Terra Property Trust, Inc. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures 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 49 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. Evaluation of Internal Controls over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our Manager, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements in our consolidated financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of our management, including the chief executive officer and chief financial officer of our Manager (performing functions equivalent to those a principal executive officer and principal financial officer of our company would perform if we had any officers), we conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on its evaluation, our management concluded that our internal control over financial reporting was effective as of the end of the fiscal year covered by this Annual Report on Form 10-K. This Annual Report on Form 10-K does not include an attestation report of our 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 During the most recent fiscal quarter, there was no change in our internal controls over financial reporting, as defined under Rule 13a-15(f) under the Exchange Act, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. Item 9B. Other Information. 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. Upon 50 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. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. PART III Item 10. Directors, Executive Officers and Corporate Governance. Set forth below is the information concerning our directors and executive officers. Board of Directors 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 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 Vikram S. Uppal* 38 Chairman of the Board of Directors, Chief Executive Officer, Chief Investment Officer Roger H. Beless 60 Director Michael L. Evans 69 Director *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. Vikram S. 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. Mr. Uppal has also served as Chief Investment Officer for our company, Terra Capital Partners and our Manager since February 2018. Mr. Uppal is also the Chief Executive Officer of Terra Income Advisors and Terra Fund 6 since April 2019. Prior to joining Terra Capital Partners, Mr. Uppal was a Partner and Head of Real Estate at Axar Capital Management since 2016. Prior to Axar Capital Management, Mr. Uppal was a Managing Director on the Investment Team at Fortress Investment Group's Credit and Real Estate Funds from 2015 to 2016. From 2012 to 2015, Mr. Uppal worked at Mount Kellett Capital Management, a private investment organization, and served as Co-Head of North American Real Estate Investments. Mr. Uppal holds a B.S. from the University of St. Thomas and a M.S. from Columbia University. Roger H. Beless has served as one of our independent directors since February 2018. Since May 2016, Mr. Beless has served as Chief Operating Officer at StreetLights Residential, where he oversees capital markets, asset and portfolio 51 management and acquisitions/dispositions, and company operations. From June 2012 until March 2016, Mr. Beless served as Managing Director for Mount Kellett Capital Management, where he oversaw global real estate asset management. Prior to joining Mount Kellett, Mr. Beless spent nearly 20 years with Goldman Sachs/Archon Group where he held a number of positions, including co-head of US Real Estate and Chief Operating Officer for Archon Residential, where he oversaw acquisitions, asset management, property management and dispositions. Mr. 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 Waymaker Value and Real Estate and the advisory board of Apartment Life. Mr. Beless holds a Bachelor’s of B.A. in Economics and Finance from Baylor University and a M.B.A from Southern Methodist University. Michael L. Evans has served as one of our independent directors since October 2017. Mr. Evans has served as a member of the board of directors of Terra Fund 6 from March 2015 to April 2019. Since December 2012, Mr. Evans has been the Managing Director and Chief Financial Officer of Newport LLC (formerly known as Newport Board Group), a CEO and board advisory firm. From June 2010 to September 2011, Mr. Evans served as the Interim Country Manager and Advisory Board Member for Concern Worldwide U.S. Inc., a non-profit humanitarian organization. From January 1977 until June 2010, Mr. Evans was with Ernst & Young, LLP (“Ernst & Young”), and served as a partner since 1984. During his nearly 34 years with Ernst & Young, he served as a tax, audit and consulting services partner, specializing in real estate companies and publicly-traded entities. Mr. Evans currently serves on the Advisory Board of Marcus & Millichap, Inc., the Independent Counsel Board of Prologis Targeted U.S. Logistics Fund and the board of directors of Newport LLC and Sen Plex, Inc. Mr. Evans is a licensed attorney and a C.P.A. (inactive) in California. He is currently a contributing business writer for Forbes.com and Allbusiness.com. Mr. Evans received a B.S.B. in accounting from the University of Minnesota, a J.D. from William Mitchell College of Law and an M.B.A. from Golden Gate University. Executive Officers The names, ages, positions and biographies of our officers are as follows: Name Age Position(s) Held with the Company Vikram S. Uppal 38 Chairman of the Board of Directors, Chief Executive Officer, Chief Investment Officer Gregory M. Pinkus 57 Chief Operating Officer and Chief Financial Officer Daniel J. Cooperman 47 Chief Originations Officer For biographical information regarding Mr. Uppal, see “Item 10. — Board of Directors” above. Gregory M. 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. He has served as (i) the Chief Financial Officer of Terra Capital Advisors, Terra Capital Advisors 2 and Terra Income Advisors 2 since May 2012, September 2012 and October 2016; (ii) the Chief Operating Officer of Terra Capital Advisors, Terra Capital Advisors 2 and Terra Capital Partners since July 2014; (iii) the Chief Operating Officer of Terra Income Advisors 2 since October 2016; (iv) the Chief Financial Officer, Treasurer and Secretary of Terra Fund 6 since May 2013 and Chief Operating Officer of Terra Fund 6 since July 2014; (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 RESOF since October 2020. Prior to joining Terra Capital Partners in May 2012, he served as Assistant Controller for W.P. Carey & Co. from 2006 to August 2010 and as Controller from August 2010 to May 2012. Mr. Pinkus also served as Controller and Vice President of Finance for several early-stage technology companies during the period of 1999 to 2005. Additionally, he managed large-scale information technology budgets at New York Life Insurance Company from 2003 to 2004 and oversaw an international reporting group at Bank of America from 1992 to 1996. Mr. Pinkus is a Certified Public Accountant and member of the American Institute of Certified Public Accountants. He holds a B.S. in Accounting from the Leonard N. Stern School of Business at New York University. Daniel J. Cooperman has served as Chief Originations Officer of our company, our Manager, Terra Fund Advisors and Terra Income Advisors since January 2016, September 2017, September 2017 and February 2015, respectively. Mr. Cooperman has served as Chief Originations Officer of (i) each of Terra Capital Advisors and Terra Capital Advisors 2 since January 2015, having previously served as Managing Director of Originations until January 2015 of Terra Capital Advisors and Terra Capital Advisors 2 since April 2009 and September 2012, respectively; (ii) Fund 5 International since January 2015, having previously served as Managing Director of Originations from June 2014 to June 2014; (iii) Terra Fund 6 since February 2015, having previously served as Managing Director of Originations from May 2013 until February 2015; and (iv) each of Terra Income Advisors 2, Terra International, and Terra Fund 7 since October 2016. Mr. Cooperman has 18 years’ experience in the 52 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. Cooperman handled mortgage and mezzanine placement activities for The Greenwich Group International, LLC. Prior to joining The Greenwich Group, Mr. Cooperman worked in Chase Manhattan Bank’s Global Properties Group, where he was responsible for financial analysis and due diligence for the bank’s strategic real estate acquisitions and divestitures. Prior to that time, he was responsible for acquisitions and asset management for JGS, a Japanese conglomerate with global real estate holdings. Mr. Cooperman holds a B.S. in Finance from the University of Colorado at Boulder. Code of Ethics Our Manager has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) pursuant to Rule 17j‑1 of the Advisers Act, which applies to, among others, the senior officers of our Manager, including the chief executive officer and the chief financial officer, as well as every officer, director, employee and “access person” (as defined within the Code of Ethics). We will also provide the Code of Ethics, free of charge, to stockholders who request it. Requests should be directed to Bernadette Murphy, at Terra Property Trust, Inc., 550 Fifth Avenue, 6th Floor, New York, New York 10036. 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 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. Mr. Evans serves as the chairman of the Audit Committee. Our board of directors has determined that Mr. Evans is an “audit committee financial expert” as defined under Item 407 of Regulation S-K promulgated under the Exchange Act. Our board of directors has determined that each of Messrs. Beless and Evans meets the current independence and experience requirements of Rule 10A-3 of the Exchange Act. 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. Item 11. Executive Compensation. 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. Each of our officers is an employee of our Manager. Because our Management Agreement provides that our Manager is responsible for managing our affairs, our officers do not receive cash compensation from us for serving as our officers. Our Manager is responsible for managing our day-to-day operations and all matters affecting our business and affairs, including responsibility for determining when to buy and sell real estate-related assets. Our Manager is not obligated under the Management Agreement to dedicate any of its personnel exclusively to us, nor is it or its personnel obligated to dedicate any specific portion of its or their time to the business. Our officers, in their capacities as officers or personnel of our Manager or its affiliates, will devote such portion of their time to our affairs as is necessary to enable us to operate our business. Compensation of the Directors In 2021, our independent directors earned $60,000 annual base director’s fee. In addition, in 2021, the chairperson of the Audit Committee earned an annual cash retainer of $15,000 and the other members of the Audit Committee earned an annual cash retainer of $10,000. We also reimburse all members of our board of directors for their travel related expenses incurred in connection with their attendance at board and committee meetings. We pay directors’ fees only to those directors who are independent under the NYSE listing standards. 53 The following table sets forth compensation of our directors for the year ended December 31, 2021: Name Fees Earned or Paid in Cash All Other Compensation Total Roger H. Beless $ 70,000 $ — $ 70,000 Michael L. Evans $ 75,000 $ — $ 75,000 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. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 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; (2) each of our executive officers; (3) holders of more than 5% of our capital stock; and (4) all of our directors and executive officers as a group. Each listed person’s beneficial ownership includes: (1) all shares the investor actually owns beneficially or of record; (2) all shares over which the investor has or shares voting or dispositive control (such as in the capacity as a general partner of an investment fund); (3) all shares the investor has the right to acquire within 60 days; and 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. Shares Beneficially Owned as of March 11, 2022 Name Number of Shares Percentage (3) Vikram S. Uppal (1) 49,427.63 * Gregory M. Pinkus — — Daniel J. Cooperman — — Roger H. Beless — — Michael L. Evans — — All directors and executive officers as a group (5 persons) — — 5% or Greater Beneficial Owners Terra JV (2) 17,029,775.95 87.4% Terra Offshore REIT (2) 2,457,684.59 12.6% _______________ * Represents beneficial ownership of less than 1%. (1) On April 6, 2020, Mr. Uppal purchased 22 units of limited liability company interest (the “Units”) of Terra Fund 5 in a secondary market transaction. The Units are held through Lakshmi 15 LLC, a family limited liability company over which Mr. Uppal exercises voting and investment control. The shares of our common stock indicated on this report as being held 54 indirectly by Mr. Uppal are held indirectly by Terra Fund 5 through a controlled subsidiary. Mr. Uppal is the Chief Executive Officer and Chief Investment Officer of Terra Fund Advisors, the manager of Terra Fund 5. Accordingly, Mr. Uppal disclaims beneficial ownership of the shares of our common stock reported herein except to the extent of his pecuniary interest therein, and this report shall not be deemed an admission that he is the beneficial owner of such shares for purposes of Section 16 or for any other purpose. (2) Terra Fund 5 is managed by Terra Fund Advisors, its managing member. The shares of common stock held by Terra Fund 5 are subject to the provisions of the Voting Agreement and certain related agreements described in greater detail under “Item 13. 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 None Item 13. Certain Relationships and Related Transactions, and Director Independence. 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, a then wholly-owned subsidiary of Terra International 3, which we amended and restated on November 13, 2019. Pursuant to this agreement, Terra International 3, through Terra Offshore REIT, contributed cash in the amount of $3,620,000 to us in exchange for 212,690.95 shares of common stock, at a price of $17.02 per share. The shares were issued in a private placement in reliance on Section 4(a)(2) of the Securities Act, and the rules and regulations promulgated thereunder. On April 29, 2020, we repurchased, at a price of $17.02 per share, the 212,690.95 shares of common stock that we had previously sold to Terra Offshore REIT on September 30, 2019. At the same time, Terra International 3 redeemed all of its limited partnership interest and ceased operations. Our Manager also serves as adviser to Terra Offshore REIT. Merger and Issuance of Common Stock to Terra Offshore REIT On February 28, 2020, we entered into a merger agreement pursuant to which Terra Property Trust 2 was merged with and into us, with us continuing as the surviving corporation, effective March 1, 2020. In connection with the Merger, each share of common stock, par value $0.01 per share, of Terra Property Trust 2 issued and outstanding immediately prior to the effective time of the Merger was converted into the right to receive from us a number of shares of our common stock, par value $0.01 per share, equal to an exchange ratio, which was 1.2031. As a result, Terra Fund 7, the sole stockholder of Terra Property Trust 2, received 2,116,785.76 shares of our common stock as consideration in the Merger. The shares of common stock were issued in a private placement in reliance on Section 4(a)(2) under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. In addition, on March 2, 2020, we entered into two separate contribution agreements, one by and among us, Terra Offshore REIT and 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. 55 As of December 31, 2021, Terra JV owns 87.4% of the issued and outstanding shares of our common stock with the remainder held by Terra Offshore REIT, and Terra Fund 5 and Terra Fund 7 own an 87.6% and 12.4% interest, respectively, in Terra JV. Voting Agreement On March 2, 2020, we, Terra Fund 5, Terra JV and Terra REIT Advisors also entered into the Amended and Restated Voting Agreement (the “Voting Agreement”), pursuant to which Terra Fund 5 assigned its rights and obligations under the Voting Agreement to Terra JV. Consistent with the original voting agreement dated February 8, 2018, for the period that Terra REIT Advisors remains our external manager, Terra REIT Advisors will have the right to nominate two individuals to serve as our directors and, until Terra JV no longer holds at least 10% of our outstanding shares of common stock, Terra JV will have the right to nominate one individual to serve as one of our directors. Except as otherwise required by law or the provisions of other agreements to which the parties are or may in the future become bound, the parties have agreed to vote all shares of our common stock directly or indirectly owned in favor (or against removal) of the directors properly nominated in accordance with the Voting Agreement. 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. Receipt of Fees and Other Compensation by Our Manager and its Affiliates We pay substantial fees to our Manager. Further, we must reimburse our Manager for costs incurred by it in managing us and our portfolio of real estate-related loans. 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. In performing its duties, our Manager is subject to a fiduciary responsibility for the safekeeping and use of all of our funds and assets. In consideration for providing such services, our Manager is entitled to certain fees from as described below. 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: $5.1 million and $4.5 million in asset management fee, respectively, $1.2 million and $1.0 million in asset servicing fees, respectively, $2.7 million and $1.4 million in origination and extension fees, respectively; $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. The agreements and arrangements, including those relating to compensation, between us and our Manager and its affiliates are not the result of arm’s-length negotiations and may create conflicts between our Manager and its affiliates, on the one hand, and us on the other. Our Manager and its Affiliates May Compete With Us Our Manager and its affiliates may engage in real estate-related transactions on their own behalf or on behalf of other entities. 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 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 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. 56 Related Party Transactions Related party transactions are those where we or our Manager on our behalf, transact with affiliated companies, including companies managed by our Manager or its affiliates. Our Manager and its affiliates are permitted to enter into certain transactions and perform certain services for us. Such transactions, or the potential for such transactions, could cause conflicts for our Manager with respect to performing its duties. Related party transactions will not be the result of an arm’s-length negotiation. Participation Agreements and Secured Borrowing We have diversified our exposure to loans and borrowers by entering into participation agreements in respect of certain of our loans whereby we transferred a portion of the loans on a pari passu basis to related parties, and to a lesser extent, unrelated parties, with the principal balance of participation obligations totaling $42.0 million as of December 31, 2021. Additionally, we sold a portion of a loan with a principal balance of $34.5 million to a third-party that didn’t qualify for sale accounting treatment. However, we do not have direct liability to a participant under our participation agreements with respect to the underlying loan and the participants’ share of the investments is repayable only from the proceeds received from the related borrower/issuer of the investments and, therefore, the participants also are subject to credit risk (i.e., risk of default by the underlying borrower/issuer). If we enter into participation agreements in the future, we generally expect to enter into such agreements only at the time of origination of the investment. For additional information concerning our participation agreements, see “Item 7— Management’s Discussion and Analysis of Financial Condition and Results of Operations — Participation Agreements and Secured Borrowing.” Allocation of Our Manager’s Time We rely on our Manager to manage our day-to-day activities and to implement our investment strategy. Our Manager is presently, and plans 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 RESOF. 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. Therefore, our Manager, its personnel and certain affiliates may experience conflicts of interest in allocating management time, services and functions among us and any other business ventures in which they or any of their key personnel, as applicable, are or may become involved. This could result in actions that are more favorable to other affiliated entities than to us. However, we believe that the members of our Manager’s senior management and the other key debt finance professionals performing services for us on behalf of our Manager have sufficient time to fully discharge their responsibilities to us and to the other businesses in which they are involved. We believe that our Manager’s executive officers will devote the time required to manage our business and expect that the amount of time a particular executive officer or affiliate devotes to us will vary during the course of the year and depend on business activities at the given time. We expect that these executive officers and affiliates will generally devote more time to programs raising and investing capital than to programs that have completed their offering stages, though from time to time each program will have its unique demands. Because many of the operational aspects of Terra Capital Partners-sponsored programs are very similar, there are significant efficiencies created by the same team of individuals at our Manager providing services to multiple programs. For example, our Manager has streamlined the structure for financial reporting, internal controls and investment approval processes for the programs. 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 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. 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 57 investment opportunity; objectives and strategies; tax considerations; risk, diversification or investment concentration parameters; characteristics of the security; size of available investment; available liquidity and liquidity requirements; regulatory restrictions; and/or such other factors as may be relevant to a particular transaction. Receipt of Compensation by Affiliates The payments to our Manager and certain of its affiliates have not been determined through arm’s-length negotiations, and are payable regardless of our profitability. 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 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 We will be subject to conflicts of interest arising out of our relationship with our Manager and its affiliates. In the future, we may enter into additional transactions with our Manager, Terra Capital Partners or its affiliates. In particular, we may invest in, or acquire, certain of our investments through joint ventures with our Manager, Terra Capital Partners or its affiliates or purchase assets from, sell assets to or arrange financing from or provide financing to its other vehicles. Any such transactions will require approval of our Manager. Any such transactions will require approval of a majority of our independent directors. There can be no assurance that any procedural protections will be sufficient to assure that these transactions will be made on terms that will be at least as favorable to us as those that would have been obtained in an arm’s-length transaction. Item 14. Principal Accounting Fees and Services. During the years ended December 31, 2021 and 2020, KPMG LLP (“KPMG”) served as our independent auditor and provided certain tax and other services. Our board of directors currently anticipates that it will engage KPMG as our independent auditor to audit our financial statements for the year ending December 31, 2022, subject to agreeing on fee estimates for the audit work. Our board of directors reserves the right, however, to select a new auditor at any time in the future in its discretion if it deems such decision to be in the best interests of us and our stockholders. Any such decision would be disclosed to the stockholders in accordance with applicable securities laws. The following table displays fees for professional services by KPMG for the years ended December 31, 2021 and 2020: Years Ended December 31, 2021 2020 Audit Fees $ 732,700 $ 463,000 Audit-Related Fees — — Tax Fees 81,580 68,380 All Other Fees — — Total $ 814,280 $ 531,380 Audit Fees . 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, this category contains fees for comfort letters, statutory audits, consents, and assistance with and review of documents filed with the SEC. Audit-Related Fees . Audit-related services consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. Tax Services Fees . Tax services fees consist of fees billed for professional tax services. These services also include assistance regarding federal, state, and local tax compliance. All Other Fees . Other fees would include fees for products and services other than the services reported above. 58 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 was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions. PART IV Item 15. Exhibits and Financial Statement Schedules. The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K: (1) Financial Statements 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. (3) Exhibits The following exhibits are filed with this report. Documents other than those designated as being filed herewith are incorporated herein by reference. Exhibit No. Description and Method of Filing 2.1 Contribution Agreement by and among Terra Secured Income Fund, LLC, Terra Secured Income Fund 2, LLC, Terra Secured Income Fund 3, LLC, Terra Secured Income Fund 4, LLC, the registrant, and Terra Property Trust, Inc., dated January 1, 2016 (incorporated by reference to Exhibit 2.1 to the Registration Statement on Form 10 (File No. 000-56117) filed with the SEC on November 6, 2019). 2.2 Amendment No. 1 to the Contribution Agreement by and among Terra Secured Income Fund, LLC, Terra Secured Income Fund 2, LLC, Terra Secured Income Fund 3, LLC, Terra Secured Income Fund 4, LLC, the registrant, and Terra Property Trust, Inc., dated December 31, 2016 (incorporated by reference to Exhibit 2.2 to the Registration Statement on Form 10 (File No. 000-56117) filed with the SEC on November 6, 2019). 2.3 Agreement and Plan of Merger, dated February 28, 2020, by and among Terra Property Trust, Inc., Terra Property Trust 2, Inc. and Terra Secured Income Fund 7, LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 000-56117) filed with the SEC on March 5, 2020). 3.1 Amended and Restated Bylaws of Terra Property Trust, Inc. (incorporated by reference to Exhibit 3.1 to the Registration Statement on Amendment No.1 to Form 10 (File No. 000-56117) filed with the SEC on December 16, 2019). 3.2 Articles of Amendment and Restatement of Terra Property Trust, Inc. (incorporated by reference to Exhibit 3.2 to the Registration Statement on Amendment No.1 to Form 10 (File No. 000-56117) filed with the SEC on December 16, 2019). 3.3 Articles of Supplementary of Terra Property Trust, Inc. Designating 12.5% Services A Redeemable Cumulative Preferred Stock (incorporated by reference to Exhibit 3.3 to the Registration Statement on Amendment No.1 to Form 10 (File No. 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. 4.2 Indenture, dated June 10, 2021, by and between Terra Property Trust, Inc. and U.S. 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). 59 Exhibit No. Description and Method of Filing 4.3 First Supplemental Indenture, dated June 10, 2021, by and between Terra Property Trust, Inc. and U.S. 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. 000-56117) filed with the SEC on November 6, 2019). 10.2 Amended and Restated Voting Agreement by and among Terra Property Trust, Inc., Terra Secured Income Fund 5, LLC, Terra JV, LLC and Terra REIT Advisors, LLC, dated March 2, 2020 (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed with the SEC on May 15, 2020). 10.3 Stockholder Rights Agreement among Terra JV, LLC and Terra Property Trust, Inc., dated March 2, 2020 (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q (File No. 000-56117) filed with the SEC on May 15, 2020). 10.4 Contribution Agreement by and among Terra Property Trust, Terra International Fund 3 REIT, LLC and Terra Income Fund International, dated March 2, 2020 (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q (File No. 000-56117) filed with the SEC on May 15, 2020). 10.5 Contribution Agreement by and among Terra Property Trust, Terra International Fund 3 REIT, LLC and Terra Secured Income Fund 5 International, dated March 2, 2020 (incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q (File No. 000-56117) filed with the SEC on May 15, 2020). 10.6 Indenture and Credit Agreement, dated as of September 3, 2020, by and among Terra Mortgage Capital I, LLC, as Issuer, Goldman Sachs Bank USA, as initial Class A lender, and Wells Fargo Bank, National Association, as trustee, custodian, collateral agent, loan agent and note administrator (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K (File No. 000-56117) filed with the SEC on September 17, 2020). 10.7 Guaranty, dated as of September 3, 2020, by and among Terra Property Trust, Inc., as guarantor, for the benefit of Goldman Sachs Bank USA (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K (File No. 000-56117) filed with the SEC on September 17, 2020). 10.8 Business Loan and Security Agreement, dated as of March 12, 2021, by and among Terra Mortgage Portfolio II, LLC, as the Borrower, and Western Alliance Bank, as the Lender (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 31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Chief Financial Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32** Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 60 Exhibit No. 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 101.SCH** Inline XBRL Taxonomy Extension Schema Document 101.CAL** Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.LAB** Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE** Inline XBRL Taxonomy Extension Presentation Linkbase Document 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) ______________ * Filed herewith. ** Furnished herewith. Item 16. Form 10-K Summary. None. 61 Terra Property Trust, Inc. Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm KPMG LLP New York, NY PCAOB ID: 185 F- 2 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2021 and 2020 F- 3 Consolidated Statements of Operations for the years ended December 31, 2021 and 2020 F- 4 Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2021 and 2020 F- 5 Consolidated Statements of Changes in Equity for the years ended December 31, 2021 and 2020 F- 6 Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020 F- 7 Notes to Consolidated Financial Statements F- 11 Schedule III — Real Estate and Accumulated Depreciation as of December 31, 2021 F- 46 Schedule IV — Mortgage Loans on Real Estate as of December 31, 2021 F- 47 Schedules other than those listed are omitted as they are not applicable for the required or equivalent information has been included in the consolidated financial statements or notes thereto. F-1 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Terra Property Trust, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Terra Property Trust, Inc. 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. generally accepted accounting principles. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP We have served as the Company’s auditor since 2016. New York, New York March 11, 2022 F-2 Terra Property Trust, Inc. Consolidated Balance Sheets December 31, 2021 2020 Assets Cash and cash equivalents $ 35,783,956 $ 18,607,952 Restricted cash 7,411,811 12,145,616 Cash held in escrow by lender 7,902,880 2,166,755 Marketable securities 1,310,000 1,287,500 Loans held for investment, net 457,329,582 417,986,462 Loans held for investment acquired through participation, net 12,343,732 4,294,053 Equity investment in unconsolidated investments 69,713,793 36,259,959 Real estate owned, net ( Note 6 ) Land, building and building improvements, net 58,325,068 63,385,339 Lease intangible assets, net 7,451,771 9,793,600 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 Total assets $ 693,542,158 $ 588,477,181 Liabilities and Equity Liabilities: 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 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 liability 27,394,936 16,105,888 Lease intangible liabilities, net ( Note 6 ) 9,709,710 10,249,776 Due to Manager ( Note 8 ) 2,388,317 1,257,098 Interest payable 1,879,626 1,185,502 Accounts payable and accrued expenses 1,264,131 3,968,603 Unearned income 449,690 677,856 Other liabilities 4,289,967 429,123 Total liabilities 419,698,580 285,152,116 Commitments and contingencies ( Note 10 ) Equity: 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 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 Accumulated deficit ( 99,919,969 ) ( 70,438,482 ) Total equity 273,843,578 303,325,065 Total liabilities and equity $ 693,542,158 $ 588,477,181 See notes to consolidated financial statements . F-3 Terra Property Trust, Inc. Consolidated Statements of Operations Years Ended December 31, 2021 2020 Revenues Interest income $ 36,743,470 $ 39,392,209 Real estate operating revenue 8,894,991 10,423,563 Prepayment fee income 190,997 — Other operating income 855,799 505,116 46,685,257 50,320,888 Operating expenses Operating expenses reimbursed to Manager 6,916,371 6,041,075 Asset management fee 5,134,149 4,480,706 Asset servicing fee 1,181,924 1,008,256 Provision for loan losses 10,904,163 3,738,758 Real estate operating expenses 5,003,893 4,505,119 Depreciation and amortization 3,989,114 4,635,980 Impairment charge 3,395,430 — Professional fees 1,795,856 1,695,876 Directors fees 145,000 190,000 Other 448,503 371,444 38,914,403 26,667,214 Operating income 7,770,854 23,653,674 Other income and expenses Interest expense from obligations under participation agreements ( 10,596,545 ) ( 8,514,804 ) Interest expense on repurchase agreement payable ( 142,495 ) ( 3,727,466 ) Interest expense on mortgage loan payable ( 2,449,239 ) ( 2,976,913 ) 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 ( 20,126,581 ) ( 18,397,944 ) 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 Weighted-average shares — basic and diluted 19,487,460 18,813,066 Distributions declared per common share $ 0.88 $ 1.16 See notes to consolidated financial statements. F-4 Terra Property Trust, Inc. Consolidated Statements of Comprehensive (Loss) Income Years Ended December 31, 2021 2020 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 (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. F-5 Terra Property Trust, Inc. Consolidated Statements of Changes in Equity Preferred Stock 12.5% Series A Cumulative Non-Voting Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income $0.01 Par Value Shares Amount Shares Amount Total equity Balance at January 1, 2021 $ — 125 $ 125,000 19,487,460 $ 194,875 $ 373,443,672 $ ( 70,438,482 ) $ — $ 303,325,065 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 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 Preferred Stock 12.5% Series A Cumulative Non-Voting Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income $0.01 Par Value Shares Amount Shares Amount Total equity Balance at January 1, 2020 $ — 125 $ 125,000 15,125,681 $ 151,257 $ 301,727,297 $ ( 54,459,821 ) $ — $ 247,543,733 Issuance of common stock ( Note 3 ) — — — 4,574,470 45,745 75,334,248 — — 75,379,993 Repurchase of common stock — — — ( 212,691 ) ( 2,127 ) ( 3,617,873 ) — — ( 3,620,000 ) Distributions declared on common shares ($1.16 per share) — — — — — — ( 21,218,767 ) — ( 21,218,767 ) Distributions declared on preferred shares — — — — — — ( 15,624 ) — ( 15,624 ) Comprehensive income: Net income — — — — — — 5,255,730 — 5,255,730 Net unrealized gains on marketable securities — — — — — — — 192,919 192,919 Reclassification of net realized gains on marketable securities into earnings — — — — — — — ( 192,919 ) ( 192,919 ) Balance at December 31, 2020 $ — 125 $ 125,000 19,487,460 $ 194,875 $ 373,443,672 $ ( 70,438,482 ) $ — $ 303,325,065 See notes to consolidated financial statements . F-6 Terra Property Trust, Inc. Consolidated Statements of Cash Flows Years Ended December 31, 2021 2020 Cash flows from operating activities: Net (loss) income $ ( 12,355,727 ) $ 5,255,730 Adjustments to reconcile net income to net cash provided by operating activities: Paid-in-kind interest income, net ( 1,000,028 ) ( 2,937,909 ) Depreciation and amortization 3,989,114 4,635,980 Provision for loan losses 10,904,163 3,738,758 Impairment charge 3,395,430 — Lease termination fee income — ( 236,000 ) Amortization of net purchase premiums on loans 61,390 57,155 Straight-line rent adjustments ( 146,317 ) ( 714,334 ) 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 Amortization of above- and below-market rent intangibles ( 392,161 ) ( 1,027,129 ) Amortization and accretion of investment-related fees, net ( 264,697 ) ( 4,140 ) 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 ) 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 ) Due to Manager 93,226 ( 409,927 ) Unearned income ( 215,075 ) ( 490,233 ) Interest payable 694,124 109,271 Accounts payable and accrued expenses ( 2,704,472 ) 2,245,242 Other liabilities 3,860,844 ( 1,229,232 ) Net cash provided by operating activities 4,106,819 7,927,460 Cash flows from investing activities: Origination and purchase of loans ( 252,437,733 ) ( 108,488,411 ) Proceeds from repayments of loans 196,780,456 66,144,729 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 Net cash used in investing activities ( 87,705,137 ) ( 78,222,218 ) F-7 Terra Property Trust, Inc. Consolidated Statements of Cash Flows (Continued) Years Ended December 31, 2021 2020 Cash flows from financing activities: 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 borrowings under revolving line of credit 38,575,895 35,000,000 Distributions paid ( 17,125,760 ) ( 21,234,391 ) 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 ) 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 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 Cash, cash equivalents and restricted cash at end of year ( Note 2 ) $ 51,098,647 $ 32,920,323 Years Ended December 31, 2021 2020 Supplemental Disclosure of Cash Flows Information: Cash paid for interest $ 22,219,386 $ 16,317,378 See notes to consolidated financial statements . F-8 Terra Property Trust, Inc. Consolidated Statements of Cash Flows (Continued) Supplemental Non-Cash Financing Activities: Merger On February 28, 2020, Terra Property Trust, Inc. ( the “Company”) entered into certain Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Terra Property Trust 2, Inc. (“TPT2”) and Terra Secured Income Fund 7, LLC (“Terra Fund 7”), the sole stockholder of TPT2, pursuant to which, effective March 1, 2020, TPT2 was merged with and into the Company, with the Company continuing as the surviving corporation (the “Merger”). In connection with the Merger, the Company issued 2,116,785.76 shares of common stock, par value $ 0.01 per share, to Terra Fund 7 ( Note 3 ). The following table presents a summary of the consideration exchanged and settlement of the Company’s obligations under participation agreements as a result of the Merger: Total Consideration Equity issued in the Merger $ 34,630,615 Proceeds from equity issued in the Merger 16,897,074 $ 17,733,541 Net assets exchanged Settlement of obligations under participation agreements $ 17,688,741 Interest receivable 134,543 Other assets 18,384 Accounts payable and accrued expenses ( 57,433 ) Due to Manager ( 50,694 ) $ 17,733,541 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, (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: Total Consideration Equity issued to Terra Offshore REIT $ 40,749,378 Proceeds from equity issued to Terra Offshore REIT 8,600,000 $ 32,149,378 Net Assets exchanged Settlement of obligations under participation agreements $ 32,112,257 Interest receivable 270,947 Due to Manager ( 233,826 ) Net assets acquired excluding cash and cash equivalents $ 32,149,378 F-9 Terra Property Trust, Inc. Consolidated Statements of Cash Flows (Continued) Supplemental Non-Cash Investing Activities: Lease Termination In June 2020, the Company received a notice from a tenant occupying a portion of the office building that the Company acquired in July 2018 via foreclosure of their intention to terminate the lease ( Note 6 ). The following table presents a summary of assets received and written off in connection with the lease termination effective September 4, 2020: Lease Termination Fees: Cash $ 142,620 Furniture & Fixture 236,000 $ 378,620 Assets and Liabilities Write-offs: In-place lease intangible assets $ 869,694 Below-market rent liabilities ( 616,392 ) Rent receivable 125,318 $ 378,620 See notes to consolidated financial statements . F-10 Terra Property Trust, Inc. Notes to Consolidated Financial Statements December 31, 2021 Note 1. Business Terra Property Trust, Inc. (and, together with its consolidated subsidiaries, the “Company” or “Terra Property Trust”) was incorporated under the general corporation laws of the State of Maryland on December 31, 2015. Terra Property Trust is a real estate credit focused company that originates, structures, funds and manages commercial real estate investments, including mezzanine loans, first mortgage loans, subordinated mortgage loans and preferred equity investments. The Company’s loans finance the acquisition, construction, development or redevelopment of quality commercial real estate in the United States. 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. On January 1, 2016, Terra Secured Income Fund 5, LLC (“Terra Fund 5”), the Company’s then parent, contributed its consolidated portfolio of net assets to the Company pursuant to a contribution agreement in exchange for shares of the Company’s common stock. Upon receipt of the contribution of the consolidated portfolio of net assets from Terra Fund 5, the Company commenced its operations on January 1, 2016 . On March 2, 2020, the Company engaged in a series of transactions pursuant to which the Company issued an aggregate of 4,574,470.35 shares of its common stock in exchange for the settlement of an aggregate of $ 49.8 million of participation interests in loans held by the Company, cash of $ 25.5 million and other working capital. As of December 31, 2021, Terra JV, LLC (“Terra JV”) held 87.4 % of the issued and outstanding shares of the Company's common stock with the remainder held by Terra Offshore REIT ( Note 3 ). The Company has elected to be taxed, and to qualify annually thereafter, as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), commencing with the taxable year ended December 31, 2016. As a REIT, the Company is not subject to federal income taxes on income and gains distributed to the stockholders as long as certain requirements are satisfied, principally relating to the nature of income and the level of distributions, as well as other factors. The Company also operates its business in a manner that permits it to maintain its 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. Note 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include all of the Company’s accounts and those of its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 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. The Company is required to first apply the VIE model to determine whether it holds a variable interest in an entity, and if so, whether the entity is a VIE. If the Company determines it does not hold a variable interest in a VIE, it then applies the voting interest model. Under the voting interest model, the Company consolidates an entity when it holds a majority voting interest in an entity. The Company accounts for investments in which it has significant influence but not a controlling financial interest using the equity method of accounting (see Note 5 ). F-11 Notes to Consolidated Financial Statements VIE Model 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. Generally, the primary beneficiary of a VIE is a reporting entity that has (a) the power to direct the activities that most significantly affect the VIE’s economic performance, and (b) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. Loans Held for Investment The Company originates, acquires, and structures real estate-related loans generally to be held to maturity. Loans held for investment are carried at the principal amount outstanding, adjusted for the accretion of discounts on investments and exit fees, and the amortization of premiums on investments and origination fees. The Company’s preferred equity investments, which are economically similar to mezzanine loans and subordinate to any loans but senior to common equity, are accounted for as loans held for investment. Loans are carried at cost less allowance for loan losses. Allowance for Loan Losses The Company’s loans are typically collateralized by either the sponsors’ equity interest in the real estate properties or the underlying real estate properties. As a result, the Company regularly evaluates the extent and impact of any credit migration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor on a loan-by-loan basis. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash from operations and/or reserve balances are sufficient to cover the debt service requirements currently and into the future; (ii) the ability of the borrower to refinance the loan; and/or (iii) the property’s liquidation value. The Company also evaluates the financial wherewithal of the sponsor as well as its competency in managing and operating the real estate property. In addition, the Company considers the overall economic environment, real estate sector, and geographic sub-market in which the borrower operates. Such analyses are completed and reviewed by asset management and finance personnel, who utilize various data sources, including (i) periodic financial data such as debt service coverage ratio, property occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, the capitalization and discount rates; (ii) site inspections; and (iii) current credit spreads and discussions with market participants. The Manager performs a quarterly evaluation for possible impairment of the Company’s portfolio of loans. A loan is impaired if it is deemed probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan. Impairment is measured based on the present value of expected future cash flows or the fair value of the collateral if the loan is collateral dependent. Upon measurement of impairment, the Company records an allowance to reduce the carrying value of the loan with a corresponding charge to net income. In conjunction with the quarterly evaluation of loans not considered impaired, the Manager assesses the risk factors of each loan and assigns each loan a risk rating between 1 and 5, which is an average of the numerical ratings in the following categories: (i) sponsor capability and financial condition; (ii) loan and collateral performance relative to underwriting; (iii) quality and stability of collateral cash flows and/or reserve balances; and (iv) loan to value. Based on a 5-point scale, the Company’s loans are rated “1” through “5”, from less risk to greater risk, as follows: Risk Rating Description 1 Very low risk 2 Low risk 3 Moderate/average risk 4 Higher risk 5 Highest risk F-12 Notes to Consolidated Financial Statements The Company records an allowance for loan losses equal to (i) 1.5% of the aggregate carrying amount of loans rated as a “4”, plus (ii) 5% of the aggregate carrying amount of loans rated as a “5”, plus (iii) impaired loan reserves, if any. There may be circumstances where the Company modifies a loan by granting the borrower a concession that it might not otherwise consider when a borrower is experiencing financial difficulty or is expected to experience financial difficulty in the foreseeable future. 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 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 The Company from time to time invests in short term debt and equity securities. These securities are classified as available-for-sale and are carried at fair value. Changes in the fair value of equity securities are recognized in earnings. Changes in the fair value of debt securities are reported in other comprehensive income until a gain or loss on the securities is realized. Real Estate Owned, Net Real estate acquired is recorded at its estimated fair value at acquisition and is shown net of accumulated depreciation and impairment charges. Acquisition of properties generally are accounted for as asset acquisitions. Under asset acquisition accounting, the costs to acquire real estate, including transaction costs, are accumulated and then allocated to individual assets and liabilities acquired based upon their relative fair value. The Company allocates the purchase price of its real estate acquisitions to land, building, tenant improvements, acquired in-place leases, intangibles for the value of any above or below market leases at fair value and to any other identified intangible assets or liabilities. The Company amortizes the value allocated to in-place leases over the remaining lease term, which is reported in depreciation and amortization expense on its consolidated statements of operations. The value allocated to above or below market leases are amortized over the remaining lease term as an adjustment to rental income. Real estate assets are depreciated using the straight-line method over their estimated useful lives: buildings and improvements - not to exceed 40 years, and tenant improvements - shorter of the lease term or life of the asset. Ordinary repairs and maintenance which are not reimbursed by the tenants are expensed as incurred. Major replacements and betterments which improve or extend the life of the asset are capitalized and depreciated over their estimated useful life. Management reviews the Company’s real estate for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The review of recoverability is based on estimated future cash flows and the estimated liquidation value of such real estate assets, and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the real estate assets. If impaired, the real estate asset will be written down to its estimated fair value. Leases The Company determines if an arrangement is a lease at inception. 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. F-13 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. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s lease typically does not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made in advance and excludes lease incentives if there were any. The Company’s lease term may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Revenue Recognition Revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Interest Income: Interest income is accrued based upon the outstanding principal amount and contractual terms of the loans and preferred equity investments that the Company expects to collect and it is accrued and recorded on a daily basis. Discounts and premiums on investments purchased are accreted or amortized over the expected life of the respective loan using the effective yield method, and are included in interest income in the consolidated statements of operations. Loan origination fees and exit fees, net of portions attributable to obligations under participation agreements, are capitalized and amortized or accreted to interest income over the life of the investment using the effective yield method. Income accrual is generally suspended for loans at the earlier of the date at which payments become 90 days past due or when, in the opinion of the Manager, recovery of income and principal becomes doubtful. Outstanding interest receivable is assessed for recoverability. Interest is then recorded on the basis of cash received until accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. The Company holds loans in its portfolio that contain paid-in-kind (“PIK”) interest provisions. The PIK interest, which represents contractually deferred interest that is added to the principal balance that is due at maturity, is recorded on the accrual basis. Real Estate Operating Revenues: Real estate operating revenue is derived from leasing of space to various types of tenants. The leases are for fixed terms of varying length and generally provide for annual rent increases and expense reimbursements to be paid in monthly installments. Lease revenue, or rental income from leases, is recognized on a straight-line basis over the term of the respective leases. Additionally, the Company recorded above- and below-market lease intangibles, which are included in real estate owned, net, in connection with the acquisition of the real estate properties. These intangible assets and liabilities are amortized to lease revenue over the remaining contractual lease term. Other Revenues: Prepayment fee income is recognized as prepayments occur. All other income is recognized when earned. Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid investments, with original maturities of ninety days or less when purchased, as cash equivalents. Cash and cash equivalents are exposed to concentrations of credit risk. The Company maintains all of its cash at financial institutions which, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation. Restricted cash represents cash held as additional collateral by the Company on behalf of the borrowers related to the investments in loans or preferred equity instruments for the purpose of such borrowers making interest and property-related operating payments. Restricted cash is not available for general corporate purposes. The related liability is recorded in “ Interest reserve and other deposits held on investments ” on the consolidated balance sheets. Cash held in escrow by lender represents amounts funded to an escrow account for debt services and tenant improvements. F-14 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: December 31, 2021 2020 Cash and cash equivalents $ 35,783,956 $ 18,607,952 Restricted cash 7,411,811 12,145,616 Cash held in escrow by lender 7,902,880 2,166,755 Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows $ 51,098,647 $ 32,920,323 Participation Interests Loan participations from the Company which do not qualify for sale treatment remain on the Company’s consolidated balance sheets and the proceeds are recorded as obligations under participation agreements. For the investments for which participation has been granted, the interest earned on the entire loan balance is recorded within “ Interest income ” and the interest related to the participation interest is recorded within “ Interest expense from obligations under participation agreements ” in the consolidated statements of operations. Interest expense from obligations under participation agreement is reversed when recovery of interest income on the related loan becomes doubtful. See “ Obligations under Participation Agreements ” in Note 9 for additional information. Term Loan The Company finances certain of its senior loans through borrowings under an indenture and credit agreement. The Company accounts for the borrowings as a term loan, which is carried at the contractual amount (cost), net of unamortized deferred financing fees. Repurchase Agreement The Company financed certain of its senior loans through repurchase transactions under a master repurchase agreement. The Company accounted for the repurchase transactions as secured borrowing transactions, which are carried at their contractual amounts (cost), net of unamortized deferred financing fees. Fair Value Measurements United States generally accepted accounting principles (“U.S. GAAP”) establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The Company has not elected the fair value option for its financial instruments, including loans held for investment, loans held for investment acquired through participation, obligations under participation agreements, 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. Marketable securities are financial instruments that are reported at fair value. Deferred Financing Costs Deferred financing costs represent fees and expenses incurred in connection with obtaining financing for investments. These costs are presented in the consolidated balance sheets as a direct deduction of the debt liability to which the costs pertain. These costs are amortized using the effective interest method and are included in interest expense on the applicable borrowings in the consolidated statements of operations over the life of the borrowings. Income Taxes 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. 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. 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 F-15 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. federal and state income taxes at regular corporate rates. As of December 31, 2021, the Company has satisfied all the requirements for a REIT. The Company did not have any uncertain tax positions that met the recognition or measurement criteria of Accounting Standards Codification (“ASC”) 740-10-25, Income Taxes , nor did the Company have any unrecognized tax benefits as of the periods presented herein. The Company recognizes interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in its consolidated statements of operations. For the years ended December 31, 2021 and 2020, the Company did not incur any interest or penalties. Although the Company files federal and state tax returns, its major tax jurisdiction is federal. The Company’s 2018 - 2020 federal tax returns remain subject to examination by the Internal Revenue Service. Earnings Per Share The Company has a simple equity capital structure with only common stock and preferred stock outstanding. As a result, earnings per share, as presented, represent both basic and dilutive per-share amounts for the periods presented in the consolidated financial statements. Income per basic share of common stock is calculated by dividing net income allocable to common stock by the weighted-average number of shares of common stock issued and outstanding during such period. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. 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 The Company’s primary business is originating, acquiring and structuring real estate-related loans related to high quality commercial real estate. From time to time, the Company may acquire real estate encumbering the senior loans through foreclosure. However, management treats the operations of the real estate acquired through foreclosure as the continuation of the original senior loans. The Company operates in a single segment focused on mezzanine loans, other loans and preferred equity investments, and to a lesser extent, owning and managing real estate. Recent Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. In April 2019, the FASB issued additional amendments to clarify the scope of ASU 2016-13 and address issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. In May 2019, the FASB issued ASU 2019-05 — Targeted Transition Relief, which provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. In October 2019, the FASB decided that for smaller reporting companies, ASU 2016-13 and related amendments will be effective for fiscal years beginning F-16 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. As such, the Company will adopt this ASU and related amendments on January 1, 2023. Management is currently evaluating the impact this change will have on the Company’s consolidated financial statements and disclosures. London Interbank Offered Rate (“LIBOR”) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. 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 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. Note 3. Merger and Issuance of Common Stock to Terra Offshore REIT Merger On February 28, 2020, the Company entered into the Merger Agreement pursuant to which TPT2 was merged with and into the Company, with the Company continuing as the surviving corporation, effective March 1, 2020. In connection with the Merger, each share of common stock, par value $ 0.01 per share, of TPT2 issued and outstanding immediately prior to the effective time of the Merger was converted into the right to receive from the Company a number of shares of common stock, par value $ 0.01 per share, of the Company equal to an exchange ratio, which was 1.2031 . The exchange ratio was based on the relative net asset values of the Company and TPT2 as of December 31, 2019 as adjusted to reflect changes in the net working capital of each of the Company and TPT2 during the period from January 1, 2020 through March 1, 2020, the effective time for the Merger. For purposes of determining the respective fair values of the Company and TPT2, the value of the loans (or participation interests therein) held by each of the Company and TPT2 was the value of such loans (or participation interests) as set forth in the audited financial statements of the Company as of and for the year ended December 31, 2019. As a result, Terra Fund 7, the sole stockholder of TPT2, received 2,116,785.76 shares of common stock of the Company as consideration in the Merger. The shares of common stock were issued in a private placement in reliance on Section 4(a)(2) under the Securities Act of 1933, as amended (the “Securities Act”), and the rules and regulations promulgated thereunder. The following table presents a summary of the consideration exchanged and settlement of the Company’s obligations under participation agreements as a result of the Merger: Total Consideration Equity issued in the Merger $ 34,630,615 $ 34,630,615 Net Assets of TPT2 Received in the Merger Loans held for investment acquired through participation $ 17,688,741 Cash and cash equivalents 16,897,074 Interest receivable 134,543 Other assets 18,384 Accounts payable and accrued expenses ( 57,433 ) Due to Manager ( 50,694 ) Total identifiable net assets $ 34,630,615 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 F-17 Notes to Consolidated Financial Statements working capital of the Company during the period from January 1, 2020 through March 1, 2020, the effective time of the Merger. In connection with the Merger, the size of the board of directors of the Company was reduced from eight directors to four directors, with Andrew M. Axelrod, Vikram S. Uppal, Roger H. Beless and Michael L. Evans continuing as directors of the Company. 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 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. The fair value of the 2,457,684.59 shares of the Company’s stock issued in the transaction as consideration paid for Terra Offshore REIT was derived from the fair value per share of the Company as of December 31, 2019, which was the most recently determined fair value per share of the Company. The following table presents a summary of the consideration exchanged and settlement of the Company’s obligations under participation agreements as a result of the Issuance of Common Stock to Terra Offshore REIT: Total Consideration Equity issued to Terra Offshore REIT $ 40,749,378 $ 40,749,378 Net Assets of Terra Offshore REIT Received Investments through participation interest, at fair value $ 32,112,257 Cash and cash equivalents 8,600,000 Interest receivable 270,947 Due to Manager ( 233,826 ) Total identifiable net assets $ 40,749,378 On April 29, 2020, the Company repurchased 212,691 shares of common stock at a price of $ 17.02 per share that the Company had previously sold to Terra Offshore REIT on September 30, 2019 ( Note 8 ). Terra JV, LLC Prior to the completion of the Merger and the Issuance of Common Stock to Terra Offshore REIT transactions described above, Terra Fund 5 owned approximately 98.6 % of the issued and outstanding shares of the Company’s common stock indirectly through its wholly owned subsidiary, Terra JV, of which Terra Fund 5 was the sole managing member, and the remaining issued and outstanding shares of the Company’s common stock were owned by Terra Offshore REIT. As described above, the Company acquired TPT2 in the Merger and, in connection with such transaction, Terra Fund 7 contributed the shares of the Company’s common stock received as consideration in the Merger to Terra JV and became a co-managing member of Terra JV pursuant to the amended and restated operating agreement of Terra JV, dated March 2, 2020 (the “JV Agreement”). The JV Agreement and related stockholders agreement between Terra JV and the Company, dated March 2, 2020, provide for the joint approval of Terra Fund 5 and Terra Fund 7 with respect to certain major decisions that are taken by Terra JV and the Company. On March 2, 2020, the Company, Terra Fund 5, Terra JV and Terra REIT Advisors also entered into the Amended and Restated Voting Agreement (the “Voting Agreement”), pursuant to which Terra Fund 5 assigned its rights and obligations under the Voting Agreement to Terra JV. Consistent with the original voting agreement dated February 8, 2018, for the period that Terra REIT Advisors remains the external manager of the Company, Terra REIT Advisors will have the right to nominate F-18 Notes to Consolidated Financial Statements two individuals to serve as directors of the Company and, until Terra JV no longer holds at least 10 % of the outstanding shares of the Company’s common stock, Terra JV will have the right to nominate one individual to serve as a director of the Company. As of December 31, 2021, Terra JV owns 87.4 % of the issued and outstanding shares of the Company’s common stock with the remainder held by Terra Offshore REIT, and Terra Fund 5 and Terra Fund 7 own an 87.6 % and 12.4 % interest, respectively, in Terra JV. Net Loss on Extinguishment of Obligations Under Participation Agreements As discussed in Note 7 , in the normal course of business, the Company may enter into participation agreements with related parties, primarily other affiliated funds managed by the Manager, and to a lesser extent, unrelated parties. The obligations under participation agreements were released as a result of the Merger and the Issuance of Common Stock to Terra Offshore REIT. In connection with these transactions, the Company recognized a net loss of $ 0.3 million for the three months ended March 31, 2020, which was primarily related to transaction costs incurred in connection with both transactions. Note 4. Loans Held for Investment Portfolio Summary The following table provides a summary of the Company’s loan portfolio as of December 31, 2021 and 2020: December 31, 2021 December 31, 2020 Fixed Rate Floating Rate (1)(2)(3) Total Fixed Rate Floating Rate (1)(2)(3) Total Number of loans 6 15 21 6 14 20 Principal balance $ 74,880,728 $ 405,270,423 $ 480,151,151 $ 56,335,792 $ 367,838,966 $ 424,174,758 Carrying value $ 75,520,212 $ 394,153,102 $ 469,673,314 $ 56,464,310 $ 365,816,205 $ 422,280,515 Fair value $ 75,449,410 $ 391,752,209 $ 467,201,619 $ 56,284,334 $ 363,122,860 $ 419,407,194 Weighted-average coupon rate 12.39 % 7.01 % 7.85 % 12.17 % 7.95 % 8.51 % Weighted-average remaining term (years) 1.93 1.45 1.53 1.78 1.44 1.48 _______________ (1) These loans pay a coupon rate of LIBOR plus a fixed spread. Coupon rate shown was determined using LIBOR of 0.10 % and 0.14 % as of December 31, 2021 and 2020, respectively. (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. F-19 Notes to Consolidated Financial Statements Lending Activities The following table presents the activities of the Company’s loan portfolio for the years ended December 31, 2021 and 2020: Loans Held for Investment Loans Held for Investment through Participation Interests Total Balance, January 1, 2021 $ 417,986,462 $ 4,294,053 $ 422,280,515 New loans made 240,130,367 12,307,366 252,437,733 Principal repayments received ( 192,530,456 ) ( 4,250,000 ) ( 196,780,456 ) PIK interest (1) 1,955,109 — 1,955,109 Net amortization of premiums on loans ( 61,390 ) — ( 61,390 ) Accrual, payment and accretion of investment-related fees and other, 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 ) Balance, December 31, 2021 $ 457,329,582 $ 12,343,732 $ 469,673,314 Loans Held for Investment Loans Held for Investment through Participation Interests Total Balance, January 1, 2020 $ 375,462,222 $ 3,150,546 $ 378,612,768 New loans made 107,359,299 1,129,112 108,488,411 Principal repayments received ( 66,144,729 ) — ( 66,144,729 ) PIK interest (1) 4,442,759 — 4,442,759 Net amortization of premiums on loans ( 61,391 ) — ( 61,391 ) Accrual, payment and accretion of investment-related fees, net 667,060 14,395 681,455 Provision for loan losses ( 3,738,758 ) — ( 3,738,758 ) Balance, December 31, 2020 $ 417,986,462 $ 4,294,053 $ 422,280,515 _______________ (1) Certain loans in the Company’s portfolio contain PIK interest provisions. The PIK interest represents contractually deferred interest that is added to the principal balance. PIK interest related to obligations under participation agreements amounted to $ 1.0 million and $ 1.5 million for the years ended December 31, 2021 and 2020, respectively. (2) On September 2, 2021, the Company foreclosed on a hotel property encumbered by a first mortgage and the related subordinated mezzanine loan, both of which were held by the Company, with an aggregate principal balance $ 14.6 million. On September 23, 2021, the hotel property was sold to a third party for $ 13.8 million. The net proceeds from the sale, together with a payment under a contractual guarantee of $ 0.8 million from the borrower, were used to pay off both loans in full. In connection with the loan repayment, the related obligation under participation agreement of $ 6.4 million was simultaneously satisfied. In connection with the loan repayment, the Company recorded a loss of $ 0.4 million related to the write-off of the interest accrued but uncollected in the third quarter of 2021, excluding the amount attributable to obligations under participation agreements of $ 0.1 million. (3) Amount also included realized loss of $ 0.3 million related to the TDR transaction described below. F-20 Notes to Consolidated Financial Statements Portfolio Information The tables below detail the types of loans in the Company’s loan portfolio, as well as the property type and geographic location of the properties securing these loans as of December 31, 2021 and 2020: December 31, 2021 December 31, 2020 Loan Structure Principal Balance Carrying Value % of Total Principal Balance Carrying Value % of Total First mortgages $ 345,454,454 $ 348,101,455 74.0 % $ 254,042,847 $ 255,093,989 60.5 % Preferred equity investments 92,252,340 92,400,572 19.7 % 141,590,632 142,002,144 33.6 % 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 ) % Total $ 480,151,151 $ 469,673,314 100.0 % $ 424,174,758 $ 422,280,515 100.0 % December 31, 2021 December 31, 2020 Property Type Principal Balance Carrying Value % of Total Principal Balance Carrying Value % of Total Office $ 221,596,870 $ 222,426,872 47.3 % $ 182,698,225 $ 183,053,751 43.3 % 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 % Infill land 28,960,455 28,923,827 6.2 % 10,442,567 10,537,512 2.5 % 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 Geographic Location Principal Balance Carrying Value % of Total Principal Balance Carrying Value % of Total United States California $ 234,968,151 $ 237,015,597 50.4 % $ 200,279,688 $ 200,990,328 47.6 % New York 92,252,340 92,400,572 19.7 % 79,187,004 79,310,276 18.8 % Georgia 53,289,288 53,536,884 11.4 % 74,116,787 74,505,752 17.6 % North Carolina 44,492,971 44,704,699 9.5 % 33,242,567 33,438,806 7.9 % 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 % 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 % F-21 Notes to Consolidated Financial Statements Loan Risk Rating As described in Note 2 , the Manager evaluates the Company’s loan portfolio on a quarterly basis or more frequently as needed. In conjunction with the quarterly review of the Company’s loan portfolio, the Manager assesses the risk factors of each loan, and assigns a risk rating based on a five-point scale with “1” being the lowest risk and “5” being the greatest risk. The following table allocates the principal balance and the carrying value of the Company’s loans based on the loan risk rating as of December 31, 2021 and 2020: December 31, 2021 December 31, 2020 Loan Risk Rating Number of Loans Principal Balance Carrying Value % of Total Number of Loans Principal Balance Carrying Value % of Total 1 — $ — $ — — % — $ — $ — — % 2 2 25,000,000 25,041,124 5.2 % 1 7,000,000 7,000,000 1.6 % 3 15 349,273,811 352,164,409 72.9 % 14 323,696,475 325,284,285 76.4 % 4 1 60,012,639 60,012,639 12.4 % 3 72,861,587 73,079,804 17.2 % 5 — — — — % 1 3,848,712 3,887,200 0.9 % Other (1) 3 45,864,701 46,113,623 9.5 % 1 16,767,984 16,767,984 3.9 % 21 $ 480,151,151 483,331,795 100.0 % 20 $ 424,174,758 426,019,273 100.0 % Allowance for loan losses ( 13,658,481 ) ( 3,738,758 ) Total, net of allowance for loan losses $ 469,673,314 $ 422,280,515 _______________ (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: Years Ended December 31, 2021 2020 Allowance for loan losses, beginning of period $ 3,738,758 $ — Provision for loan losses 10,904,163 3,738,758 Charge-offs (1) ( 984,440 ) — Recoveries — — Allowance for loan losses, end of period $ 13,658,481 $ 3,738,758 _______________ (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. F-22 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) $ 13,625,000 _______________ (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. Note 5. 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 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 F-23 Notes to Consolidated Financial Statements 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, 2021 2020 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 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 Total liabilities 34,557,937 10,551,625 Partners’ capital $ 79,286,048 $ 39,496,194 Years Ended December 31, 2021 2020 Total investment income $ 11,769,083 $ 239,837 Total expenses 2,381,145 614,362 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 $ — F-24 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: December 31, 2021 2020 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, 2021 2020 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. Note 6. Real Estate Owned, Net Real Estate Activities 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. The furniture and fixtures have a remaining useful life of 2.5 years and are being depreciated on a straight-line basis over the remaining useful life. Additionally, the Company wrote off the related unamortized in-place lease intangible assets of $ 0.9 million, unamortized below-market rent intangible liabilities of $ 0.6 million and rent receivable of $ 0.1 million. There was no gain or loss recognized on the lease termination. F-25 Notes to Consolidated Financial Statements Real Estate Owned, Net Real estate owned is comprised of 4.9 acres of adjacent land located in Pennsylvania and a multi-tenant office building, with lease intangible assets and liabilities, located in California. The following table presents the components of real estate owned, net: December 31, 2021 December 31, 2020 Cost Accumulated Depreciation/Amortization Net Cost Accumulated Depreciation/Amortization Net Real estate: Land $ 10,000,000 $ — $ 10,000,000 $ 13,395,430 $ — $ 13,395,430 Building and building improvements 51,725,969 ( 4,418,305 ) 47,307,664 51,725,969 ( 3,125,143 ) 48,600,826 Tenant improvements 1,854,640 ( 947,369 ) 907,271 1,854,640 ( 670,090 ) 1,184,550 Furniture and fixtures 236,000 ( 125,867 ) 110,133 236,000 ( 31,467 ) 204,533 Total real estate 63,816,609 ( 5,491,541 ) 58,325,068 67,212,039 ( 3,826,700 ) 63,385,339 Lease intangible assets: In-place lease 14,982,538 ( 7,627,326 ) 7,355,212 15,852,232 ( 6,172,747 ) 9,679,485 Above-market rent 156,542 ( 59,983 ) 96,559 156,542 ( 42,427 ) 114,115 Total intangible assets 15,139,080 ( 7,687,309 ) 7,451,771 16,008,774 ( 6,215,174 ) 9,793,600 Lease intangible liabilities: Below-market rent ( 2,754,922 ) 1,496,125 ( 1,258,797 ) ( 3,371,314 ) 1,702,800 ( 1,668,514 ) Above-market ground lease ( 8,896,270 ) 445,357 ( 8,450,913 ) ( 8,896,270 ) 315,008 ( 8,581,262 ) Total intangible liabilities ( 11,651,192 ) 1,941,482 ( 9,709,710 ) ( 12,267,584 ) 2,017,808 ( 10,249,776 ) Total real estate $ 67,304,497 $ ( 11,237,368 ) $ 56,067,129 $ 70,953,229 $ ( 8,024,066 ) $ 62,929,163 Real Estate Operating Revenues and Expenses The following table presents the components of real estate operating revenues and expenses that are included in the consolidated statements of operations: Years Ended December 31, 2021 2020 Real estate operating revenues: Lease revenue $ 7,167,049 $ 8,150,041 Other operating income 1,727,942 2,273,522 Total $ 8,894,991 $ 10,423,563 Real estate operating expenses: Utilities $ 208,098 $ 166,003 Real estate taxes 1,401,279 1,925,999 Repairs and maintenances 645,316 659,934 Management fees 271,303 224,732 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 F-26 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 . Leases 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 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 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. On the date of foreclosure, the Company performed lease classification test on the tenant leases as well as the ground lease in accordance with ASC 840. 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. Scheduled Future Minimum Rent Income Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants, under non-cancelable operating leases at December 31, 2021 are as follows: Years Ending December 31, Total 2022 $ 7,214,814 2023 4,235,538 2024 4,380,043 2025 792,925 2026 816,724 Thereafter 2,414,440 Total $ 19,854,484 Scheduled Annual Net Amortization of Intangibles Based on the intangible assets and liabilities recorded at December 31, 2021, scheduled annual net amortization of intangibles for each of the next five calendar years and thereafter is as follows: Years Ending December 31, Net Decrease in Real Estate Operating Revenue (1) Increase in Depreciation and Amortization (1) Decrease in Rent Expense (1) Total 2022 $ ( 926,553 ) $ 4,956,914 $ ( 130,348 ) $ 3,900,013 2023 ( 139,056 ) 1,093,878 ( 130,348 ) 824,474 2024 ( 139,056 ) 1,093,878 ( 130,348 ) 824,474 2025 17,556 87,121 ( 130,348 ) ( 25,671 ) 2026 17,556 87,121 ( 130,348 ) ( 25,671 ) Thereafter 7,315 36,300 ( 7,799,173 ) ( 7,755,558 ) Total $ ( 1,162,238 ) $ 7,355,212 $ ( 8,450,913 ) $ ( 2,257,939 ) F-27 Notes to Consolidated Financial Statements _______________ (1) Amortization of below-market rent and above-market rent intangibles is recorded as an adjustment to lease revenues; amortization of in-place lease intangibles is included in depreciation and amortization; and amortization of above-market ground lease is recorded as a reduction to rent expense. Supplemental Ground Lease Disclosures Supplemental balance sheet information related to the ground lease was as follows: December 31, 2021 2020 Operating lease 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 % _______________ (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: Years Ended December 31, 2021 2020 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, 2021 2020 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 2022 $ 2,079,000 2023 2,079,000 2024 2,079,000 2025 2,079,000 2026 2,079,000 Thereafter 124,306,875 Total lease payments 134,701,875 Less: Imputed interest ( 107,306,939 ) Total $ 27,394,936 F-28 Notes to Consolidated Financial Statements Note 7. Fair Value Measurements The Company adopted the provisions of ASC 820, Fair Value Measurement (“ASC 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 established a fair value hierarchy that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the existence and transparency of transactions between market participants). Investments with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Investments measured and reported at fair value are classified and disclosed into one of the following categories based on the inputs as follows: Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities that the Company has the ability to access. Level 2 — Pricing inputs are other than quoted prices in active markets, including, but not limited to, quoted prices for similar assets and liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs. Level 3 — Significant unobservable inputs are based on the best information available in the circumstances, to the extent observable inputs are not available, including the Company’s own assumptions used in determining the fair value of investments. Fair value for these investments are determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. 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, 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. Marketable securities are financial instruments that are reported at fair value. Financial Instruments Carried at Fair Value on a Recurring Basis From time to time, the Company may invest in short-term debt and equity securities which are classified as available-for-sale securities, which are presented at fair value on the consolidated balance sheet. Changes in the fair value of equity securities are recognized in earnings. Changes in the fair value of debt securities are reported in other comprehensive income until the securities are realized. The following tables present fair value measurements of marketable securities, by major class, as of December 31, 2021 and 2020, according to the fair value hierarchy: December 31, 2021 Fair Value Measurements Level 1 Level 2 Level 3 Total Marketable Securities: Equity securities $ 1,310,000 $ — $ — $ 1,310,000 Total $ 1,310,000 $ — $ — $ 1,310,000 F-29 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. Years Ended December 31, 2021 2020 Beginning balance $ 1,287,500 $ — Purchases 6,479,148 6,039,567 Proceeds from sale ( 6,608,396 ) ( 6,023,723 ) 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 Financial Instruments Not Carried at Fair Value The following table presents the carrying value, which represents the principal amount outstanding, adjusted for the accretion of purchase discounts on loans and exit fees, and the amortization of purchase premiums on loans and origination fees, and estimated fair value of the Company’s financial instruments that are not carried at fair value on the consolidated balance sheets: December 31, 2021 December 31, 2020 Level Principal Amount Carrying Value Fair Value Principal Amount Carrying Value Fair Value Loans: 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 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 ) — Total loans $ 480,151,151 $ 469,673,314 $ 467,201,619 $ 424,174,758 $ 422,280,515 $ 419,407,194 Liabilities: 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 agreements 3 42,048,294 42,232,027 41,475,060 71,266,303 71,581,897 70,693,207 Mortgage loan payable 3 31,962,692 32,134,295 32,192,785 44,020,225 44,117,293 44,348,689 Secured borrowing 3 34,521,104 34,586,129 34,425,029 18,281,848 18,187,663 17,037,032 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 The Company estimated that its other financial assets and liabilities, not included in the tables above, had fair values that approximated their carrying values at both December 31, 2021 and 2020 due to their short-term nature. Valuation Process for Fair Value Measurement 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. F-30 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, which may include available current market data on applicable yields of comparable debt/preferred equity instruments; market credit spreads and yield curves; the investment’s yield; covenants of the investment, including prepayment provisions; the portfolio company’s ability to make payments, net operating income and debt-service coverage ratio; construction progress reports and construction budget analysis; the nature, quality and realizable value of any collateral (and loan-to-value ratio); the forces that influence the local markets in which the asset (the collateral) is purchased and sold, such as capitalization rates, occupancy rates, rental rates and replacement costs; and the anticipated duration of each real estate-related loan investment. The Manager designates a valuation committee to oversee the entire valuation process of the Company’s Level 3 loans. The valuation committee is comprised of members of the Manager’s senior management, deal and portfolio management teams, who meet on a quarterly basis, or more frequently as needed, to review the Company investments being valued as well as the inputs used in the proprietary valuation model. Valuations determined by the valuation committee are supported by pertinent data and, in addition to a proprietary valuation model, are based on market data, industry accepted third-party valuation models and discount rates or other methods the valuation committee deems to be appropriate. Because there is no readily available market for these investments, the fair values of these investments are approved in good faith by the Manager pursuant to the Company’s valuation policy. The fair values of the Company’s mortgage loan payable, 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. The tables are not intended to be all-inclusive, but instead identify the significant unobservable inputs relevant to the determination of fair values. Fair Value at December 31, 2021 Primary Valuation Technique Unobservable Inputs December 31, 2021 Asset Category Minimum Maximum Weighted Average Assets: Loans held for investment, net $ 454,840,551 Discounted cash flow Discount rate 3.89 % 15.00 % 8.11 % Loans held for investment acquired through participation, net 12,361,068 Discounted cash flow Discount rate 8.25 % 15.00 % 12.33 % Total Level 3 Assets $ 467,201,619 Liabilities: 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 % Mortgage loan payable 32,192,785 Discounted cash flow Discount rate 6.08 % 6.08 % 6.08 % 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 F-31 Notes to Consolidated Financial Statements Fair Value at December 31, 2020 Primary Valuation Technique Unobservable Inputs December 31, 2020 Asset Category Minimum Maximum Weighted Average Assets: 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 4,293,969 Discounted cash flow Discount rate 12.89 % 12.89 % 12.89 % Total Level 3 Assets $ 419,407,194 Liabilities: Term loan payable $ 107,248,555 Discounted cash flow Discount rate 5.25 % 5.25 % 5.25 % Obligations under participation agreements 70,693,207 Discounted cash flow Discount rate 9.75 % 20.05 % 12.58 % Mortgage loan payable 44,348,689 Discounted cash flow Discount rate 6.08 % 6.08 % 6.08 % Secured borrowing 17,037,032 Discounted cash flow Discount rate 11.25 % 11.25 % 11.25 % Total Level 3 Liabilities $ 239,327,483 Note 8. Related Party Transactions Management Agreement The Company entered into a Management Agreement with the Manager whereby the Manager is responsible for its day-to-day operations. The Management Agreement runs co-terminus with the amended and restated operating agreement for Terra Fund 5, which is scheduled to terminate on December 31, 2023 unless Terra Fund 5 is dissolved earlier. The following table presents a summary of fees paid and costs reimbursed to the Manager in connection with providing services to the Company that are included on the consolidated statements of operations: Years Ended December 31, 2021 2020 Origination and extension fee expense (1)(2) $ 2,729,598 $ 1,383,960 Asset management fee 5,134,149 4,480,706 Asset servicing fee 1,181,924 1,008,256 Operating expenses reimbursed to Manager 6,916,371 6,041,075 Disposition fee (3) 1,006,302 504,611 Total $ 16,968,344 $ 13,418,608 _______________ (1) Origination and extension fee expense is generally offset with origination and extension fee income. Any excess is deferred and amortized to interest income over the term of the loan. (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. Origination and Extension Fee Expense Pursuant to the Management Agreement, the Manager or its affiliates receives an origination fee in the amount of 1 % of the amount used to originate, fund, acquire or structure real estate-related investments, including any third-party expenses related to such loans. In the event that the term of any real estate-related loan held by the Company is extended, the Manager also receives an extension fee equal to the lesser of (i) 1 % of the principal amount of the loan being extended or (ii) the amount of fee paid to the Company by the borrower in connection with such extension. Asset Management Fee 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 F-32 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 The Manager or its affiliates receives from the Company a monthly servicing fee at an annual rate of 0.25 % of the aggregate gross origination price or acquisition price, as defined in the Management Agreement, for each real estate-related loan held by the Company. Transaction Breakup Fee In the event that the Company receives any “breakup fees,” “busted-deal fees,” termination fees, or similar fees or liquidated damages from a third-party in connection with the termination or non-consummation of any loan or disposition transaction, the Manager will be entitled to receive one-half of such amounts, in addition to the reimbursement of all out-of-pocket fees and expenses incurred by the Manager with respect to its evaluation and pursuit of such transactions. As of December 31, 2021 and 2020, the Company has not received any breakup fees. Operating Expenses The Company reimburses the Manager for operating expenses incurred in connection with services provided to the operations of the Company, including the Company’s allocable share of the Manager’s overhead, such as rent, employee costs, utilities, and technology costs. Disposition Fee Pursuant to the Management Agreement, the Manager or its affiliates receives a disposition fee in the amount of 1 % of the gross sale price received by the Company from the disposition of any real estate-related loan, or any portion of, or interest in, any real estate-related loan. The disposition fee is paid concurrently with the closing of any such disposition of all or any portion of any real estate-related loan or any interest therein, which is the lesser of (i) 1% of the principal amount of the loan or debt-related loan prior to such transaction or (ii) the amount of the fee paid by the borrower in connection with such transaction. If the Company takes ownership of a property as a result of a workout or foreclosure of a loan, the Company will pay a disposition fee upon the sale of such property equal to 1% of the sales price. Distributions Paid For the 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 As discussed in Note 3 , on March 1, 2020, TPT2 merged with and into the Company with the Company continuing as the surviving company. In connection with the Merger, the Company issued 2,116,785.76 shares of common stock of the Company to Terra Fund 7, the sole stockholder of TPT2, as consideration in the Merger. In addition, on March 2, 2020, Terra Offshore REIT contributed cash and released obligations under the participation agreements to the Company ( Note 3 ) in exchange for the issuance of 2,457,684.59 shares of common stock of the Company. As described in Note 3 , Terra Fund 7 contributed the shares of the Company’s common stock received as consideration in the Merger to Terra JV and became a co-managing member of F-33 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, 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, 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. Participation Agreements 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. ASC 860, Transfers and Servicing (“ASC 860”) , establishes accounting and reporting standards for transfers of financial assets. ASC 860-10 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The Company has determined that the participation agreements it enters into are accounted for as secured borrowings under ASC 860 (See “ Participation interests ” in Note 2 and “ Obligations under Participation Agreements ” in ( Note 9 ). Participation Interests Purchased by the Company 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) 25.00 % $ 4,250,000 $ 4,294,053 ________________ (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. F-34 (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 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 Carrying Value 370 Lex Part Deux, LLC (1) $ 60,012,639 $ 60,012,639 35.00 % $ 21,004,424 $ 21,004,423 RS JZ Driggs, LLC (1) 15,606,409 15,754,641 50.00 % 7,806,370 7,880,516 William A. Shopoff & Cindy I. Shopoff (1) 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 Transfers Treated as Obligations Under Participation Agreements as of December 31, 2020 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 $ 26,211,548 370 Lex Part Deux, LLC (1) 53,874,507 53,912,363 35.00 % 18,856,078 18,856,077 City Gardens 333 LLC (1)(4) 28,303,628 28,307,408 14.00 % 3,962,509 3,963,010 Orange Grove Property Investors, LLC (1)(4) 10,600,000 10,701,924 80.00 % 8,480,000 8,561,523 RS JZ Driggs, LLC (1) 8,544,513 8,629,929 50.00 % 4,272,257 4,314,965 Stonewall Station Mezz LLC (1)(4) 10,442,567 10,537,512 44.00 % 4,594,730 4,635,937 The Bristol at Southport, LLC (2)(4) 23,500,000 23,682,536 21.28 % 5,000,000 5,038,837 $ 167,891,127 $ 168,649,216 $ 71,266,303 $ 71,581,897 ________________ (1) Participant is Terra Fund 6. (2) Participant is a third-party. (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 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 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. Secured Borrowing In March 2020, the Company entered into a financing transaction where a third-party purchased an A-note position. However, the sale of the A-note position did not qualify for sale accounting under ASC 860 and therefore, the gross amount of the loan remains in the consolidated balance sheets and the proceeds from the sale on the portion transferred are recorded as F-35 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 Principal Balance Carrying Value % Transferred Principal Balance Carrying Value Windy Hill PV Five CM, LLC $ 49,954,068 $ 50,264,568 69.11 % $ 34,521,104 $ 34,586,129 $ 49,954,068 $ 50,264,568 $ 34,521,104 $ 34,586,129 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 Note 9. Debt 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) Fair Value 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. F-36 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 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 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 Value 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 Austin H. I. 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. Term Loan On September 3, 2020, Terra Mortgage Capital I, LLC (the “Issuer” or the “Seller”), a special-purpose indirect wholly-owned subsidiary of the Company, entered into an Indenture and Credit Agreement (the “Indenture and Credit Agreement”) with Goldman Sachs Bank USA, as initial lender (“Goldman”) and Wells Fargo Bank, National Association, as the trustee, custodian, collateral agent, loan agent and note administrator (“Wells Fargo”). The Indenture and Credit Agreement provides for (A) the borrowing by the Issuer from Goldman of approximately $ 103.0 million under a floating rate loan (the “Term Loan”) and (B) the issuance by the Issuer to Terra Mortgage Portfolio I, LLC (the “Class B Holder”) of an aggregate of approximately $ 76.7 million principal amount of Class B Income Notes due 2025 (the “Class B Notes” and, together with the Term Loan, the “Debt”). The Class B Holder is the parent of the Issuer and a wholly-owned subsidiary of the Company, and the sole holder of the Class B Notes. The Class B Holder is consolidated by the Company and the Term Loan represents amount F-37 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 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. Within a specified period following a monetary or material non-monetary default under a Mortgage Asset, the Class B Holder is required to prepay the portion of the Term Loan that is allocable to such Mortgage Asset (such prepayment is without premium, yield maintenance or other penalty). In connection with entering into the Indenture and Credit Agreement, the Company incurred $ 2.4 million of deferred financing costs, including a $ 1.3 million upfront fee paid to Goldman, which are being amortized to interest expense over the term of the facility. The Issuer also pays, with respect to the Committed Advances, an annual fee, payable monthly, equal to the Benchmark Rate or Alternate Benchmark Rate, as applicable, subject to a floor of 1.0 % per annum, plus 4.25 %. In connection with the Indenture and Credit Agreement, the Company entered into a non-recourse carveout Guaranty (the “Guaranty”) in favor of Goldman, pursuant to which the Company guarantees the payment of certain losses, damages, costs, expenses, and other obligations incurred by Goldman in connection with the occurrence of fraud, intentional misrepresentation, or willful misconduct by the Issuer, Class B Holder or the Company, and certain other occurrences including breaches of certain provisions under the Indenture and Credit Agreement. The Company also guarantees the payment of the aggregate outstanding amount of the Term Loan upon the occurrence of certain bankruptcy events. Under the Guaranty, the Company is required to maintain (a) a minimum tangible net worth in an amount not less than seventy-five percent ( 75 %) of its tangible net worth as of September 3, 2020, (b) a minimum liquidity of $ 10 million, and (c) an EBITDA to interest expense ratio of not less than 1.5 to 1.0. Failure to satisfy such maintenance covenants would constitute an event of default under the Indenture and Credit Agreement. 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. The Mortgage Assets are serviced and administered by an independent third-party servicer. The principal and interest on the Term Loan are repaid before repayment of the principal on the Class B Notes on each payment date of each month in accordance with the priority of payments as set forth in the Indenture and Credit Agreement, beginning in September 2020. Such payments are subject to certain fees for taxes, filings and administrative expenses. Upon the occurrence of a Term Loan Principal Trigger Event (as defined below), 100% of the payment of the principal proceeds are applied to the Term Loan principal after payment of certain fees and other amounts as described in the Indenture and Credit Agreement. A “Term Loan Principal Trigger Event” means as of any date of determination, an event that will be deemed to have occurred on the first date on which the aggregate principal balance of the Mortgage Assets is less than or equal to the product of (x) 75% multiplied by (y) the aggregate principal balance of the Mortgage Assets as of the closing date, plus any future advances made on such Mortgage Assets prior to such date of determination. As of December 31, 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. F-38 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 Mortgage Assets Borrowings Under the Term Loan (1)(2) Principal Amount Carrying Value Fair Value 330 Tryon DE LLC $ 22,800,000 $ 22,902,354 $ 22,594,654 $ 13,680,000 1389 Peachtree St, LP; 1401 Peachtree St, LP; and 1409 Peachtree St, LP 53,289,288 53,536,884 52,031,363 31,283,661 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 Value 330 Tryon DE LLC $ 22,800,000 $ 22,901,294 $ 22,869,879 $ 13,680,000 1389 Peachtree St, LP; 1401 Peachtree St, LP; and 1409 Peachtree St, LP 50,808,453 51,068,554 50,982,247 29,897,848 AGRE DCP Palm Springs, LLC 45,294,097 45,506,051 45,519,030 24,894,939 MSC Fields Peachtree Retreat, LLC 23,308,334 23,437,198 23,428,860 13,985,001 Patrick Henry Recovery Acquisition, LLC 18,000,000 18,039,456 17,994,495 10,800,000 University Park Berkeley, LLC 23,990,786 24,131,808 24,162,710 14,326,663 $ 184,201,670 $ 185,084,361 $ 184,957,221 $ 107,584,451 _______________ (1) Borrowings under the Term Loan bear interest at LIBOR plus 4.25 % with a LIBOR floor of 1.00 %, or 5.25 % as of 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, 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 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. F-39 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. 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 Collateral Borrowings Under Master Repurchase Agreement Principal Amount Carrying Value Fair Value Borrowing Date Principal Amount Interest Rate 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 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 F-40 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 On June 20, 2019, Terra LOC Portfolio I, LLC, a special-purpose indirect wholly-owned subsidiary of the Company, entered into a credit agreement with Israel Discount Bank of New York to provide for revolving credit loans of up to $ 35.0 million in the aggregate (“Revolving Credit Facility”), which the Company expects to use for short term financing needed to bridge the timing of anticipated loans repayments and funding obligations. Borrowings under the Revolving Credit Facility can be either prime rate loans or LIBOR rate loans and accrue interest at an annual rate of prime rate plus 1 % or LIBOR plus 4 % with a floor of 6 %. The Revolving Credit Facility was scheduled to mature on June 20, 2020. The Revolving Credit Facility was amended to extend the maturity to October 2, 2020. On October 2, 2020, the Company amended the Revolving Credit Facility and reduced the commitment amount to $ 15.0 million. In connection with this amendment, the interest rate was changed to prime rate plus 1 % or LIBOR plus 4 % with a floor of 4.5 % and the maturity was extended to September 2, 2021 . On March 16, 2021, the Revolving Credit Facility was terminated. 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 As of December 31, 2021, the Company had a $ 32.0 million mortgage loan payable collateralized by a multi-tenant office building that the Company acquired through foreclosure. The following table presents certain information about the mortgage loan payable as of December 31, 2021 and 2020: December 31, 2021 December 31, 2020 Lender Current Interest Rate Maturity Date Principal Amount Carrying Value Carrying Value of Collateral Principal Amount Carrying Value Carrying Value of Collateral 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 Scheduled Debt Principal Payments Scheduled debt principal payments for each of the five calendar years following December 31, 2021 are as follows: Years Ending December 31, Total 2022 $ 31,962,692 2023 38,575,895 2024 100,333,261 2025 37,999,809 2026 85,125,000 Thereafter — 293,996,657 Unamortized deferred financing costs ( 5,904,421 ) Total $ 288,092,236 At December 31, 2021 and 2020, the unamortized deferred debt issuance costs were $ 5.9 million and $ 2.2 million, respectively. F-41 Obligations Under Participation Agreements and Secured Borrowing As discussed in Note 2 , the Company follows the guidance in ASC 860 when accounting for loan participations and loans sold. Such guidance requires the transferred interests meet certain criteria in order for the transaction to be recorded as a sale. Loan participations and loans transferred from the Company which do not qualify for sale treatment remain on the Company’s consolidated balance sheets and the proceeds are recorded as obligations under participation agreements or secured borrowing, as applicable. As of December 31, 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, 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. Note 10. Commitments and Contingencies Impact of COVID-19 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. Unfunded Commitments on Loans Held for Investment Certain of the Company’s loans contain provisions for future fundings, which are subject to the borrower meeting certain performance-related metrics that are monitored by the Company. These fundings amounted to approximately $ 71.8 million and $ 67.9 million as of December 31, 2021 and 2020, respectively. The Company expects to maintain sufficient cash on hand to fund such unfunded commitments, primarily through matching these commitments with principal repayments on outstanding loans. Unfunded Investment Commitment 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. Other The Company enters into contracts that contain a variety of indemnification provisions. The Company’s maximum exposure under these arrangements is unknown; however, the Company has not had prior claims or losses pursuant to these contracts. The Manager has reviewed the Company’s existing contracts and expects the risk of loss to the Company to be remote. The Company is not currently subject to any material legal proceedings and, to the Company’s knowledge, no material legal proceedings are threatened against the Company. From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company’s rights under contracts with its portfolio companies. While the outcome of any legal proceedings cannot be predicted with certainty, the Company does not expect that any such proceedings will have a material adverse effect upon its financial condition or results of operations. See Note 8 for a discussion of the Company’s commitments to the Manager. F-42 Note 11. Equity Earnings Per Share The following table presents earnings per share for the years ended December 31, 2021 and 2020: Years Ended December 31, 2021 2020 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 (Loss) earnings per share - basic and diluted $ ( 0.63 ) $ 0.28 Preferred Stock Classes Preferred Stock The Company’s charter gives it authority to issue 50,000,000 shares of preferred stock, $ 0.01 par value per share (“Preferred Stock”). The Company’s board of directors may classify any unissued shares of Preferred Stock and reclassify any previously classified but unissued shares of Preferred Stock of any series from time to time, into one or more classes or series of stock. As of December 31, 2021 and 2020, there were no Preferred Stock issued or outstanding. Series A Preferred Stock On November 30, 2016, the Company’s board of directors classified and designated 125 shares of preferred stock as a separate class of preferred stock to be known as the 12.5 % Series A Redeemable Cumulative Preferred Stock, $ 1,000 liquidation value per share (“Series A Preferred Stock”). In December 2016, the Company sold 125 shares of the Series A Preferred Stock for $ 125,000 . The Series A Preferred Stock pays dividends at an annual rate of 12.5 % of the liquidation preference. These dividends are cumulative and payable semi-annually in arrears on June 30 and December 31 of each year . The Series A Preferred Stock, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company, rank senior to common stock. The Company, at its option, may redeem the shares, with written notice, at a redemption price of $ 1,000 per share, plus any accrued unpaid distribution through the date of the redemption. The Series A Preferred Stock carries a redemption premium of $ 50 per share if redeemed prior to January 1, 2019. The Series A Preferred Stock generally has no voting rights. However, the Series A Preferred Stock holders’ voting is required if (i) authorization or issuance of any securities senior to the Series A Preferred Stock; (ii) an amendment to the Company’s charter that has a material adverse effect on the rights and preference of the Series A Preferred Stock; and (iii) any reclassification of the Series A Preferred Stock. Common Stock As discussed in Note 3 , on March 1, 2020, TPT2 merged with and into the Company with the Company continuing as the surviving corporation. In connection with the Merger, the Company issued 2,116,785.76 shares of common stock of the Company to Terra Fund 7, the sole stockholder of TPT2, as consideration in the Merger. In addition, on March 2, 2020, the Company issued 2,457,684.59 shares of common stock of the Company in exchange for the settlement of certain participation interests in loans held by the Company and cash. 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, 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. On September 30, 2019, the Company issued 212,691 shares of its common stock to Terra Offshore REIT at a price of $ 17.02 per share for total proceeds of $ 3.6 million. On April 29, 2020, the Company repurchased, at a price of $ 17.02 per share, the 212,691 shares it previously sold to Terra Offshore REIT ( Note 8 ). F-43 Distributions The Company generally intends to distribute substantially all of its taxable income, which does not necessarily equal net income as calculated in accordance with U.S. GAAP, to its stockholders each year to comply with the REIT provisions of the Internal Revenue Code. 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 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. 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. The following table presents distributions per share, declared and paid during the years ended December 31, 2021 and 2020, reported for federal tax purposes and serves as a designation of capital gain distributions, if applicable, pursuant to Section 857(b)(3)(C) of the Internal Revenue Code and Treasury Regulation § 1.857-6(e): Years Ended December 31, 2021 2020 Ordinary income $ 0.07 $ 0.48 Capital gain 0.06 — Return of capital 0.75 0.68 $ 0.88 $ 1.16 Note 12. 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 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. 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. 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. 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, F-44 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. F-45 Terra Property Trust, Inc. Schedule III – Real Estate and Accumulated Depreciation As of December 31, 2021 Initial Costs Cost Capitalized Subsequent to Acquisition Decrease in Net Investment (1) Gross Amount at Period End 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 in Santa Monica, CA $ 31,962,692 $ — $ 51,308,076 $ 2,508,533 $ — $ — $ 53,816,609 $ 53,816,609 $ 5,491,541 2002-2004 July 30, 2018 40 years Land in Conshohocken, PA — 14,703,359 — 242,071 ( 4,945,430 ) 10,000,000 — 10,000,000 — N/A January 9, 2019 N/A $ 31,962,692 $ 14,703,359 $ 51,308,076 $ 2,750,604 $ ( 4,945,430 ) $ 10,000,000 $ 53,816,609 $ 63,816,609 $ 5,491,541 ___________________________ (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. The changes in total real estate assets and accumulated depreciation for the year ended December 31, 2021 are as follows: Real Estate Asset Accumulated Depreciation Year Ended December 31, 2021 Year Ended December 31, 2021 Balance, beginning of year $ 67,212,039 Balance, beginning of year $ 3,826,700 Acquisition through foreclosure — Depreciation for the year 1,664,841 Improvements — Balance, end of year $ 5,491,541 Impairment charge ( 3,395,430 ) Balance, end of year $ 63,816,609 F-46 Terra Property Trust, Inc. Schedule IV – Mortgage Loans on Real Estate As of December 31, 2021 Portfolio Company (1) Collateral Location Property Type Interest Payment Rates Maximum Maturity Date (2) Periodic Payment Terms Prior Liens Face Amount Carrying Amount Mezzanine Loans: 150 Blackstone River Road, LLC US - MA Industrial 8.5 % 9/6/2027 Interest Only $ — $ 7,000,000 $ 7,000,000 High Pointe Mezzanine Investments, LLC US - SC Student housing 13.0 % 1/6/2024 Interest Only — 3,000,000 3,145,614 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 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; 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 US - CA Hotel - full/select service LIBOR +5.0% (1.8% Floor) 1/1/2025 Interest Only — 43,222,381 43,669,992 Austin H. I. 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 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 F-47 Terra Property Trust, Inc. Schedule IV – Mortgage Loans on Real Estate (Continued) As of December 31, 2021 Portfolio Company (1) Collateral Location Property Type Interest Payment Rates Maximum Maturity Date (2) Periodic Payment Terms Prior Liens Face Amount Carrying Amount Preferred equity investments: 370 Lex Part Deux, LLC (6)(7) US - NY Office LIBOR + 8.25% (2.44% Floor) 1/9/2025 Interest Only $ — $ 60,012,639 $ 60,012,639 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 92,252,340 92,400,572 Credit facility: William A. 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 ) Total investments $ 480,151,151 $ 469,673,314 ___________________________ (1) All of the Company’s loans have a prepayment penalty provision. (2) Maximum maturity date assumes all extension options are exercised. (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 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. F-48 Terra Property Trust, Inc. Notes to Schedule IV - Mortgage Loans on Real Estate December 31, 2021 Reconciliation of Mortgage Loans on Real Estate Year Ended December 31, 2021 Balance, beginning of year $ 422,280,515 Additions during the period: New mortgage loans 252,437,733 PIK interest 1,955,109 Accrual, payment and accretion of investment-related fees and other, net 1,397,519 Deductions during the period: 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 F-49 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 11, 2022 TERRA PROPERTY TRUST, INC. By: /s/ Vikram S. Uppal Vikram S. Uppal Chief Executive Officer (Principal Executive Officer) By: /s/ Gregory M. Pinkus Gregory M. Pinkus Chief Financial Officer and Chief Operating Officer, (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Vikram S. Uppal Chairman of the Board and Chief Executive Officer March 11, 2022 Vikram S. Uppal (Principal Executive Officer) /s/ Gregory M. Pinkus Chief Financial Officer, Chief Operating Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) March 11, 2022 Gregory M. Pinkus /s/ Roger H. Beless Director March 11, 2022 Roger H. Beless /s/ Michael L. Evans Director March 11, 2022 Michael L. Evans 62