of the assets of the Issuer, including all of the Mortgage Assets (other than excluded property and subject to certain permitted liens), including specified cash accounts that include the accounts into which Mortgage Asset proceeds are or will be paid.

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A “Term Loan Principal Trigger Event” means as of any date of determination, an event that will be deemed to have occurred on the first date on which the aggregate principal balance of the Mortgage Assets is less than or equal to the product of (x) 75% multiplied by (y) the aggregate principal balance of the Mortgage Assets as of the closing date, plus any future advances made on such Mortgage Assets prior to such date of determination.

As of December 31, 2020, there was no Term Loan Principal Trigger Event.

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

The Class B Notes and the Term Loan are redeemable by the Issuer upon the occurrence of certain tax events in accordance with the terms and provisions of the Indenture and Credit Agreement.

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

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

December 31, 2021

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AGRE DCP Palm Springs, LLC 43,222,381 43,669,992 43,829,842 23,146,265

Patrick Henry Recovery Acquisition, LLC 18,000,000 18,041,124 18,055,377 10,800,000

University Park Berkeley, LLC 25,815,378 25,991,962 26,015,500 14,853,544

$ 163,127,047 $ 164,142,316 $ 162,526,736 $ 93,763,470

December 31, 2020

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

Principal Amount Carrying Value Fair

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

1389 Peachtree St, LP;

1401 Peachtree St, LP;

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

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

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

3 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 December 31, 2020 using LIBOR of 0.14 %.

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

(2) The maturity of the Term Loan is March 14, 2025 , however the maturity of each borrowing under the Term Loan matches the maturity of the respective Mortgage Asset.

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

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

For the year ended December 31, 2021, the Company received proceeds from borrowings under the Term Loan of $ 2.8 million and made repayment of $ 16.6 million.

As of December 31, 2021, the remaining amount for Committed Advances and discretionary advances was $ 0.4 million and $ 6.6 million, respectively.

Repurchase Agreement

On December 12, 2018, Terra Mortgage Capital I, LLC entered into an Uncommitted Master Repurchase Agreement (the “Master Repurchase Agreement”) with Goldman Sachs Bank USA.

The Master Repurchase Agreement provided for advances

Notes to Consolidated Financial Statements

of up to $ 150.0 million in the aggregate, which the Company used to finance certain secured performing commercial real estate loans.

Advances under the Master Repurchase Agreement accrued interest at a per annum pricing rate equal to the sum of (i) the 30-day LIBOR and (ii) the applicable spread, and had a maturity date of December 12, 2020 .

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

The Master Repurchase Agreement contained margin call provisions that provide Goldman with certain rights in the event of a decline in the market value of the assets purchased under the Master Repurchase Agreement.

Upon the occurrence of a margin deficit event, Goldman required the Seller to make a payment to reduce the outstanding obligation to eliminate any margin deficit.

For the period from January 1, 2020 to the date of the termination of the Master Repurchase Agreement on September 3, 2020, the Company received a margin call on one of the borrowings and as a result, made a repayment of $ 3.4 million to reduce the outstanding obligation under the Master Repurchase Agreement.

In connection with the Master Repurchase Agreement, the Company entered into a Guarantee Agreement in favor of Goldman (the “Guarantee Agreement”), pursuant to which the Company would guarantee the obligations of the Seller under the Master Repurchase Agreement.

Subject to certain exceptions, the maximum liability under the Master Repurchase Agreement would not exceed 50 % of the then currently outstanding repurchase obligations under the Master Repurchase Agreement.

On September 3, 2020, the Company terminated the Master Repurchase Agreement and replaced it with the Term Loan as described above.

In connection with the termination of the Master Repurchase Agreement, the Issuer repurchased all of its assets sold to Goldman pursuant to the Master Repurchase Agreement with the proceeds from the Term Loan, and Goldman released all security interests in such assets.

In addition, Goldman unconditionally released the Company from, and terminated, the Guarantee Agreement in favor of Goldman, dated as of December 12, 2018, which provided for the guarantee by the Company of the obligations of the Issuer under the Master Repurchase Agreement, subject to certain exceptions and limitations.

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

In addition, the Guarantee Agreement contained financial covenants, which required the Company to maintain:

(i) liquidity of at least 10 % of the then-current outstanding amount under the Master Repurchase Agreement;

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

(iii) tangible net worth at an amount equal to or greater than 75 % of the Company’s tangible net worth as of December 12, 2018, plus 75 % of new capital contributions thereafter;

Repurchase Agreements

UBS Master Repurchase Agreement

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.

In connection with the UBS Master Repurchase Agreement, the Company incurred deferred financing costs of $ 0.6 million, which are being amortized to interest expense over the term of the facility.

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.

As of December 31, 2019, the Company was in compliance with these covenants.

In connection with entering into the Master Repurchase Agreement, the Company incurred $ 2.8 million of deferred financing costs, which were being amortized to interest expense over the term of the facility.

In connection with the termination of the Master Repurchase Agreement, the remaining $ 0.5 million of unamortized deferred financing costs were carried over to the Term Loan to be amortized over the term of the Term Loan.

As of December 31, 2019, unamortized deferred financing costs were $ 1.5 million.

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

December 31, 2019

Arrangement Weighted

Amount Outstanding Amount

Available Weighted

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

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(1) Amount is calculated using LIBOR of 1.76 % as of December 31, 2019.

(2) The weighted average term is determined based on the current maturity of the corresponding loan.

Each transaction under the facility has its own specific term.

The Company may extend the maturity date of the Master Repurchase Agreement for a period of one year, subject to satisfaction of certain conditions.

Notes to Consolidated Financial Statements

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

In March 2022, the Company amended the UBS Guarantee Agreement to reduce the EBITDA to interest expense ratio of not less than 1.25 to 1.00, and a s of December 31, 2021, the Company was in compliance with these covenants.

The following table presents detailed information with respect to each borrowing under the UBS Master Repurchase Agreement as of December 31, 2021:

December 31, 2021

2 unchanged sentences

Value Borrowing Date Principal Amount Interest

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

1389 Peachtree St, LP;

1401 Peachtree St, LP;

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

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

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

14th & Alice Street Owner, LLC $ 39,384,000 $ 40,089,153 $ 40,130,448 11/8/2021 $ 25,599,600 LIBOR+1.45% (LIBOR floor of 0.1%)

NB Factory TIC 1, LLC 28,000,000 28,420,056 28,851,547 11/8/2021 18,970,000 LIBOR+1.74% (LIBOR floor of 0.1%)

$ 67,384,000 $ 68,509,209 $ 68,981,995 $ 44,569,600

For the years ended December 31, 2020 and 2019, the Company borrowed $ 22.9 million and $ 81.1 million under the Master Repurchase Agreement, respectively, for the financing of new and follow-on investments, and made repayments of $ 104.0 million and $ 34.2 million, respectively.

For the year ended December 31, 2021, the Company borrowed $ 44.6 million under the UBS Master Repurchase Agreement for the financing of new and follow-on investments, and did not make any repayments.

Goldman Master Repurchase Agreement

On December 12, 2018, Terra Mortgage Capital I, LLC entered into an Uncommitted Master Repurchase Agreement (the “Goldman Master Repurchase Agreement”) with Goldman Sachs Bank USA.

The Goldman Master Repurchase Agreement provided for advances of up to $ 150.0 million in the aggregate, which the Company used to finance certain secured performing commercial real estate loans.

Advances under the Goldman Master Repurchase Agreement accrued interest at a per annum pricing rate equal to the sum of (i) the 30-day LIBOR and (ii) the applicable spread, and had a maturity date of December 12, 2020 .

The actual terms of financing for each asset was determined at the time of financing in accordance with the Goldman Master Repurchase Agreement.

The Goldman Master Repurchase Agreement contained margin call provisions that provide Goldman with certain rights in the event of a decline in the market value of the assets purchased under the Goldman Master Repurchase Agreement.

Upon the occurrence of a margin deficit event, Goldman required the Seller to make a payment to reduce the outstanding obligation to eliminate any margin deficit.

For the period from January 1, 2020 to the date of the termination of the Goldman 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 Goldman Master Repurchase Agreement.

On September 3, 2020, the Company terminated the Goldman Master Repurchase Agreement and replaced it with the Term Loan as described above.

In connection with the termination of the Goldman Master Repurchase Agreement, the Issuer repurchased all of its assets sold to Goldman pursuant to the Goldman Master Repurchase Agreement with the proceeds from the Term Loan, and Goldman released all security interests in such assets.

In addition, Goldman unconditionally released the

Company from, and terminated, the Guarantee Agreement in favor of Goldman, dated as of December 12, 2018, which provided for the guarantee by the Company of the obligations of the Issuer under the Goldman Master Repurchase Agreement, subject to certain exceptions and limitations.

For the year ended December 31, 2020, the Company received proceeds from borrowings under the Goldman Master Repurchase Agreement of $ 22.9 million and made repayments of $ 104.0 million.

Revolving Credit Facility

6 unchanged sentences

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

In connection with obtaining the Revolving Credit Facility, the Company incurred deferred financing costs of $ 0.3 million, which was amortized over the original term of the facility.

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

The Revolving Credit Facility required the Company to maintain:

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

(ii) cash liquidity of at least $ 7.0 million;

(iii) tangible net worth of at least $ 200.0 million;

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

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

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

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

Notes to Consolidated Financial Statements

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

For the year ended December 31, 2020, the Company received proceeds $ 35.0 million from borrowings under the Revolving Credit Facility, all of which were repaid in the same period.

Mortgage Loan Payable

4 unchanged sentences

Interest Rate Maturity

Principal Amount Carrying Value Carrying Value of

Collateral Carrying Value Carrying Value of

Date Principal Amount Carrying Value Carrying Value of

Collateral Principal Amount Carrying Value Carrying Value of

Centennial Bank LIBOR + 3.85%

(LIBOR Floor of 2.23%) September 27, 2022 $ 31,962,692 $ 32,134,295 $ 46,067,129 $ 44,020,225 $ 44,117,293 $ 49,533,733

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(1) In September 2020, the Company exercised the option to extend the maturity of the mortgage loan payable by two years.

Scheduled Debt Principal Payments

3 unchanged sentences

2023 38,575,895

2024 100,333,261

2025 37,999,809

2026 85,125,000

Unamortized deferred financing costs ( 5,904,421 )

Total $ 288,092,236

At December 31, 2020 and 2019, the unamortized deferred financing costs were $ 2.2 million and $ 1.4 million, respectively.

At December 31, 2021 and 2020, the unamortized deferred debt issuance costs were $ 5.9 million and $ 2.2 million, respectively.

Obligations Under Participation Agreements and Secured Borrowing

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As of December 31, 2021 and 2020, obligations under participation agreements had a carrying value of approximately $ 42.2 million and $ 71.6 million, respectively, and the carrying value of the loans that are associated with these obligations under participation agreements was approximately $ 101.0 million and $ 168.6 million, respectively, (see “ Participation Agreements ” in Note 8 ).

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

Additionally, as of December 31, 2021 and 2020, secured borrowing had a carrying value of approximately $ 34.6 million and $ 18.2 million, and the carrying value of the loan that is associated with the secured borrowing was $ 50.3 million and $ 26.4 million, respectively.

The weighted-average interest rate on the obligations under participation agreements and secured borrowing was approximately 10.4 % and 10.2 % as of December 31, 2021 and 2020, respectively.

1 unchanged sentence

Impact of COVID-19

As further discussed in Note 2 , the full extent of the impact of COVID-19 on the global economy generally, and the Company’s business in particular, is uncertain.

As of December 31, 2020, no contingencies have been recorded on the Company’s consolidated balance sheet as a result of COVID-19, however as the global pandemic continues and the economic implications worsen, it may have long-term impacts on the Company’s financial condition, results of operations, and cash flows.

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

Refer to Note 2 for further discussion of COVID-19.

Notes to Consolidated Financial Statements

Unfunded Commitments on Loans Held for Investment

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Unfunded Investment Commitment

As discussed in Note 8 , On August 3, 2020, the Company entered into a subscription agreement with Terra RECO whereby the Company committed to fund up to $ 50.0 million to purchase limited partnership interests in Terra RECO.

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

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

As of December 31, 2021 and 2020, the unfunded investment commitment was $ 15.1 million and $ 14.1 million, respectively.

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

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Years Ended December 31,

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

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

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

Net (loss) income $ ( 12,355,727 ) $ 5,255,730

Series A preferred stock dividend declared ( 15,624 ) ( 15,624 )

Net (loss) income allocable to common stock $ ( 12,371,351 ) $ 5,240,106

Weighted-average shares outstanding - basic and diluted 19,487,460 18,813,066

Earnings per share — basic and diluted $ 0.28 $ 0.60

(Loss) earnings per share - basic and diluted $ ( 0.63 ) $ 0.28

Preferred Stock Classes

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Series A Preferred Stock

On November 30, 2016, the Company’s board of directors classified and designated 125 shares of preferred stock as a separate class of preferred stock to be known as the 12.5 % Series A Redeemable Cumulative Preferred Stock, $ 1,000

Notes to Consolidated Financial Statements

liquidation value per share (“Series A Preferred Stock”).

In December 2016, the Company sold 125 shares of the Series A Preferred Stock for $ 125,000 .

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All distributions will be made at the discretion of the Company’s board of directors and will depend upon its taxable income, financial condition, maintenance of REIT status, applicable law, and other factors as its board of directors deems relevant.

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

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

Additionally, for both the years ended December 31, 2020 and 2019, the Company made distributions to preferred stockholders of $ 15,624 .

Additionally, for each of the years ended December 31, 2021 and 2020, the Company made distributions to preferred stockholders of $ 15,624 .

Distributions paid to stockholders consist of ordinary income, capital gains, return of capital or a combination thereof for income tax purposes.

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Ordinary income $ 0.07 $ 0.48

Capital gain 0.06 —

Return of capital 0.75 0.68

$ 0.88 $ 1.16

Notes to Consolidated Financial Statements

Subsequent Events

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

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

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

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

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

(ii) a $ 2.0 million quarterly operating profit;

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

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

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

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

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

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 February 18, 2022, Terra Mortgage Capital I, LLC (the “Seller”), a special-purpose indirect wholly-owned subsidiary of the Company, entered into an Uncommitted Master Repurchase and Securities Contract Agreement (the “Repurchase Agreement”) with Goldman Sachs Bank USA ( the “Buyer”).

The Repurchase Agreement provides for advances of up to $ 200.0 million in the aggregate, which the Company expects to use to finance the originations of certain secured performing commercial real estate loans and the acquisitions of certain secured non-performing commercial real estate loans.

The Repurchase Agreement replaced the Term Loan, at which time all Mortgage Assets under the Term Loan were assigned as purchased assets under the Repurchase Agreement.

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

Subject to satisfaction of certain conditions, the Seller may extend the maturity date of the Repurchase Agreement for another 12-month term.

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 Repurchase Agreement, the Company entered into a Guarantee Agreement in favor of the Buyer (the “Guarantee Agreement”), pursuant to which the Company will guarantee the obligations of the Seller under the Repurchase Agreement.

the 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 Repurchase Agreement;

(ii) total liquidity in an amount equal to or greater than the lesser of $ 15 million or 10 % of the then-current outstanding amount under the Repurchase Agreement (iii) tangible net worth at an amount no less than 75 % of that at closing;

(iv) an EBITDA to adjusted 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 3.00 to 1.00.

Terra Property Trust, Inc.

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Gross Amount at Period End

Description Encumbrance Land Building, Building Improvements and Furniture and Fixtures Land Building, Building Improvements and Furniture and Fixtures Total Accumulated Depreciation Date of Construction Date Acquired Life Used for Depreciation

Description Encumbrance Land Building and Building Improvements Land Building and Building Improvements Total Accumulated Depreciation Date of Construction Date Acquired Life Used for Depreciation

Office building

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___________________________

(1) For the year ended December 31, 2019, the Company recorded an impairment charge of $ 1.6 million on the land in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost of sale.

(1) For the year ended December 31, 2019, the Company recorded an impairment charge of $ 1.5 million on the land in order to reduce the carrying value of the land to its estimated fair value, which was the then estimated selling price less the cost of sale.

For the year ended December 31, 2021, the Company recorded another impairment charge of $ 3.4 million to reflect the current estimated selling price less the cost of sale.

At December 31, 2021, the aggregate cost of real estate for federal income tax purposes was $ 57.6 million.

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150 Blackstone River Road, LLC US - MA Industrial 8.5 % 9/6/2027 Interest Only $ — $ 7,000,000 $ 7,000,000

Owner LLC (3)

US - TX Hotel 12.5 % 10/6/2020 Interest Only — 3,848,712 3,887,200

High Pointe Mezzanine Investments, LLC (4)

US - SC Student

High Pointe Mezzanine Investments, LLC US - SC Student

housing 13.0 % 1/6/2024 Interest Only — 3,000,000 3,145,614

LD Milipitas Mezz, LLC (5)

US - CA Hotel LIBOR +10.25% (2.75% Floor) 6/27/2023 Interest Only — 4,250,000 4,294,053

Stonewall Station Mezz LLC (4)(6)(7)

US - NC Land 12.0% current

2.0% PIK 5/31/2023 Interest Only — 10,442,567 10,537,512

UNIJ Sole Member, LLC (3)

US - CA Mixed-use 15.0 % 6/1/2027 Interest Only — 7,444,357 7,477,190

17,444,357 17,622,804

First Mortgages:

14th & Alice Street Owner, LLC (6)(8)

US - CA Multifamily LIBOR + 5.75% (3.25% Floor) 3/5/2022 Interest Only — 32,625,912 32,877,544

1389 Peachtree St, LP;

14th & Alice Street Owner, LLC US - CA Multifamily LIBOR + 4.0% (0.25% Floor) 4/15/2024 Interest Only — 39,384,000 40,089,153

1389 Peachtree St, LP;

1401 Peachtree St, LP;

US - GA Office LIBOR + 4.5% 3/10/2024 Interest Only — 50,808,453 51,068,554

330 Tryon DE LLC (9)

US - NC Office LIBOR + 3.85% (2.51% Floor) 3/1/2024 Interest Only — 22,800,000 22,901,294

1409 Peachtree St, LP US - GA Office LIBOR + 4.5% 8/10/2024 Interest Only — 53,289,288 53,536,884

330 Tryon DE LLC US - NC Office LIBOR + 4.25% (0.1% Floor) 3/1/2024 Interest Only — 22,800,000 22,902,354

606 Fayetteville LLC and 401 E.

Lakewood LLC US - NC Land 9.0 % 8/1/2024 Interest Only — 16,829,962 16,935,803

870 Santa Cruz, LLC US - CA Office LIBOR + 6.75% (0.5% Floor) 12/15/2025 Interest Only — 17,540,875 17,669,303

AGRE DCP Palm Springs, LLC (9)(10)

US - CA Hotel LIBOR +4.75% (1.8% Floor) 1/1/2025 Interest Only — 45,294,097 45,506,051

MSC Fields Peachtree Retreat, LLC (9)

US - GA Multifamily LIBOR + 3.85% (2.0% Floor) 4/1/2024 Interest Only — 23,308,334 23,437,198

Patrick Henry Recovery Acquisition, LLC (9)

US - CA Office LIBOR + 2.95% (1.5% Floor) 12/1/2024 Interest Only — 18,000,000 18,039,456

University Park Berkeley, LLC (9)(11)

US - CA Student

AGRE DCP Palm Springs, LLC US - CA Hotel - full/select service LIBOR +5.0% (1.8% Floor) 1/1/2025 Interest Only — 43,222,381 43,669,992

Borrower LLC (4)

US - TX Hotel - full/select service LIBOR +7.5% (0.25% Floor) 10/1/2026 Interest Only — 13,625,000 13,725,690

D-G Acquistion #6, LLC and D-G Quimisa, LLC US - CA Land LIBOR +7.0% (0.25% Floor) 7/21/2025 Interest Only — 8,607,092 8,605,341

Hillsborough Owners LLC (5)

US - NC Mixed-use LIBOR +8.0% (0.25% Floor) 11/1/2024 Interest Only — 4,863,009 4,866,542

NB Factory TIC 1, LLC US - UT Student

housing LIBOR +5.0% (0.25% Floor) 3/5/2024 Interest Only — 28,000,000 28,420,056

Windy Hill PV Five CM, LLC (12)

US - CA Office LIBOR + 6.0% (2.05% Floor) 9/20/2023 Interest Only — 26,454,910 26,407,494

Patrick Henry Recovery Acquisition, LLC US - CA Office LIBOR + 2.95% (1.5% Floor) 12/1/2024 Interest Only — 18,000,000 18,041,124

The Lux Washington, LLC US - WA Land LIBOR + 7.0% (0.75% Floor) 1/22/2026 Interest Only — 3,523,401 3,382,683

University Park Berkeley, LLC US - CA Multifamily LIBOR + 4.2% (1.5% Floor) 3/1/2025 Interest Only — 25,815,378 25,991,962

Windy Hill PV Five CM, LLC US - CA Office LIBOR + 6.0% (2.05% Floor) 9/20/2023 Interest Only — 49,954,068 50,264,568

345,454,454 348,101,455

8 unchanged sentences

US - NY Office LIBOR + 8.25% (2.44% Floor) 1/9/2025 Interest Only $ — $ 60,012,639 $ 60,012,639

City Gardens 333 LLC (6)(7)

US - CA Student housing LIBOR + 9.95% (2.0% Floor) 4/1/2023 Interest Only — 28,303,628 28,307,408

Orange Grove Property Investors, LLC (6)(7)

US - CA Condominium LIBOR + 8.0% (4.0% Floor) 6/1/2022 Interest Only — 10,600,000 10,701,924

REEC Harlem Holdings Company LLC US - NY Land LIBOR + 12.5% 3/9/2025 Interest Only — 16,767,984 16,767,984

REEC Harlem Holdings Company LLC (8)

US - NY Mixed-use LIBOR + 12.5% 3/9/2025 Interest Only — 16,633,292 16,633,292

RS JZ Driggs, LLC (6)(7)(9)

US - NY Multifamily 12.3 % 8/1/2021 Interest Only — 15,606,409 15,754,641

The Bristol at Southport, LLC (6)(8)

US - WA Multifamily 12.0 % 9/22/2022 Interest Only — 23,500,000 23,682,536

92,252,340 92,400,572

Credit facility:

Shopoff & Cindy I.

Shopoff (6)(7)

US-CA Industrial 15.0 % 4/4/2023 Interest Only 25,000,000 25,206,964

25,000,000 25,206,964

Allowance for loan losses — ( 13,658,481 )

3 unchanged sentences

(2) Maximum maturity date assumes all extension options are exercised.

(3) This loan is currently past due.

The Company is currently evaluating the options of recovering the principal amount, including foreclosing on the collateral.

The latest appraisal the Company received in August 2020 indicates that the value of the collateral is sufficient to recover the principal amount.

(4) The Company entered into a forbearance agreement with the borrower to allow for more time to make the interest payment.

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

to purchase a 25 % interest, or $ 4.3 million, in a mezzanine loan.

(3) Participation interest is with Mavik Real Estate Special Opportunities Fund REIT, LLC, a related-party real estate investment trust managed by the Manager ( Note 8 ).

(4) In September 2021, the Company refinanced a previously-defaulted mezzanine loan with a new first mortgage.

This refinancing was accounted for as a troubled debt restructuring and the Company recognized a loss of $ 0.3 million on the restructuring.

(5) Participation interest is with Terra Fund 6, an affiliated fund advised by the Terra Income Advisors, an affiliate of the Company’s sponsor and Manager ( Note 8 ).

(6) The loan participations from the Company do not qualify for sale accounting under ASC 860 and therefore, the gross amount of these loans remain in Schedule IV.

See “ Obligations under Participation Agreements ” in Note 9 and “ Transfers of Participation Interest by the Company ” in Note 8 in the accompanying notes to the consolidated financial statements.

(7) The Company sold a portion of its interest in this loan through a participation agreement to Terra Income Fund 6, Inc., an affiliated fund advised by the Terra Income Advisors, an affiliate of the Company’s sponsor and Manager ( Note 8 ).

(8) The Company sold a portion of its interest in this loan to a third-party through a participation agreement ( Note 8 ).

(9) These loans were used as collateral for $ 107.6 million borrowing under a term loan ( Note 9 ).

(10) In July 2020, the Company amended the loan agreement to change the interest rate to PIK 15 % for the period from July 2020 through January 2021.

(11) In December 2020, the Company entered into a forbearance agreement with the borrower pursuant to which interest is accrued on the loan during the 90-day forbearance period from November 2020 to January 2021.

In connection with entering into the forbearance agreement, the spread on the interest rate was increased to 4.2 % and the exit fee was increased to 0.75 %.

(12) In March 2020, the Company entered into a financing transaction where a third-party purchased an A-note position.

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

The liability is reflected as secured borrowing in the consolidated balance sheets.

(13) This loan is currently past due.

Given the loan is in default, the Company issued a demand notice and is currently in control of the sale process.

The Company expects the sales proceeds to repay the principal in full.

(7) The Company sold a portion of its interest in this loan through a participation agreement to Terra Fund 6 ( Note 8 ).

(8) The Company recorded a specific allowance for loan loss of $ 12.8 million on this loan as a result of a decline in the value of the collateral ( Note 4 ).

(9) This loan is in maturity default.

The Company has exercised its rights and is facilitating the completion of construction of the asset in anticipation of lease up and disposition of the asset.

Terra Property Trust, Inc.

3 unchanged sentences

on Real Estate

December 31, 2020

Year Ended December 31, 2021

Balance, beginning of year $ 422,280,515

Additions during period:

Additions during the period:

New mortgage loans 252,437,733

PIK interest 1,955,109

Accrual, payment and accretion of exit fees, net 681,455

Accrual, payment and accretion of investment-related fees and other, net 1,397,519

Deductions during the period:

Collections of principals ( 66,144,729 )

Amortization of premium ( 61,391 )

Collections of principal ( 196,780,456 )

Provision for loan losses ( 10,904,163 )

Amortization of premium ( 61,390 )

Realized loss on loan repayments ( 651,553 )

Balance, end of year $ 469,673,314

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Signature Title Date

/s/ Andrew M.

Axelrod Chairman of the Board March 18, 2021

/s/ Vikram S.

Uppal Director and Chief Executive Officer March 18, 2021

Uppal Chairman of the Board and Chief Executive Officer March 11, 2022

Uppal (Principal Executive Officer)

6 unchanged sentences

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

What changed 10-K

Item 9A. Controls and Procedures