What changed in this filing

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Item 1. Financial Statements

2022-05-12 compared with 2021-11-12 · 623 added, 799 removed, 1144 unchanged (55% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Cash and cash equivalents $ 9,858,153 $ 35,783,956

4 unchanged sentences

Loans held for investment acquired through participation, net 12,937,304 12,343,732

Equity investment in a limited partnership, net 49,909,985 36,259,959

Equity investment in unconsolidated investments 91,662,090 69,713,793

Real estate owned, net ( Note 5 )

1 unchanged sentence

Lease intangible assets, net 6,145,077 7,451,771

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

Deal deposits 9,529,476 —

Assets held for sale 8,395,011 —

Operating lease right-of-use asset 27,391,012 27,394,936

Interest receivable 3,020,009 2,463,037

Due from related party — 2,605,639

Other assets 3,976,018 3,505,953

3 unchanged sentences

Unsecured notes payable, net of debt issuance cost 82,010,107 81,856,799

Repurchase agreements payable, net of deferred financing fees 173,698,002 43,974,608

Obligations under participation agreements ( Note 7 )

4 unchanged sentences

Interest reserve and other deposits held on investments 8,058,767 7,411,811

Operating lease liabilities 27,398,786 16,105,888

Operating lease liability 27,391,012 27,394,936

Lease intangible liabilities, net ( Note 5 )

11 unchanged sentences

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

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

30, 2021 and December 31, 2020 125,000 125,000

125 shares authorized and 125 shares issued and outstanding at March 31, 2022

December 31, 2021 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 September 30, 2021 and December 31,

2020, respectively 194,875 194,875

shares issued and outstanding at March 31, 2022 and December 31, 2021 194,875 194,875

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

5 unchanged sentences

Consolidated Statements of Operations

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

2021 2020 2021 2020

Three Months Ended March 31,

Interest income $ 8,882,151 $ 8,120,949

Real estate operating revenue 2,979,454 2,011,641

Prepayment fee income 190,997 — 190,997 —

Other operating income 250,665 156,662

7 unchanged sentences

Depreciation and amortization 1,718,372 931,725

Impairment charge 1,604,989 —

Professional fees 742,518 520,419

4 unchanged sentences

Other income and expenses

Interest expense from obligations under

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

Interest expense from obligations under participation agreements ( 1,075,109 ) ( 1,880,081 )

Interest expense on repurchase agreement payable ( 755,826 ) —

4 unchanged sentences

Interest expense on secured borrowing ( 552,785 ) ( 299,805 )

Net loss on extinguishment of obligations under

participation agreements — — — ( 319,453 )

Net unrealized (losses) gains on marketable

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

Income from equity investment in a limited

partnership 1,824,825 — 4,563,491 —

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

Net unrealized losses on marketable securities ( 99,044 ) ( 14,608 )

Income from equity investment in unconsolidated investments 1,419,335 1,337,827

Realized gains on marketable securities 51,133 —

10 unchanged sentences

Terra Property Trust, Inc.

Consolidated Statements of Comprehensive Income

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

2021 2020 2021 2020

Comprehensive (loss) income, net of tax

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

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 $ ( 727,758 ) $ 2,143,130 $ 643,567 $ 5,368,135

Series A preferred stock dividend declared ( 3,906 ) ( 3,906 ) ( 11,718 ) ( 11,718 )

Comprehensive (loss) income attributable to

common shares $ ( 731,664 ) $ 2,139,224 $ 631,849 $ 5,356,417

See notes to unaudited consolidated financial statements.

Terra Property Trust, Inc.

Consolidated Statements of Changes in Equity

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

Capital Accumulated Deficit Accumulated Other Comprehensive Income

Capital Accumulated Deficit

$0.01 Par Value

1 unchanged sentence

Balance at January 1, 2022 $ — 125 $ 125,000 19,487,460 $ 194,875 $ 373,443,672 $ ( 99,919,969 ) $ 273,843,578

Distributions declared on common shares ($0.20 per share) — — — — — — ( 3,893,595 ) — ( 3,893,595 )

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

Comprehensive income:

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

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

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

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

Comprehensive loss:

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

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

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

Distributions declared on common shares

($0.20 per share) — — — — — — ( 3,893,595 ) ( 3,893,595 )

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

Comprehensive loss:

Net loss — — — — — — ( 757,887 ) ( 757,887 )

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

See notes to unaudited consolidated financial statements .

Terra Property Trust, Inc.

Consolidated Statements of Changes in Equity

Balance at March 31, 2022 $ — 125 $ 125,000 19,487,460 $ 194,875 $ 373,443,672 $ ( 104,575,357 ) $ 269,188,190

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

Capital Accumulated Deficit Accumulated Other Comprehensive Income

Capital Accumulated Deficit

$0.01 Par Value

1 unchanged sentence

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

Issuance of common stock ( Note 3 )

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

Distributions declared on common shares ($0.53 per share) — — — — — — ( 8,832,071 ) — ( 8,832,071 )

Distributions declared on common shares

($0.20 per share) — — — — — — ( 3,893,595 ) ( 3,893,595 )

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

Comprehensive income:

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

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

Reclassification of net realized gains on marketable securities

into earnings — — — — — — — ( 8,894 ) ( 8,894 )

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

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

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

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

Comprehensive income:

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

Reclassification of net realized gains on marketable securities

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

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

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

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

Comprehensive income:

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

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

See notes to unaudited consolidated financial statements .

Terra Property Trust, Inc.

Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended September 30,

Consolidated Statements of Cash Flows

Three Months Ended March 31,

Cash flows from operating activities:

Net income $ 643,567 $ 5,368,135

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

Net (loss) income $ ( 757,887 ) $ 1,476,096

Adjustments to reconcile net (loss) income to net cash provided by operating

Paid-in-kind interest income, net — ( 224,197 )

1 unchanged sentence

Provision for loan losses 50,296 276,020

Lease termination fee income — ( 236,000 )

Impairment charge 1,604,989 —

Amortization of net purchase premiums on loans 15,348 15,348

2 unchanged sentences

Amortization of discount on unsecured notes payable 113,147 —

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

Amortization of above- and below-market rent intangibles ( 246,375 ) ( 84,555 )

1 unchanged sentence

Amortization of above-market rent ground lease ( 32,588 ) ( 32,588 )

Realized loss on loan repayments 517,989 —

Realized gains on marketable securities ( 51,133 ) —

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

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

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

Net unrealized losses on marketable securities 99,044 14,608

Income from equity investment in excess of distributions received ( 1,119,913 ) ( 1,337,827 )

Changes in operating assets and liabilities:

Deal deposits ( 9,529,476 ) —

Interest receivable ( 556,972 ) ( 472 )

Due from related party 2,605,639 —

Other assets ( 705,897 ) ( 528,133 )

4 unchanged sentences

Other liabilities ( 797,996 ) ( 6,964 )

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

Net cash provided by (used in) operating activities 3,109,077 ( 1,757,148 )

Cash flows from investing activities:

1 unchanged sentence

Proceeds from repayments of loans 750,000 31,531,804

Purchase of partnership interest in a limited partnership ( 14,065,197 ) —

Purchase of equity interests in unconsolidated investments ( 21,164,384 ) ( 12,907,725 )

Distributions in excess of net income 336,000 —

Purchase of marketable securities — ( 4,979,088 )

Proceeds from sale of marketable securities 628,715 —

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

Net cash used in investing activities ( 107,569,490 ) ( 765,715 )

See notes to unaudited consolidated financial statements .

Terra Property Trust, Inc.

Consolidated Statements of Cash Flows (Unaudited) (Continued)

Nine Months Ended September 30,

Consolidated Statements of Cash Flows (Continued)

Three Months Ended March 31,

Cash flows from financing activities:

Proceeds from borrowings under the term loan 2,595,576 105,888,747

Proceeds from borrowings under revolving line of credit 25,299,713 35,000,000

Repayments of obligations under participation agreements — ( 3,962,509 )

Proceeds from obligations under participation agreements 15,863,187 3,520,514

Proceeds from borrowings under repurchase agreement 131,949,549 —

Proceeds from borrowings under revolving line of credit 26,377,654 8,030,611

Distributions paid ( 3,893,595 ) ( 3,893,595 )

Repayment of borrowings under the term loan ( 93,763,471 ) (2,600,000)

Proceeds from secured borrowing 2,850,520 3,751,680

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

Proceeds from obligations under participation agreements 57,103,598 19,784,155

Repayment of mortgage principal ( 204,967 ) ( 3,423,245 )

Proceeds from borrowings under the term loan — 1,469,656

Change in interest reserve and other deposits held on investments 646,956 ( 5,049,067 )

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

Payment of financing costs ( 895,247 ) ( 641,446 )

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

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

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

Proceeds from borrowings under repurchase agreement — 22,860,134

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

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

Net cash provided by financing activities 112,762,298 93,920,352

Net increase in cash, cash equivalents and restricted cash 33,198,009 43,061,646

Net cash provided by (used in) financing activities 78,930,586 (2,797,401)

Net decrease in cash, cash equivalents and restricted cash (25,529,827) (5,320,264)

Cash, cash equivalents and restricted cash at beginning of period 51,098,647 32,920,323

1 unchanged sentence

$ 25,568,820 $ 27,600,059

Nine Months Ended September 30,

Three Months Ended March 31,

Supplemental Disclosure of Cash Flows Information:

2 unchanged sentences

Terra Property Trust, Inc.

Consolidated Statements of Cash Flows (Continued)

Supplemental Non-Cash Financing Activities:

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

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 )

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, and (ii) by and among the Company, Terra Offshore REIT and Terra Secured Income Fund 5 International, pursuant to which the Company issued an aggregate of 2,457,684.59 shares of common stock in exchange for the settlement of $ 32.1 million of participation interests in loans held by the Company, $ 8.6 million in cash, and other net working capital (“Issuance of Common Stock to Terra Offshore REIT”) ( Note 3 ).

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

Total Consideration

Equity issued to Terra Offshore REIT $ 40,749,378

Proceeds from equity issued to Terra Offshore REIT 8,600,000

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

See notes to unaudited consolidated financial statements .

Terra Property Trust, Inc.

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2021

March 31, 2022

Terra Property Trust, Inc.

6 unchanged sentences

On March 2, 2020, the Company engaged in a series of transactions pursuant to which the Company issued an aggregate of 4,574,470.35 shares of its common stock in exchange for the settlement of an aggregate of $ 49.8 million of participation interests in loans held by the Company, cash of $ 25.5 million and other working capital.

As of September 30, 2021, Terra JV, LLC (“Terra JV”) held 87.4 % of the issued and outstanding shares of the Company's common stock with the remainder held by Terra Offshore REIT ( Note 3 ).

As of March 31, 2022, 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 Funds REIT, LLC (“Terra Offshore REIT”).

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.

59 unchanged sentences

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

Equity Investment in a Limited Partnership

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

Equity Investment in Unconsolidated Investments

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

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

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

Marketable Securities

17 unchanged sentences

If impaired, the real estate asset will be written down to its estimated fair value.

Notes to Unaudited Consolidated Financial Statements

Assets Held for Sale

The Company generally classifies real estate assets as held for sale when it has entered into a contract to sell the property, all material due diligence requirements have been satisfied, the Company received a non-refundable deposit, and it is probable that the disposition will occur within one year.

The Company determines if an arrangement is a lease at inception.

4 unchanged sentences

The Company uses the implicit rate when readily determinable.

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

Notes to Unaudited Consolidated Financial Statements

if there were any.

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.

Deal Deposits

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

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

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

Revenue Recognition

23 unchanged sentences

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.

Notes to Unaudited Consolidated Financial Statements

operating payments.

Restricted cash is not available for general corporate purposes.

1 unchanged sentence

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

Notes to Unaudited Consolidated Financial Statements

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

September 30,

Cash and cash equivalents $ 9,858,153 $ 18,464,161

1 unchanged sentence

Cash held in escrow by lender (1)

7,651,900 2,039,349

Total cash, cash equivalents and restricted cash shown in the consolidated

statements of cash flows $ 25,568,820 $ 27,600,059

_______________

(1) The Company has a cash management account with the lender to collect rental payment on the property used as collateral for a mortgage loan payable.

As of March 31, 2022, approximately $ 3.8 million of the cash in the account was available for operational needs.

Participation Interests

3 unchanged sentences

See “ Obligations under Participation Agreements ” in Note 8 for additional information.

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.

The Company previously financed certain of its senior loans through borrowings under an indenture and credit agreement.

The Company accounted for the borrowings as a term loan, which was carried at the contractual amount (cost), net of unamortized deferred financing fees.

On February 18, 2022, the Company refinanced the Term Loan (as defined below) with a new repurchase agreement.

See “Term Loan” in Note 8 for additional information.

Repurchase Agreements

The Company finances certain of its senior loans held for investment through repurchase transactions under master repurchase agreements.

The Company accounts for the repurchase transactions as secured borrowing transactions, which are carried at their contractual amounts (cost), net of unamortized deferred financing fees.

See “Repurchase Agreements” in Note 8 for additional information.

Fair Value Measurements

1 unchanged sentence

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, mortgage loan payable and revolving line of credit.

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.

Notes to Unaudited Consolidated Financial Statements

Deferred Financing Costs

2 unchanged sentences

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

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

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

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

4 unchanged sentences

federal and state income taxes at regular corporate rates.

Notes to Unaudited Consolidated Financial Statements

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

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

As of March 31, 2022, 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 three and nine months ended September 30, 2021 and 2020, the Company did not incur any interest or penalties.

For the three months ended March 31, 2022 and 2021, the Company did not incur any interest or penalties.

Although the Company files federal and state tax returns, its major tax jurisdiction is federal.

9 unchanged sentences

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

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

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

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 September 30, 2021;

The Company believes the estimates and assumptions underlying its financial statements are reasonable and supportable based on the information available as of March 31, 2022;

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

Accordingly, any estimates and assumptions as of March 31, 2022 are inherently less certain than they would be absent the current and potential impacts of the COVID-19 pandemic.

Notes to Unaudited Consolidated Financial Statements

Segment Information

10 unchanged sentences

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

The Company meets the definition of a smaller

Notes to Unaudited Consolidated Financial Statements

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

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.

2 unchanged sentences

In July 2017, the U.K.

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

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

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

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

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

dollar LIBOR.

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

dollar LIBOR tenors, and of all non-U.S.

dollar LIBOR rates, after December 31, 2021.

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

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”).

8 unchanged sentences

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

Merger and Issuance of Common Stock to Terra Offshore REIT

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.

Notes to Unaudited Consolidated Financial Statements

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

Total Consideration

Equity issued in the Merger $ 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 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.

Issuance of Common Stock to Terra Offshore REIT

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

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.

Total Consideration

Equity issued to Terra Offshore REIT $ 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

Notes to Unaudited Consolidated Financial Statements

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

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 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 September 30, 2021, Terra JV owns 87.4 % of the issued and outstanding shares of the Company’s common stock with the remainder held by Terra Offshore REIT, and Terra Fund 5 and Terra Fund 7 own an 87.6 % and 12.4 % interest, respectively, in Terra JV.

Net Loss on Extinguishment of Obligations Under Participation Agreements

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.

Loans Held for Investment

Portfolio Summary

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

September 30, 2021 December 31, 2020

The following table provides a summary of the Company’s loan portfolio as of March 31, 2022 and December 31, 2021:

March 31, 2022 December 31, 2021

Fixed Rate Floating

9 unchanged sentences

term (years) 1.98 1.32 1.44 1.93 1.45 1.53

_______________

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

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

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

Notes to Unaudited Consolidated Financial Statements

As of September 30, 2021, amounts also included $ 42.2 million of senior mortgages used as collateral for $ 25.3 million of borrowings under a revolving line of credit.

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

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

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

_______________

(1) These loans pay a coupon rate of LIBOR or Secured Overnight Financing Rate (“SOFR”), as applicable, plus a fixed spread.

Coupon rate shown was determined using LIBOR of 0.45 % and SOFR of 0.16 % as of March 31, 2022 and LIBOR of 0.10 % as of December 31, 2021.

(2) As of March 31, 2022 and December 31, 2021, amount included $ 351.1 million and $ 290.6 million of senior mortgages used as collateral for $ 241.5 million and $ 176.9 million of borrowings under credit facilities, respectively ( Note 8 ).

(3) As of March 31, 2022 and December 31, 2021, sixteen and thirteen of these loans, respectively, are subject to a LIBOR or SOFR floor, as applicable.

Lending Activities

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

The following table presents the activities of the Company’s loan portfolio for the three months ended March 31, 2022 and 2021:

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

2 unchanged sentences

Principal repayments received ( 750,000 ) — ( 750,000 )

PIK interest (1)

1,955,109 — 1,955,109

Net amortization of premiums on loans ( 15,348 ) — ( 15,348 )

1 unchanged sentence

net 1,029,625 11,884 1,041,509

Realized loss on loan repayments (2)(3)

( 651,553 ) — ( 651,553 )

Provision for loan losses ( 50,296 ) — ( 50,296 )

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

Balance, March 31, 2022 $ 545,081,696 $ 12,937,304 $ 558,019,000

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

5 unchanged sentences

Net amortization of premiums on loans ( 15,348 ) — ( 15,348 )

Accrual, payment and accretion of investment-related fees, net 792,606 16,343 808,949

Accrual, payment and accretion of investment-related fees and other,

net 526,081 ( 1,905 ) 524,176

Provision for loan losses ( 276,020 ) — ( 276,020 )

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

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

_______________

1 unchanged sentence

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

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

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

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

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

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

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

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

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

Notes to Unaudited Consolidated Financial Statements

Portfolio Information

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

September 30, 2021 December 31, 2020

The tables below detail the types of loans in the Company’s loan portfolio, as well as the property type and geographic location of the properties securing these loans as of March 31, 2022 and December 31, 2021:

March 31, 2022 December 31, 2021

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

1 unchanged sentence

Preferred equity investments 93,441,580 93,607,463 16.8 % 92,252,340 92,400,572 19.7 %

Credit facility 46,000,000 46,885,375 8.4 % 25,000,000 25,206,964 5.4 %

Mezzanine loans 17,444,357 17,615,889 3.2 % 17,444,357 17,622,804 3.8 %

1 unchanged sentence

Total $ 567,520,973 $ 558,019,000 100.0 % $ 480,151,151 $ 469,673,314 100.0 %

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

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

Office $ 229,192,520 $ 230,101,500 41.2 % $ 221,596,870 $ 222,426,872 47.3 %

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

Multifamily 120,216,869 122,074,241 21.9 % 80,805,787 81,835,756 17.4 %

Industrial 67,571,608 67,606,537 12.1 % 32,000,000 32,206,964 6.9 %

Hotel - full/select service 56,918,328 57,520,720 10.3 % 56,847,381 57,395,682 12.2 %

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

Infill land 33,807,563 33,895,151 6.1 % 28,960,455 28,923,827 6.2 %

Student housing 31,000,000 31,667,292 5.7 % 31,000,000 31,565,670 6.7 %

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

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

Mixed use 28,814,085 28,862,336 5.2 % 28,940,658 28,977,024 6.2 %

Allowance for loan losses — ( 13,708,777 ) ( 2.5 ) % — ( 13,658,481 ) ( 2.9 ) %

Total $ 567,520,973 $ 558,019,000 100.0 % $ 480,151,151 $ 469,673,314 100.0 %

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.

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

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

3 unchanged sentences

Georgia 53,970,491 54,221,854 9.7 % 53,289,288 53,536,884 11.4 %

Pennsylvania 52,000,000 52,464,277 10.9 % — — — %

North Carolina 45,781,188 46,026,460 8.2 % 44,492,971 44,704,699 9.5 %

New Jersey 35,571,608 35,391,604 6.3 % — — — %

Utah 28,000,000 28,529,857 5.1 % 28,000,000 28,420,056 6.1 %

Washington 24,424,855 24,487,967 4.4 % 3,523,401 3,382,683 0.7 %

Pennsylvania 21,000,000 21,670,442 3.9 % — — — %

Texas 13,695,947 13,824,587 2.5 % 13,625,000 13,725,690 2.9 %

1 unchanged sentence

South Carolina 3,000,000 3,137,435 0.6 % 3,000,000 3,145,614 0.7 %

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

Allowance for loan losses — ( 13,708,777 ) ( 2.5 ) % — ( 13,658,481 ) ( 2.9 ) %

4 unchanged sentences

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

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

September 30, 2021 December 31, 2020

The following table allocates the principal balance and the carrying value of the Company’s loans based on the loan risk rating as of March 31, 2022 and December 31, 2021:

March 31, 2022 December 31, 2021

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

9 unchanged sentences

_______________

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

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

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

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

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

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

Nine Months Ended September 30,

(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 collectability individually.

As of both March 31, 2022 and December 31, 2021, the specific allowance for loan losses on these loans were $ 12.8 million, as a result of a decline in the fair value of the respective collateral.

As of March 31, 2022, 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 $ 0.01 million for the three months ended March 31, 2022.

As of March 31, 2021, the Company had three loans with a loan risk rating of “4” and one loan with a loan risk rating of “5” and recorded general allowance for loan losses of $ 0.04 million for the three months ended March 31, 2021.

Additionally, as of March 31, 2022 and 2021, the Company had three and one loans, respectively, deemed impaired and recorded specific allowance for loan losses of $ 0.04 million and $ 0.2 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 three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

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

1 unchanged sentence

Charge-offs — —

( 984,440 ) —

Recoveries — —

Allowance for loan losses, end of period $ 13,708,777 $ 4,014,778

_______________

(1) Amount related to the TDR described below.

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

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

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

Notes to Unaudited Consolidated Financial Statements

As of both March 31, 2022 and December 31, 2021, the Company had one loan that was in maturity default.

Additionally, for the three months ended March 31, 2022 and 2021, the Company suspended interest income accrual of $ 1.1 million and $ 0.7 million on two loans, respectively, because recovery of such income was doubtful.

Troubled Debt Restructuring

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

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

As of March 31, 2022 and December 31, 2021, the Company had a recorded investment in troubled debt restructuring of $ 13.7 million.

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.

The Company purchased the

Notes to Unaudited Consolidated Financial Statements

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

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

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

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

The 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:

3 unchanged sentences

_______________

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

(1) As of March 31, 2022, the principal balance of this loan was $ 13.7 million and the carrying value of this loan, which includes the present value of the exit fee, was $ 13.8 million.

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

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

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

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

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 March 31, 2022.

For the three months ended March 31, 2022, interest income from the new senior loan was $ 0.3 million.

In April 2022, this loan was repaid in full.

Equity Investment in Unconsolidated Investments

The Company owns interests in a limited partnership and three 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 (“Mavik 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 Mavik RESOF.

Mavik 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.

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

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

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

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

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

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

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

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

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

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

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

On August 3, 2020, the Company entered into a subscription agreement with Mavik Real Estate Special Opportunities Fund, LP (“RESOF”) 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 , which is a subsidiary of the Company’s sponsor, Terra Capital Partners .

As of March 31, 2022 and December 31, 2021, the unfunded commitment was $ 16.4 million and $ 15.1 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 March 31, 2022 and December 31, 2021, the Company owned 44.2 % and 50.0 % of the equity interest in RESOF, respectively.

As of March 31, 2022 and December 31, 2021, the carrying value of the Company ’ s investment in RESOF was $ 40.2 million and $ 40.5 million, respectively.

For both the three months ended March 31, 2022 and 2021, the Company recorded equity income from RESOF of $ 1.3 million and did not receive any distributions from RESOF.

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.

Notes to Unaudited Consolidated Financial Statements

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Investments at fair value (cost of $117,829,371 and $107,261,022, respectively) $ 119,003,881 $ 108,359,898

1 unchanged sentence

Total assets 134,896,087 113,843,985

Revolving line of credit, net of financing costs 16,834,326 14,909,717

Obligations under participation agreement (proceeds of $15,523,107 and $14,252,357,

3 unchanged sentences

Partners’ capital $ 89,063,366 $ 79,286,048

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

2021 2020 2021 2020

Three Months Ended March 31,

Total investment income $ 4,844,664 $ 2,042,100

3 unchanged sentences

Net increase in partners' capital resulting from operations $ 3,620,399 $ 1,624,585

Equity Investment in Joint Ventures

As of March 31, 2022, the Company owned equity interests in three 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 March 31, 2022 Carrying Value at

Entity Co-owner March 31, 2022 December 31, 2021

LEL Arlington JV LLC Third party 80 % $ 23,962,388 $ 23,949,044

LEL NW 49th JV LLC Third party 80 % 4,838,353 5,306,467

TCG Corinthian FL Portfolio

Third Party 90 % 22,615,435 —

$ 51,416,176 $ 29,255,511

_______________

(1) This investment was purchased in March 2022.

Notes to Unaudited 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:

March 31, 2022 December 31, 2021

Net investments in real estate $ 198,906,122 $ 115,636,424

Other assets 9,730,764 4,856,249

Total assets 208,636,886 120,492,673

Mortgage loan payable 145,641,352 83,445,235

Other liabilities 1,887,030 1,305,572

Total liabilities 147,528,382 84,750,807

Members’ capital $ 61,108,504 $ 35,741,866

Three Months Ended March 31,

Revenues $ 2,450,438 $ —

Operating expenses ( 816,681 ) —

Depreciation expense ( 690,831 ) $ —

Interest expense ( 1,085,561 ) $ —

Unrealized gains 235,511 $ —

Net income $ 92,876 $ —

For the three months ended March 31, 2022, the Company recorded equity income from the joint ventures of $ 0.1 million and received distributions from the joint ventures of $ 0.3 million.

There was no such equity income or loss recorded or distributions received for the three months ended March 31, 2021.

In connection with these investments, the Company paid origination fee to the Manager totaling $ 0.5 million, to be amortized to equity income over the life of the respective joint venture.

Real Estate Owned, Net

Real Estate Activities

2020 — In June 2020, the Company received a notice from a tenant occupying a portion of the office building that the Company acquired in July 2018 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.

2022 — For the three months ended March 31, 2022, the Company recorded an impairment charge of $ 1.6 million on the 4.9 acres of adjacent land located in Pennsylvania to reduce the carrying value of the land to its estimated fair value, which is based on the selling price in the Agreement of Sale.

The sale is expected to close in the second quarter of 2022.

As the asset satisfied all the requirements to be classified as held-for-sale, on March 31, 2022, the Company reclassified the land from Real estate owned to Assets held for sale on the consolidated balance sheets.

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

2 unchanged sentences

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.

In December 2021, the Company recorded an impairment charge of $ 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.

Notes to Unaudited Consolidated Financial Statements

2 unchanged sentences

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

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

Land $ 13,395,430 $ — $ 13,395,430 $ 13,395,430 $ — $ 13,395,430

$ — $ — $ — $ 10,000,000 $ — $ 10,000,000

Building and building

12 unchanged sentences

Total real estate $ 57,304,497 $ ( 12,676,921 ) $ 44,627,576 $ 67,304,497 $ ( 11,237,368 ) $ 56,067,129

_______________

(1) The land was reclassified as held-for-sale as of March 31, 2022.

Real Estate Operating Revenues and Expenses

The following table presents the components of real estate operating revenues and expenses that are included in the consolidated statements of operations:

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

2021 2020 2021 2020

Three Months Ended March 31,

Real estate operating revenues:

7 unchanged sentences

Management fees 67,868 61,325

Lease expense, including amortization of above-market

ground lease (1)

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

487,163 283,538

2 unchanged sentences

_______________

Notes to Unaudited Consolidated Financial Statements

(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

Notes to Unaudited Consolidated Financial Statements

values, the Company estimated the value of the land was no greater than the value on the date of foreclosure and continued to accrue and pay rent at the then-existing rate.

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

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

2 unchanged sentences

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

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

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

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.

Had the new base rent been recorded on November 1, 2020, lease expense including amortization of above-market ground lease would have been $ 0.5 million for the three months ended March 31, 2021 and total real estate operating expenses would have been $ 1.2 million for the three months ended March 31, 2021 .

As of March 31, 2022, the Company owned a multi-tenant office building that was leased to four tenants.

In addition, the office building is subject to 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 64.6 years as of March 31, 2022, 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.

The Company is currently litigating with the landlord with respect to the appropriate method for determining the fair value of the land for purposes of setting the ground rent – Terra Ocean Ave., LLC v.

Ocean Avenue Santa Monica Realty LLC, Superior Court of California, Los Angeles County, Case No.

The Company believes this determination should be based on comparable sales, while the landlord insists that the rent under the ground lease itself is also relevant.

The Company’s position has prevailed in all three of the prior arbitrations to reset the ground rent.

Since future rent reset determinations under the ground lease cannot be known at this time, the Company did not include any potential future rent increases in calculating the present value of future rent payments.

The Company intends vigorously to pursue the litigation.

While the Company believes its arguments will likely prevail, the outcome of the legal proceeding cannot be predicted with certainty.

If the landlord prevails, the future rent reset determinations could result in significantly higher ground rent, which would likely result in a significant diminution in the value of the Company’s interest in the ground lease and the office building.

Scheduled Future Minimum Rent Income

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

Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants, under non-cancelable operating leases at March 31, 2022 are as follows:

Years Ending December 31, Total

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

2022 7,504,551

2023 7,746,538

2022 (April 1 through December 31) $ 5,357,817

2023 4,235,538

4 unchanged sentences

Scheduled Annual Net Amortization of Intangibles

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

Based on the intangible assets and liabilities recorded at March 31, 2022, scheduled annual net amortization of intangibles for each of the next five calendar years and thereafter is as follows:

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

1 unchanged sentence

Decrease in Rent Expense (1)

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

2022 (April 1 through December 31) $ ( 680,178 ) $ 3,654,609 $ ( 97,761 ) $ 2,876,670

2023 ( 139,056 ) 1,093,878 ( 130,348 ) 824,474

2 unchanged sentences

2026 17,556 87,121 ( 130,348 ) ( 25,671 )

2027 7,315 36,300 ( 130,348 ) ( 86,733 )

Thereafter — — ( 7,668,824 ) ( 7,668,824 )

6 unchanged sentences

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Operating lease

Operating lease right-of-use assets (1)

$ 27,398,786 $ 16,105,888

Operating lease liabilities $ 27,398,786 $ 16,105,888

Operating lease right-of-use asset $ 27,391,012 $ 27,394,936

Operating lease liability $ 27,391,012 $ 27,394,936

Weighted average remaining lease term — operating lease (years) 64.6 64.8

Weighted average discount rate — operating lease 7.6 % 7.6 %

_______________

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

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Operating lease cost (1)

2 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

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

Nine Months Ended September 30,

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

Operating cash flows from operating leases $ 1,695,000 $ 948,375

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

Operating leases $ 1,695,000 $ 948,375

Maturities of operating lease liabilities are as follows:

Three Months Ended March 31,

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

Operating cash flows from an operating lease $ 519,750 $ 316,125

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

Operating lease $ 519,750 $ 316,125

Notes to Unaudited Consolidated Financial Statements

Maturities of operating lease liability are as follows:

Years Ending December 31, Operating Lease

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

2022 (April 1 through December 31) $ 1,559,250

2023 2,079,000

2 unchanged sentences

2026 2,079,000

2027 2,079,000

Thereafter 122,227,875

17 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

As of September 30, 2021 and December 31, 2020, the Company has not elected the fair value option for its financial instruments, including loans held for investment, loans held for investment acquired through participation, obligations under participation agreements, secured borrowing, term loan payable, mortgage loan payable and revolving line of credit.

As of March 31, 2022 and December 31, 2021, 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.

Notes to Unaudited Consolidated Financial Statements

Financial Instruments Carried at Fair Value on a Recurring Basis

2 unchanged sentences

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

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

September 30, 2021

The following tables present fair value measurements of marketable securities, by major class, as of March 31, 2022 and December 31, 2021, according to the fair value hierarchy:

March 31, 2022

Fair Value Measurements

10 unchanged sentences

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

Nine Months Ended September 30,

Three Months Ended March 31,

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

1 unchanged sentence

Proceeds from sale ( 628,715 ) —

Unsettled sale ( 123,223 ) —

Reclassification of net realized gains on marketable securities into earnings 51,133 —

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

Unrealized losses on marketable securities ( 99,044 ) ( 14,608 )

Ending balance $ 510,151 $ 6,251,980

2 unchanged sentences

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

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

Loans held for investment, net 3 $ 482,089,565 $ 484,782,215 $ 478,397,706 $ 419,924,758 $ 421,725,220 $ 415,113,225

Loans held for investment 3 $ 554,631,920 $ 558,790,473 $ 544,060,026 $ 467,843,785 $ 470,988,063 $ 454,840,551

Loans held for investment

acquired through

participation, net 3 — — — 4,250,000 4,294,053 4,293,969

participation 3 12,889,053 12,937,304 12,946,931 12,307,366 12,343,732 12,361,068

Allowance for loan losses — ( 13,708,777 ) — — ( 13,658,481 ) —

2 unchanged sentences

Unsecured notes payable 1 85,125,000 82,010,107 84,239,700 85,125,000 81,856,799 85,210,125

Repurchase agreement payable 3 176,519,149 173,698,002 176,519,149 44,569,600 43,974,608 44,569,600

Obligations under participation

5 unchanged sentences

Total liabilities $ 453,638,529 $ 448,176,646 $ 453,185,457 $ 370,566,055 $ 364,910,392 $ 370,793,089

The Company estimated that its other financial assets and liabilities, not included in the tables above, had fair values that approximated their carrying values at both September 30, 2021 and December 31, 2020 due to their short-term nature.

The Company estimated that its other financial assets and liabilities, not included in the tables above, had fair values that approximated their carrying values at both March 31, 2022 and December 31, 2021 due to their short-term nature.

Valuation Process for Fair Value Measurement

14 unchanged sentences

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.

Because there is no readily available

Notes to Unaudited Consolidated Financial Statements

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 September 30, 2021 and December 31, 2020.

The following table summarizes the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 loans as of March 31, 2022 and December 31, 2021.

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

Fair Value at March 31, 2022 Primary Valuation Technique Unobservable Inputs March 31, 2022

Asset Category Minimum Maximum Weighted Average

3 unchanged sentences

Total Level 3 Assets $ 557,006,957

Term loan payable $ 94,197,966 Discounted cash flow Discount rate 4.00 % 4.00 % 4.00 %

Repurchase agreement payable 176,519,149 Discounted cash flow Discount rate 1.90 % 3.12 % 2.54 %

Obligations under participation agreements 57,974,834 Discounted cash flow Discount rate 14.60 % 15.00 % 14.83 %

10 unchanged sentences

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

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

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

1 unchanged sentence

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

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

Total Level 3 Liabilities $ 285,582,964

1 unchanged sentence

Management Agreement

The Company entered into a Management Agreement with the Manager whereby the Manager is responsible for its day-to-day operations.

The Company entered into the 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:

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

2021 2020 2021 2020

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

that are included on the consolidated statements of operations:

Three Months Ended March 31,

Origination and extension fee expense (1)(2)

4 unchanged sentences

Disposition fee (3)

342,508 95,889 657,196 391,833

Total $ 4,452,352 $ 3,368,880

2 unchanged sentences

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

(2) Amount for the three months ended March 31, 2022 excluded $ 0.2 million of origination fee paid to the Manager in connection with the Company’s equity investment in an unconsolidated investment.

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

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

9 unchanged sentences

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

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

As of March 31, 2022 and December 31, 2021, the Company has not received any breakup fees.

Operating Expenses

5 unchanged sentences

Distributions Paid

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

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

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

For the three months ended March 31, 2022 and 2021, the Company made distributions to Terra JV and Terra Offshore REIT totaling $ 3.9 million and $ 3.9 million, respectively, of which $ 2.9 million and $ 2.4 million were returns of capital, respectively ( Note 10 ).

Due to Manager

As of September 30, 2021 and December 31, 2020, approximately $ 1.9 million and $ 1.3 million was due to the Manager, respectively, as reflected on the consolidated balance sheets, primarily related to the present value of the disposition fees on individual loans due to the Manager.

Merger and Issuance of Common Stock to Terra Offshore REIT

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 Terra JV pursuant to the JV Agreement.

As of March 31, 2022 and December 31, 2021, approximately $ 3.5 million and $ 2.4 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 March 31, 2022, there was no amount 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.

Mavik Real Estate Special Opportunities Fund, LP

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

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 4 .

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

8 unchanged sentences

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

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

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

The table below lists the participation interests purchased by the Company pursuant to participation agreements as of March 31, 2022 and December 31, 2021.

March 31, 2022

Participating Interests Principal Balance Carrying Value

Hillsborough Owners LLC (1)

30.00 % $ 5,444,696 $ 5,458,850

UNJ Sole Member, LLC (2)

40.80 % 7,444,357 7,478,454

$ 12,889,053 $ 12,937,304

December 31, 2021

Participating Interests Principal Balance Carrying Value

LD Milpitas Mezz, LP (1)

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

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

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

This loan was repaid in full in May 2021.

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

________________

(1) The loan is held in the name of Terra Income Fund 6, Inc., an affiliated fund advised by Terra Income Advisors, LLC, an affiliate of the Company’s sponsor and Manager.

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

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 September 30, 2021 and December 31, 2020:

The following tables summarize the loans that were subject to participation agreements with affiliated entities and third-parties as of March 31, 2022 and December 31, 2021:

Transfers Treated as Obligations Under Participation Agreements as of

September 30, 2021

March 31, 2022

Principal Balance Carrying Value % Transferred Principal Balance Carrying Value

14th & Alice Street Owner, LLC (1)

$ 38,871,218 $ 39,110,871 80.00 % $ 31,096,974 $ 31,237,324

370 Lex Part Deux, LLC (1)

$ 60,583,057 $ 60,583,057 35.00 % $ 21,204,070 $ 21,204,068

BW Property Owner LLC and BW 2

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

Post Brothers Holdings LLC (1)

21,000,000 21,670,442 71.43 % 15,000,000 15,478,888

1 unchanged sentence

16,933,491 17,099,374 50.00 % 8,469,911 8,552,884

Shopoff & Cindy I.

25,000,000 25,214,933 52.95 % 13,237,500 13,351,308

$ 123,516,548 $ 124,567,806 $ 57,911,481 $ 58,587,148

Transfers Treated as Obligations Under Participation Agreements as of

1 unchanged sentence

Principal Balance Carrying Value % Transferred Principal Balance Carrying Value

14th & Alice Street Owner, LLC (1)

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

370 Lex Part Deux, LLC (1)

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

City Gardens 333 LLC (2)

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

Orange Grove Property Investors, LLC (2)(4)

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

RS JZ Driggs, LLC (1)

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

Stonewall Station Mezz LLC (2)(4)

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

The Bristol at Southport, LLC (1)(4)

Shopoff & Cindy I.

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

1 unchanged sentence

________________

(1) Participant is a third-party.

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

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

(4) The obligation under participation agreement was repaid in 2021.

(1) Participant is Terra Income Fund 6, Inc.

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.

, 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).

5 unchanged sentences

Interest earned on the entire loan balance is recorded within “ Interest income ” and the interest related to the transferred interest is recorded within “ Interest expense on secured borrowing ” in the consolidated statements of operations.

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

Transfers Treated as Secured Borrowing as of September 30, 2021

The following table summarizes the loan that was transferred to a third-party that was accounted for as secured borrowing as of March 31, 2022 and December 31, 2021:

Transfers Treated as Secured Borrowing as of March 31, 2022

Principal Balance Carrying Value % Transferred Principal Balance Carrying Value

15 unchanged sentences

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

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

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

September 30, 2021

As of March 31, 2022 and 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 March 31, 2022 and December 31, 2021:

March 31, 2022 December 31, 2021

Principal Balance Carrying Value (1)

Fair Value Principal Balance Carrying Value (1)

Unsecured notes payable $ 85,125,000 $ 82,010,107 $ 84,239,700 $ 85,125,000 $ 81,856,799 $ 85,210,125

_______________

(1) Amount is net of unamortized issue discount of $ 2.5 million and unamortized deferred financing costs of $ 0.9 million.

(1) Amount is net of unamortized issue discount of $ 2.3 million and $ 2.4 million, and unamortized deferred financing costs of $ 0.8 million and $ 0.9 million as of March 31, 2022 and December 31, 2021, respectively.

Revolving Line of Credit

1 unchanged sentence

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

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

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 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.

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

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

As of March 31, 2022 and December 31, 2021, the Company was in compliance with these covenants.

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

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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 September 30, 2021:

September 30, 2021

The following tables present detailed information with respect to each borrowing under the Revolving Line of Credit as of March 31, 2022 and December 31, 2021 :

March 31, 2022

Borrowing Base Borrowings Under the Revolving Line of Credit

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870 Santa Cruz, LLC $ 19,760,033 $ 19,934,619 $ 19,993,943 $ 13,832,023

606 Fayetteville LLC and 401 E.

Lakewood LLC 17,536,492 17,663,959 17,690,666 10,521,896

AAESUF Property LLC 16,800,000 16,849,956 17,456,207 9,240,000

AARSHW Property LLC 18,771,608 18,541,648 18,911,932 13,156,108

Borrower LLC 13,695,947 13,824,587 13,832,906 8,172,000

D-G Acquistion #6, LLC and D-G Quimisa, LLC 8,846,216 8,854,524 8,886,221 6,192,351

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

The Lux Washington, LLC 7,424,855 7,376,668 7,489,172 3,839,171

$ 102,835,151 $ 103,045,961 $ 104,261,047 $ 64,953,549

For the nine months ended September 30, 2021, the Company received proceeds from the Revolving Line of Credit of $ 25.3 million and did not make any repayments.

On September 3, 2020, Terra Mortgage Capital I, LLC (the “Issuer” or the “Seller”), a special-purpose indirect wholly-owned subsidiary of the Company, entered into an Indenture and Credit Agreement (the “Indenture and Credit Agreement”)

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 due to Goldman under the Indenture and Credit Agreement.

In addition, pursuant to the terms and conditions of the Indenture and Credit Agreement, Goldman has agreed to provide $ 3.6 million of additional future advances (the “Committed Advances”), and may provide up to $ 11.6 million of additional future discretionary advances, in connection with certain outstanding funding commitments under mortgage assets owned by the Issuer and financed under the Indenture and Credit Agreement (the “Mortgage Assets”).

The stated maturity date of the Debt is March 14, 2025 .

The Term Loan bears interest at a variable rate initially equal to LIBOR (the “Benchmark Rate”) (but not less than 1.0 % per annum), plus a margin of 4.25 % per annum (plus 0.50 % on and after the payment date in October 2022, plus 0.25 % on and after the payment date in October 2023), payable each month, on the day specified in the Indenture and Credit Agreement beginning in September 2020 (each a “Payment Date”).

The Benchmark Rate will convert to an alternate index rate following the occurrence of certain transition events (the “Alternate Benchmark Rate”).

Except as described below, and provided there is no default under the Indenture and Credit Agreement, the Class B Notes are entitled to residual amounts collected by the Issuer in respect of Mortgage Assets, after payment of debt service on the Term Loan.

The 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.

December 31, 2021

Borrowing Base Borrowings Under the Revolving Line of Credit

Principal Amount Carrying Value Fair

870 Santa Cruz, LLC $ 17,540,875 $ 17,669,303 $ 17,781,285 $ 12,278,613

606 Fayetteville LLC and 401 E.

Lakewood LLC 16,829,962 16,935,803 16,974,601 10,312,187

Borrower LLC 13,625,000 13,725,690 13,735,569 7,493,750

D-G Acquistion #6, LLC and D-G Quimisa, LLC 8,607,092 8,605,341 8,645,413 6,024,965

The Lux Washington, LLC 3,523,401 3,382,683 3,553,330 2,466,380

$ 60,126,330 $ 60,318,820 $ 60,690,198 $ 38,575,895

For the three months ended March 31, 2022 and 2021, the Company received proceeds from the Revolving Line of Credit of $ 26.4 million and $ 8.0 million, respectively, and did not make any repayments.

On September 3, 2020, Terra Mortgage Capital I, LLC (the “Issuer”), 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 provided 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 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 “ Goldman Master Repurchase Agreement ” below).

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 Company accounted for the step-up in interest rate using the effective interest rate method.

In connection with the refinancing, the Company reversed the previously accrued step-up interest of $ 0.4 million.

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 guaranteed 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 guaranteed the payment of the aggregate outstanding amount of the Term Loan upon the occurrence of certain bankruptcy events.

Under the Guaranty, the Company was 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.

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

The Term Loan is secured by first-priority security interests in substantially all of the assets of the Issuer, including all of the Mortgage Assets (other than excluded property and subject to certain permitted liens), including specified cash accounts that include the accounts into which Mortgage Asset proceeds are or will be paid.

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

The Class B Notes and the Term Loan are redeemable by the Issuer upon the occurrence of certain tax events in accordance with the terms and provisions of the Indenture and Credit Agreement.

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

September 30, 2021

On February 18, 2022, the Company refinanced the Term Loan with a new repurchase agreement and expects continued covenant compliance under the terms of the new repurchase agreement.

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

December 31, 2021

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

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$ 163,127,047 $ 164,142,316 $ 162,526,736 $ 93,763,470

For the three months ended March 31, 2022 and 2021, the Company made repayments on the Term Loan of $ 93.8 million and $ 2.6 million, respectively, and received proceeds from borrowings under the Term Loan of $ 0 and $ 1.5 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 or Term SOFR if LIBOR is not available and (ii) the applicable spread, which ranges from 1.60 % to 2.25 %, and have a maturity date of November 7, 2024 .

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

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

In connection with the UBS Master Repurchase Agreement, the Company incurred deferred financing costs of $ 0.6 million, which are being amortized to interest expense over the term of the facility.

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

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

In connection with the UBS Master Repurchase Agreement, the Company entered into a Guarantee Agreement in favor of the Buyer (the “UBS Guarantee Agreement”), pursuant to which the Company will guarantee the payment of up to 25 % of the amount outstanding under the UBS Master Repurchase 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 UBS Master Repurchase Agreement;

(ii) total liquidity of at least the greater of $ 15 million or 10 % of the then-current outstanding amount under the UBS 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 as of March 31, 2022 and 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 March 31, 2022 and December 31, 2021:

March 31, 2022

Collateral Borrowings Under Master Repurchase Agreement

Principal Amount Carrying Value Fair

Value Borrowing Date Principal Amount Interest

14th & Alice Street Owner, LLC $ 39,468,000 $ 40,197,784 $ 40,222,586 11/8/2021 $ 25,599,600 LIBOR+1.45% (LIBOR floor of 0.1%)

NB Factory TIC 1, LLC 28,000,000 28,529,857 28,861,172 11/8/2021 18,970,000 LIBOR+1.74% (LIBOR floor of 0.1%)

Grandview’s Madison Place, LLC 17,000,000 17,111,299 17,111,299 3/7/2022 13,600,000 Term SOFR + 1.965%

$ 84,468,000 $ 85,838,940 $ 86,195,057 $ 58,169,600

December 31, 2021

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

Collateral Borrowings Under Master Repurchase Agreement

Principal Amount Carrying Value Fair

330 Tryon DE LLC $ 22,800,000 $ 22,901,294 $ 22,869,879 $ 13,680,000

1389 Peachtree St, LP;

Value Borrowing Date Principal Amount Interest

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 three months ended March 31, 2022, the Company borrowed $ 13.6 million under the UBS Master Repurchase Agreement for the financing of a new investment, and did not make any repayments.

Goldman Master Repurchase Agreement

On February 18, 2022, Terra Mortgage Capital I, LLC (the “GS 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 “GS 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 GS Seller may extend the maturity date of the Repurchase Agreement for another 12-month term.

In connection with the Repurchase Agreement, the Company incurred financing costs of $ 0.6 million, which are being amortized to interest expense over the term of the facility.

Additionally, because the Repurchase Agreement was accounted for as a loan modification of the Term Loan, the remaining unamortized deferred financing fees of $ 1.7 million under the Term Loan were carried over to the Repurchase Agreement to be amortized over the life of the Repurchase Agreement.

The Repurchase Agreement contains margin call provisions that provide the GS 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 GS Buyer may require the GS 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 GS Buyer (the “Guarantee Agreement”), pursuant to which the Company will guarantee the obligations of the GS 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 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.

as of March 31, 2022, the Company was in compliance with these covenants.

The following table presents detailed information with respect to each borrowing under the Repurchase Agreement as of March 31, 2022:

March 31, 2022

Collateral Borrowings Under Repurchase Agreement

Principal Amount Carrying Value Fair

Value Borrowing Date Principal Amount Interest

330 Tryon DE LLC $ 22,800,000 $ 22,903,651 $ 22,638,331 2/18/2022 $ 18,240,000 Term SOFR +2.015% (0.10% floor)

1389 Peachtree St, LP;

1401 Peachtree St, LP;

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

1409 Peachtree St, LP 53,970,491 54,221,854 53,083,178 2/18/2022 40,285,866 Term SOFR + 2.465%

AGRE DCP Palm Springs, LLC 43,222,381 43,696,133 43,738,712 2/18/2022 28,094,548 Term SOFR + 1.315% (1.80% floor)

Patrick Henry Recovery Acquisition, LLC 18,000,000 18,041,590 18,049,540 2/18/2022 14,400,000 Term SOFR +0.865% (1.50% floor)

University Park Berkeley, LLC 25,815,378 25,995,342 26,008,381 2/18/2022 17,329,135 Term SOFR + 1.365% (1.50% floor)

$ 163,808,250 $ 164,858,570 $ 163,518,142 $ 118,349,549

(1) Borrowings under the Term Loan bear interest at LIBOR plus 4.25 % with a LIBOR floor of 1.00 %, or 5.25 % as of both September 30, 2021 and December 31, 2020, using LIBOR of 0.08 % and 0.14 %, respectively.

(2) The maturity of the Term Loan is March 14, 2025 , however the maturity of each borrowing under the Term Loan matches the maturity of the respective Mortgage Asset.

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

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

Repurchase Agreement

On December 12, 2018, Terra Mortgage Capital I, LLC entered into an Uncommitted Master Repurchase Agreement (the “Master Repurchase Agreement”) with Goldman Sachs Bank USA.

The Master Repurchase Agreement provided for advances of up to $ 150.0 million in the aggregate, which the Company used to finance certain secured performing commercial real estate loans.

Advances under the Master Repurchase Agreement accrued interest at a per annum pricing rate equal to the sum of (i) the 30-day LIBOR and (ii) the applicable spread, and had a maturity date of December 12, 2020 .

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

The Master Repurchase Agreement contained margin call provisions that provide Goldman with certain rights in the event of a decline in the market value of the assets purchased under the Master Repurchase Agreement.

Upon the occurrence of a margin deficit event, Goldman required the Seller to make a payment to reduce the outstanding obligation to eliminate any margin deficit.

For the period from January 1, 2020 to the date of the termination of the Master Repurchase Agreement on September 3, 2020, the Company received a margin call on one of the borrowings and as a result, made a repayment of $ 3.4 million to reduce the outstanding obligation under the Master Repurchase Agreement.

In connection with the Master Repurchase Agreement, the Company entered into a Guarantee Agreement in favor of Goldman (the “Guarantee Agreement”), pursuant to which the Company would guarantee the obligations of the Seller under the Master Repurchase Agreement.

Subject to certain exceptions, the maximum liability under the Master Repurchase Agreement would not exceed 50 % of the then currently outstanding repurchase obligations under the Master Repurchase Agreement.

On September 3, 2020, the Company terminated the Master Repurchase Agreement and replaced it with the Term Loan as described above.

In connection with the termination of the Master Repurchase Agreement, the Issuer repurchased all of its assets sold to Goldman pursuant to the Master Repurchase Agreement with the proceeds from the Term Loan, and Goldman released all security interests in such assets.

In addition, Goldman unconditionally released the Company from, and terminated, the Guarantee Agreement in favor of Goldman, dated as of December 12, 2018, which provided for the guarantee by the Company of the obligations of the Issuer under the Master Repurchase Agreement, subject to certain exceptions and limitations.

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

Revolving Credit Facility

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

For the three months ended March 31, 2022, the Company borrowed $ 118.3 million under the Repurchase Agreement and did not make any repayments.

Mortgage Loan Payable

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

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

September 30, 2021 December 31, 2020

As of March 31, 2022, the Company had a $ 31.8 million mortgage loan payable collateralized by a multi-tenant office building that the Company acquired through foreclosure.

The following table presents certain information about the mortgage loan payable as of March 31, 2022 and December 31, 2021:

March 31, 2022 December 31, 2021

Lender Current

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Scheduled Debt Principal Payments

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

Scheduled debt principal payments for each of the five calendar years following March 31, 2022 are as follows:

Years Ending December 31, Total

2021 (October 1 through December 31) 201,883

2022 31,962,692

2022 (April 1 to December 31) $ 31,757,725

2024 241,472,698

2026 85,125,000

Thereafter 85,125,000

Unamortized deferred financing costs ( 6,269,467 )

Total $ 352,085,956

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

At March 31, 2022 and December 31, 2021, the unamortized deferred debt issuance costs were $ 6.3 million and $ 5.9 million, respectively.

Obligations Under Participation Agreements and Secured Borrowing

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

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

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

The weighted-average interest rate on the obligations under participation agreements and secured borrowing was approximately 11.3 % and 10.2 % as of September 30, 2021 and December 31, 2020, respectively.

As of March 31, 2022 and December 31, 2021, obligations under participation agreements had a carrying value of approximately $ 58.6 million and $ 42.2 million, respectively, and the carrying value of the loans that are associated with these obligations under participation agreements was approximately $ 124.6 million and $ 101.0 million, respectively, (see “ Participation Agreements ” in Note 7 ).

Additionally, as of March 31, 2022 and December 31, 2021, secured borrowing had a carrying value of approximately $ 37.5 million and $ 34.6 million, and the carrying value of the loan that is associated with the secured borrowing was $ 54.4 million and $ 50.3 million, respectively.

The weighted-average interest rate on the obligations under participation agreements and secured borrowing was approximately 11.1 % and 10.4 % as of March 31, 2022 and December 31, 2021, respectively.

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 September 30, 2021, no contingencies have been recorded on the Company’s consolidated balance sheet as a result of the COVID-19 pandemic, however as the pandemic continues, it may have long-term impacts on the Company’s financial condition, results of operations, and cash flows.

While the impact of the COVID-19 pandemic on the global economy generally, and the Company’s business in particular, continues to evolve, as of March 31, 2022, no contingencies have been recorded on the Company’s consolidated balance sheet as a result of the COVID-19 pandemic.

As the pandemic continues, it may have long-term impacts on the Company’s financial condition, results of operations, and cash flows.

Refer to Note 2 for further discussion of COVID-19.

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Certain of the Company’s loans contain provisions for future fundings, which are subject to the borrower meeting certain performance-related metrics that are monitored by the Company.

These fundings amounted to approximately $ 80.7 million and $ 67.9 million as of September 30, 2021 and December 31, 2020, respectively.

The Company expects to maintain sufficient cash on hand to fund such unfunded commitments, primarily through matching these commitments with principal repayments on outstanding loans.

These fundings amounted to approximately $ 101.2 million and $ 71.8 million as of March 31, 2022 and December 31, 2021, respectively.

The Company expects to maintain sufficient cash on hand to fund such commitments through matching these commitments with principal repayments on outstanding loans or draw downs on credit facilities.

Unfunded Investment Commitment

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

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

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

As discussed in Note 4 , 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 March 31, 2022 and December 31, 2021, the unfunded investment commitment was $ 16.4 million and $ 15.1 million, respectively.

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

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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.

From time to time, the Company and the Manager 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.

Additionally, as described above under “ Note 5 .

Real Estate Owned, Net—Real Estate Operating Revenue and Expenses,” as of March 31, 2022, the Company owned a multi-tenant office building that is subject to a ground lease.

The ground lease 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.

Ocean Avenue Santa Monica Realty LLC, Superior Court of California, Los Angeles County, Case No.

The Company believes this determination should be based on comparable sales, while the landlord insists that the rent under the ground lease itself is also relevant.

The Company’s position has prevailed in all three of the prior arbitrations to reset the ground rent.

The Company intends vigorously to pursue the litigation.

While the Company believes its arguments will likely prevail, the outcome of the legal proceeding cannot be predicted with certainty.

If the landlord

prevails, the future rent reset determinations could result in significantly higher ground rent, which would likely result in a significant diminution in the value of the Company’s interest in the ground lease and the office building.

See Note 7 for a discussion of the Company’s commitments to the Manager.

Earnings Per Share

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

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

2021 2020 2021 2020

The following table presents earnings per share for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

Net (loss) income $ ( 757,887 ) $ 1,476,096

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Net (loss) income allocable to common stock $ ( 761,793 ) $ 1,472,190

Weighted-average shares outstanding - basic

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

Weighted-average shares outstanding - basic and diluted 19,487,460 19,487,460

(Loss) earnings per share - basic and diluted $ ( 0.04 ) $ 0.08

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

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

As of March 31, 2022 and December 31, 2021, there were no Preferred Stock issued or outstanding.

Series A Preferred Stock

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and (iii) any reclassification of the Series A Preferred 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.

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 7 ).

As of March 31, 2022, 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.

As of March 31, 2022, Terra Fund 5 and Terra Secured Income Fund 7, LLC (“Terra Fund 7”) owned an 87.6 % and 12.4 % interest in Terra JV, respectively, and Terra Secured Income Fund 5 International and Terra Income Fund International owned a 51.6 % and 48.4 % interest in Terra Offshore REIT, respectively.

Distributions

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

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

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 three months ended March 31, 2022 and 2021, the Company made distributions to Terra JV and Terra Offshore REIT totaling $ 3.9 million and $ 3.9 million, of which $ 2.9 million and $ 2.4 million were returns of capital, respectively.

Additionally, for each of the three months ended March 31, 2022 and 2021, the Company made distributions to preferred stockholders of $ 3,906 .

Subsequent Events

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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.

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.

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”).

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.

On May 2, 2022, the Company, Terra Income Fund 6, Inc.

(“Terra BDC”), Terra Merger Sub, LLC, a wholly owned subsidiary of the Company (“Merger Sub”), Terra Income Advisors, LLC and the Manager, entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which, subject to the terms and conditions therein, Terra BDC will be merged with and into Merger Sub, with Merger Sub surviving as a wholly owned subsidiary of the Company (such surviving company, the “Surviving Company” and such transaction, the “Merger”).

Pursuant to the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), except for any shares of common stock, par value $ 0.001 per share, of Terra BDC (“Terra BDC Common Stock”) held by the Company or any wholly owned subsidiary of the Company or Terra BDC, which will be automatically retired and cease to exist with no consideration paid therefor, each issued and outstanding share of Terra BDC Common Stock will be automatically cancelled and retired and converted into the right to receive (i) 0.595 shares (as such number may be adjusted in accordance with the Merger Agreement, the “Exchange Ratio”) of the newly designated Class B Common Stock, par value $ 0.01 per share, of the Company (“Class B Common Stock”), and (ii) cash, without interest, in lieu of any fractional shares of Class B Common Stock otherwise issuable in an amount, rounded to the nearest whole cent, determined by multiplying (x) the fraction of a share of Class B Common to which such holder would otherwise be entitled by (y) $ 14.38 .

Prior to the Effective Time, the Company will file with the State Department of Assessments and Taxation of Maryland Articles of Amendment to the Articles of Amendment and Restatement of the Company (the “Charter Amendment”).

Pursuant to the Charter Amendment, (i) the authorized shares of stock which the Company has authority to issue will be increased from 500,000,000 to 950,000,000 , consisting of 450,000,000 shares of Class A Common Stock, $ 0.01 par value per share (“Class A Common Stock”), 450,000,000 shares of Class B Common Stock, and 50,000,000 shares of Preferred Stock, $ 0.01 par value per share, and (ii) each share of the Company’s common stock issued and outstanding immediately prior to the Effective Time will be automatically changed into one issued and outstanding share of Class B Common Stock.

Except with respect to conversion, each share of Class B Common Stock will have identical preferences, rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption as each other share of the Company’s common stock.

On the date that is 180 calendar days (or, if such date is not a business day, the next business day) after the date of initial listing of shares of Class A Common Stock for trading on a national securities exchange or such earlier date as approved by the Board (the “First Conversion Date”), one-third of the issued and outstanding shares of Class B Common Stock will automatically and without any action on the part of the holder thereof convert into an equal number of shares of Class A Common Stock.

On the date that is 365 calendar days (or, if such date is not a business day, the next business day) after the date of initial listing of shares of Class A Common Stock for trading on a national securities exchange or such earlier date following the First Conversion Date as approved by the Board (the “Second Conversion Date”), one-half of the issued and outstanding shares of Class B Common Stock will automatically and without any action on the part of the holder thereof convert into an equal number of shares of Class A Common Stock.

On the date that is 545 calendar days (or, if such date is not a business day, the next business day) after the date of initial listing of shares of Class A Common Stock for trading on a national securities exchange or such earlier date following the Second Conversion Date as approved by the Board, all of the issued and outstanding shares of Class B Common Stock will automatically and without any action on the part of the holder thereof convert into an equal number of shares of Class A Common Stock.

Pursuant to the Merger Agreement, the Company has agreed to take all necessary corporate action so that upon and after the Effective Time, the size of the Board is increased from three to six, and three individuals designated by Terra BDC (the “Terra BDC Designees”) are elected to the Board.

If a Terra BDC Designee is not able or willing to serve on the Board as of the Effective Time, Terra BDC will select a replacement within a reasonable period of time prior to the Effective Time, and the Board will elect such replacement as a member of the Board as of the Effective Time.

The Merger is expected to close during the third quarter of 2022, subject to the required approvals by Terra BDC’s stockholders and other customary closing conditions.

There can be no assurances that the Merger will close.

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

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

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

• the availability of attractive risk-adjusted investment opportunities in our target asset class and other real estate-related investments that satisfy our objectives and strategies;

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Terra Income Fund 6, Inc.

(“Terra Fund 6”);

(“Terra Fund 6” or “Terra BDC”);

Terra Secured Income Fund 5 International;

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Terra Secured Income Fund 7, LLC (“Terra Fund 7”);

Terra International Fund 3, L.P.

(“Terra International 3”);

Terra Offshore Funds REIT, LLC (“Terra Offshore REIT”);

Mavik Real Estate Special Opportunities Fund, LP (“Mavik RESOF”) (formerly known as Terra Real Estate Credit Opportunities Fund, LP);

Mavik Real Estate Special Opportunities Fund, LP (“RESOF”);

or any of their affiliates;

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

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

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

• our ability to complete the contemplated acquisition of Terra BDC and achieve the expected synergies, cost savings and other benefits from the acquisition of Terra BDC;

• risks associated with achieving expected synergies, cost savings and other benefits from acquisitions, including the contemplated acquisition of Terra BDC, and our increased scale;

• actions and initiatives of the U.S.

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• changes in the economy;

• risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters;

• risks associated with possible disruption in our operations or the economy generally due to acts of war or other military conflicts (including the recent outbreak of hostilities between Russia and Ukraine), terrorism or natural disasters;

• future changes in laws or regulations and conditions in our operating areas.

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Stockholders are advised to consult any additional disclosures that we may make directly to stockholders or through reports that we may file in the future with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

We are a real estate credit focused company that originates, structures, funds and manages high yielding commercial real estate credit investments, including mezzanine loans, first mortgage loans, subordinated mortgage loans and preferred equity investments throughout the United States, which we collectively refer to as our targeted assets.

We are a real estate credit focused company that originates, structures, funds and manages commercial real estate credit investments, including mezzanine loans, first mortgage loans, subordinated mortgage loans and preferred equity investments throughout the United States, which we collectively refer to as our targeted assets.

Our loans finance the acquisition, construction, development or redevelopment of quality commercial real estate in the United States.

We focus on the origination of middle market loans in the approximately $10 million to $50 million range, to finance properties primarily in primary and secondary markets.

We believe loans of this size are subject to less competition, offer higher risk adjusted returns than larger loans with similar risk metrics and facilitate portfolio diversification.

Our objective is to continue to provide attractive risk-adjusted returns to our stockholders, primarily through regular distributions.

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

As of September 30, 2021, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 19 loans in ten states with an aggregate net principal balance of $345.0 million, a weighted average coupon rate of 7.4%, a weighted average loan-to-value ratio of 74.1% and a weighted average remaining term to maturity of 1.4 years.

We believe loans in this size range are subject to less competition, offer higher risk adjusted returns than larger loans with similar risk metrics and facilitate portfolio diversification.

Our investment objective is to provide attractive risk-adjusted returns to our stockholders, primarily through regular distributions.

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

As of March 31, 2022, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 25 loans in 11 states with an aggregate net principal balance of $472.2 million, a weighted average

coupon rate of 7.6%, a weighted average loan-to-value ratio of 72.4% and a weighted average remaining term to maturity of 1.5 years.

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

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

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

offices and mixed-use properties.

Our portfolio is diversified based on location of the underlying properties, loan structure and property type.

As of March 31, 2022, our portfolio included underlying properties located in 25 markets, across 11 states and includes property types such as multifamily housing, hotels, student housing, commercial offices, medical offices, mixed-use and industrial properties.

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

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

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

We were incorporated under the general corporation laws of the State of Maryland on December 31, 2015.

Through December 31, 2015, our business was conducted through a series of predecessor private partnerships.

At the beginning of 2016, we completed the merger of these private partnerships into a single entity as part of our plan to reorganize our business as a REIT for federal income tax purposes (the “REIT formation transaction”).

At the beginning of 2016, we completed the merger of these private partnerships into a single entity as part of our plan to reorganize our business as a REIT for federal income tax purposes.

Following the REIT formation transaction, Terra Fund 5 contributed the consolidated portfolio of net assets of the Terra Funds to our company in exchange for all of the shares of our common stock.

On March 1, 2020, Terra Property Trust 2, Inc.

(“Terra Property Trust 2”) merged with and into our company and we continued as the surviving corporation (the “Merger”).

In connection with the Merger, we issued 2,116,785.76 shares of our common stock to Terra Fund 7, the sole stockholder of Terra Property Trust 2, in exchange for the settlement of $17.7 million of participation interests in loans held by us, cash of $16.9 million and other working capital.

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

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

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

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

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

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

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

We may pursue such a liquidity transaction as early as 2022, but we cannot provide any assurance that any alternative liquidity transaction will be available to us or, if available, that we will pursue or be successful in completing any such alternative liquidity transaction.

On March 2, 2020, we engaged in a series of transactions pursuant to which we issued an aggregate of 4,574,470.35 shares of common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans held by us, cash of $25.5 million and other working capital.

As of March 31, 2022, Terra JV held 87.4% of the issued and outstanding shares of our common stock with the remainder held by Terra Offshore REIT.

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

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Recent Developments

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

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

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

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

Terra BDC Merger

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

On May 2, 2022, we, Terra BDC, Terra Merger Sub, LLC, our wholly owned subsidiary (“Merger Sub”), Terra Income Advisors, LLC and the Manager, entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which, subject to the terms and conditions therein, Terra BDC will be merged with and into Merger Sub, with Merger Sub surviving as our wholly owned subsidiary (such surviving company, the “Surviving Company” and such transaction, the “Merger”).

Pursuant to the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), except for any shares of common stock, par value $0.001 per share, of Terra BDC (“Terra BDC Common Stock”) held by us or any of our wholly owned subsidiary or Terra BDC, which will be automatically retired and cease to exist with no consideration paid therefor, each issued and outstanding share of Terra BDC Common Stock will be automatically cancelled and retired and converted into the right to receive (i) 0.595 shares (as such number may be adjusted in accordance with the Merger Agreement, the “Exchange Ratio”) of our newly designated Class B Common Stock, par value $0.01 per share (“Class B Common Stock”), and (ii) cash, without interest, in lieu of any fractional shares of Class B Common Stock otherwise issuable in an amount, rounded to the nearest whole cent, determined by multiplying (x) the fraction of a share of Class B Common to which such holder would otherwise be entitled by (y) $14.38.

Prior to the Effective Time, we will file with the State Department of Assessments and Taxation of Maryland our Articles of Amendment to the Articles of Amendment and Restatement (the “Charter Amendment”).

Pursuant to the Charter Amendment, (i) the authorized shares of stock which we have authority to issue will be increased from 500,000,000 to 950,000,000, consisting of 450,000,000 shares of Class A Common Stock, $0.01 par value per share (“Class A Common Stock”), 450,000,000 shares of Class B Common Stock, and 50,000,000 shares of Preferred Stock, $0.01 par value per share, and (ii) each share of our common stock issued and outstanding immediately prior to the Effective Time will be automatically changed into one issued and outstanding share of Class B Common Stock.

Except with respect to the conversion, each share of Class B Common Stock will have identical preferences, rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption

as each other share of our common stock.

Pursuant to the Merger Agreement, we have agreed to take all necessary corporate action so that upon and after the Effective Time, the size of the Board is increased from three to six, and three individuals designated by Terra BDC (the “Terra BDC Designees”) are elected to the Board.

The Merger is expected to close during the third quarter of 2022, subject to the required approvals by Terra BDC’s stockholders and other customary closing conditions.

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

COVID-19 Pandemic

The COVID-19 pandemic has evolved from its emergence in early 2020, so has its global impact.

Governments and businesses have also instituted vaccine mandates and testing requirements for employees.

While vaccine availability and uptake has increased, the longer-term macro-economic effects on global supply chains, inflation, labor shortages and wage increases continue to impact many industries, including the collateral underlying certain of our loans.

Moreover, with the potential for new strains of COVID-19 to emerge, governments and businesses may re-impose aggressive measures, such as quarantines and restrictions on travel, to help slow its spread in the future.

For this reason, among others, as the COVID-19 pandemic continues, the potential global impacts are uncertain and difficult to assess.

Portfolio Summary

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

September 30, 2021

The following tables provide a summary of our net loan portfolio as of March 31, 2022 and December 31, 2021:

March 31, 2022

Fixed Rate Floating

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_______________

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

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

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

As of September 30, 2021, amounts also included $42.2 million of senior mortgages used as collateral for $25.3 million of borrowings under a revolving line of credit.

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

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

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

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

The land and building and related lease intangible assets and liabilities had a net carrying value of $60.5 million and $62.9 million as of September 30, 2021 and December 31, 2020, respectively.

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

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

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

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

Coupon rate shown was determined using LIBOR of 0.45% and SOFR of 0.16% as of March 31, 2022 and LIBOR of 0.10% as of December 31, 2021.

(2) As of March 31, 2022 and December 31, 2021, amount included $351.1 million and $290.6 million of senior mortgages used as collateral for $241.5 million and $176.9 million of borrowings under credit facilities, respectively.

(3) As of March 31, 2022 and December 31, 2021, sixteen and thirteen of these loans, respectively, are subject to a LIBOR or SOFR floor, as applicable.

In addition to our net loan portfolio, as of March 31, 2022 and December 31, 2021, we owned 4.9 acres of adjacent land acquired pursuant to a deed in lieu of foreclosure and a multi-tenant office building acquired pursuant to a foreclosure.

The land and building and related lease intangible assets and liabilities had a net carrying value of $53.0 million and $56.1 million as of March 31, 2022 and December 31, 2021, respectively.

The mortgage loan payable encumbering the office building had an outstanding principal amount of $31.8 million and $32.0 million as of March 31, 2022 and December 31, 2021, respectively.

Additionally, as of March 31, 2022 and December 31, 2021, we owned 44.2% and 50.0%, respectively, of equity interest in a limited partnership that invests primarily in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets.

During 2022 and 2021, we purchased equity interests in three joint ventures.

As of March 31, 2022 and December 31, 2021, these equity interests had total carrying value of $91.7 million and $69.7 million, respectively.

Portfolio Investment Activity

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

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

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

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

For the three months ended March 31, 2022 and 2021, we invested $26.0 million and $15.5 million in new and add-on investments and had $1.4 million and $25.0 million of repayments, resulting in net investments of $24.6 million and net repayments of $9.5 million, respectively.

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

Net Loan Portfolio Information

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Loan Structure Principal Balance Carrying

4 unchanged sentences

Mezzanine loans 17,444,357 17,615,889 3.8 % 17,444,357 17,622,804 4.5 %

Credit facility 17,762,500 18,055,179 3.9 % 11,762,500 11,859,876 3.0 %

Allowance for loan losses — (13,708,777) (3.0) % — (13,658,481) (3.5) %

Total $ 472,237,867 $ 461,928,310 100.0 % $ 403,581,753 $ 392,855,158 100.0 %

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Property Type Principal Balance Carrying

2 unchanged sentences

Office $ 170,616,825 $ 171,393,890 37.2 % $ 166,071,342 $ 166,836,320 42.5 %

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

Multifamily 96,746,958 98,042,469 21.2 % 72,999,417 73,955,240 18.8 %

Hotel - full/select service 56,918,328 57,520,720 12.5 % 56,847,381 57,395,682 14.6 %

Industrial 54,334,108 54,255,229 11.7 % 18,762,500 18,859,876 4.8 %

Infill land 33,807,563 33,895,151 7.3 % 28,960,455 28,923,827 7.4 %

1 unchanged sentence

Mixed use 28,814,085 28,862,336 6.2 % 28,940,658 28,977,024 7.4 %

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

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

Allowance for loan losses — (13,708,777) (3.0) % — (13,658,481) (3.5) %

Total $ 472,237,867 $ 461,928,310 100.0 % $ 403,581,753 $ 392,855,158 100.0 %

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Geographic Location Principal Balance Carrying

6 unchanged sentences

North Carolina 45,781,188 46,026,460 10.0 % 44,492,971 44,704,699 11.4 %

New Jersey 35,571,608 35,391,604 7.7 % — — — %

Utah 28,000,000 28,529,857 6.2 % 28,000,000 28,420,056 7.2 %

Washington 24,424,855 24,487,967 5.3 % 3,523,401 3,382,683 0.9 %

Texas 13,695,947 13,824,587 3.0 % 13,625,000 13,725,690 3.5 %

2 unchanged sentences

South Carolina 3,000,000 3,137,435 0.7 % 3,000,000 3,145,614 0.8 %

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

Allowance for loan losses — (13,708,777) (3.0) % — (13,658,481) (3.5) %

15 unchanged sentences

The COVID-19 pandemic has significantly impacted the commercial real estate markets, causing reduced occupancy, requests from tenants for rent deferral or abatement, and delays in construction and development projects currently planned or underway.

These negative conditions may persist into the future and impair our borrowers’ ability to pay principal and interest due to us under our loan agreements.

While the economy has improved significantly, macroeconomic trends associated with COVID-19 pandemic have persisted and could continue to persist and impair our borrowers’ ability to pay principal and interest due to us under our loan agreements.

We maintain all of our cash at financial institutions which, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation.

9 unchanged sentences

(iii) coupons on variable rate loans to reset, although on a delayed basis, to higher interest rates;

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

(iv) to the extent applicable under the terms of our investments, prepayments on real estate-related loans to slow;

and (v) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to increase.

Conversely, decreases in interest rates, in general, may over time cause:

1 unchanged sentence

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

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

(iii) coupons on variable rate real estate-related loans to reset, although on a delayed basis, to lower interest rates;

(iv) to the extent applicable under the terms of our investments, prepayments on real estate-related loans to increase;

and (v) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to decrease.

Prepayment Risk

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demographic factors;

and retroactive changes to building or similar codes;

natural disasters and other acts of god.

retroactive changes to building or similar codes;

natural disasters;

and other acts of god.

In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans, which could also cause us to suffer losses.

Market volatility has been particularly heightened due to the COVID-19 global pandemic.

COVID-19 has disrupted economic activities and could have a continued significant adverse effect on economic and market conditions including limited lending from financial institutions, depressed asset values, and limited market liquidity.

Use of Leverage

1 unchanged sentence

While borrowing and leverage present opportunities for increasing total return, they may have the effect of potentially creating or increasing losses.

Our loans are highly illiquid and there is no assurance that we will achieve our objectives, including targeted returns.

Our loans are highly illiquid, and there is no assurance that we will achieve our investment objectives, including targeted returns.

Due to the illiquidity of the loans, valuation of our loans may be difficult, as there generally will be no established markets for these loans.

The COVID-19 pandemic has resulted in extreme volatility in a variety of global markets, including the real estate-related debt markets.

financial markets, in particular, are experiencing limited liquidity and forced selling by certain market participants with insufficient liquidity available to meet current obligations, which puts further downward pressure on asset prices.

In reaction to these tumultuous and unpredictable market conditions, banks and other lenders have generally restricted lending activity and requested margin posting or repayments where applicable for secured loans collateralized by assets with depressed valuations.

Results of Operations

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

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

2021 2020 Change 2021 2020 Change

The following table presents the comparative results of our operations for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

2022 2021 Change

Interest income $ 8,882,151 $ 8,120,949 $ 761,202

Real estate operating revenue 2,979,454 2,011,641 967,813

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

Other operating income 250,665 156,662 94,003

1 unchanged sentence

Operating expenses

Operating expenses reimbursed to

Manager 1,528,223 1,719,767 (191,544) 4,878,050 4,781,831 96,219

Operating expenses reimbursed to Manager 1,928,563 1,342,758 585,805

Asset management fee 1,488,095 1,156,543 331,552

3 unchanged sentences

Depreciation and amortization 1,718,372 931,725 786,647

Impairment charge 1,604,989 — 1,604,989

Professional fees 742,518 520,419 222,099

3 unchanged sentences

Operating income 2,892,472 4,709,527 (1,817,055)

Three Months Ended March 31,

2022 2021 Change

Other income and expenses

Interest expense from obligations

under participation agreements (3,278,294) (1,975,269) (1,303,025) (7,931,176) (6,358,657) (1,572,519)

Interest expense on repurchase

agreement payable — (706,527) 706,527 — (3,727,466) 3,727,466

Interest expense on mortgage loan

payable (573,687) (756,509) 182,822 (1,916,696) (2,256,898) 340,202

Interest expense on revolving line of

credit (223,902) (463,333) 239,431 (404,399) (1,238,311) 833,912

Interest expense from obligations under participation agreements (1,075,109) (1,880,081) 804,972

Interest expense on repurchase agreement payable (755,826) — (755,826)

Interest expense on mortgage loan payable (518,617) (686,150) 167,533

Interest expense on revolving line of credit (524,294) (17,846) (506,448)

Interest expense on term loan payable (164,969) (1,672,768) 1,507,799

Interest expense on secured borrowing (552,785) (299,805) (252,980)

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

2021 2020 Change 2021 2020 Change

Other income and expenses

Interest expense on unsecured notes

payable (1,409,274) — (1,409,274) (1,746,135) — (1,746,135)

Net loss on extinguishment of

obligations under participation

agreements — — — — (319,453) 319,453

Net unrealized (losses) gains on

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

Income from equity investment in a

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

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

Realized gains on marketable

securities 22,428 75,055 (52,627) 22,428 1,160,162 (1,137,734)

Interest expense on unsecured notes payable (1,430,183) — (1,430,183)

Net unrealized losses on marketable securities (99,044) (14,608) (84,436)

Income from equity investment in unconsolidated investments 1,419,335 1,337,827 81,508

Realized gains on marketable securities 51,133 — 51,133

(3,650,359) (3,233,431) (416,928)

2 unchanged sentences

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

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

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

Weighted Average Principal Amount (1)

Weighted Average Coupon Rate (2)

Weighted Average Principal Amount (1)

Weighted Average Coupon Rate (2)

Total portfolio

Gross loans $ 472,048,987 8.6 % $ 422,999,516 9.1 %

Obligations under participation agreements

and secured borrowing (135,954,081) 11.4 % (81,547,833) 10.7 %

Repurchase agreement payable — — % (68,952,665) 3.9 %

Term loan payable (105,432,234) 5.3 % (31,997,627) 5.3 %

Revolving line of credit (14,284,331) 4.0 % — — %

Net loans (3)

$ 216,378,341 8.8 % $ 240,501,391 10.5 %

Gross loans 274,103,005 6.5 % 238,098,881 6.7 %

Obligations under participation agreements

and secured borrowing (58,354,524) 8.5 % (34,709,039) 9.0 %

Repurchase agreement payable — — % (68,952,665) 3.9 %

Term loan payable (105,432,234) 5.3 % (31,997,627) 5.3 %

Revolving line of credit (14,284,331) 4.0 % — — %

Net loans (3)

$ 96,031,916 7.1 % $ 102,439,550 8.3 %

Subordinated loans (4)

Gross loans 197,945,982 11.5 % 184,900,635 12.2 %

Obligations under participation agreements (77,599,557) 13.6 % (46,838,794) 12.0 %

Net loans (3)

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

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

The following tables presents a reconciliation of our loan portfolio from a gross basis to net basis for the three months ended March 31, 2022 and 2021 :

Three Months Ended March 31, 2022 Three Months Ended March 31, 2021

Weighted Average Principal Amount (1)

29 unchanged sentences

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

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

Interest Income

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

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

For the three months ended March 31, 2022 as compared to the same period in 2021, interest income increased by $0.8 million, primarily due to an increase in contractual interest income as a result an increase in the weighted average principal balance of gross loans, partially offset by a decrease in the weighted average coupon rate on gross loans.

Real Estate Operating Revenue

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

Prepayment Fee Income

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

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

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

For the three months ended March 31, 2022 as compared to the same period in 2021, real estate operating revenue increased by $1.0 million, as a result of lease termination income recognized in the first quarter of 2022 in connection with a termination notice received in November 2021.

Other Operating Income

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

For the three months ended March 31, 2022 as compared to the same period in 2021, other operating income increased by $0.1 million, as a result of an increase in application fees income on deals under application.

Operating Expenses Reimbursed to Manager

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

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

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

For the three months ended March 31, 2022 as compared to the same period in 2021, operating expenses reimbursed to the Manager increased by $0.6 million as a result of an increase in the allocation ratio resulting from an increase in total assets under management.

Asset Management Fee

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

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

For the three months ended March 31, 2022 as compared to the same period in 2021, asset management fees increased by $0.3 million, primarily due to an increase in total assets under management.

Asset Servicing Fee

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

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

For each of the three months ended March 31, 2022 as compared to the same period in 2021, asset servicing fees increased by $0.1 million, primarily due to an increase in total assets under management.

Provision for Loan Losses

1 unchanged sentence

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

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

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

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

As of March 31, 2022, we 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 $0.01 million for the three months ended March 31, 2022.

As of March 31, 2021, we had three loans with a loan risk rating of “4,” (Higher risk) and one loan with a loan risk rating of “5,” (Highest risk) and recorded general allowance for loan losses of $0.03 million for the three months ended March 31, 2021.

Additionally, as of March 31, 2022 and 2021, we had three and one loans deemed impaired and recorded specific allowance for loan losses of $0.04 million and $0.2 million, respectively, as a result of a decline in the value of the underlying collateral.

Real Estate Operating Expenses

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

For the three months ended March 31, 2022 as compared to the same period in 2021, real estate operating expenses increased by $0.2 million, primarily due to an increase in ground rent expense on the multi-tenant office building resulting from a rent reset.

A component of Real estate operating expenses is Lease expense, including amortization of above-market ground lease.

As of March 31, 2022, we owned a multi-tenant office building that is subject to a ground lease.

The ground lease 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.

We are currently litigating with the landlord with respect to the appropriate method for determining the fair value of the land for purposes of setting the ground rent – Terra Ocean Ave., LLC v.

Ocean Avenue Santa Monica Realty LLC, Superior Court of California, Los Angeles County, Case No.

We believe this determination should be based on comparable sales, while the landlord insists that the rent under the ground lease itself is also relevant.

Our position has prevailed in all three of the prior arbitrations to reset the ground rent.

We intend vigorously to pursue the litigation.

While we believe our arguments will likely prevail, the outcome of the legal proceeding cannot be predicted with certainty.

If the landlord prevails, the future rent reset determinations could result in significantly higher ground rent, which would likely result in a significant diminution in the value of our interest in the ground lease and the office building.

Depreciation and Amortization

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

For the three months ended March 31, 2022 as compared to the same period in 2021, depreciation and amortization increased by $0.8 million, primarily due to a lease termination notice received in November 2021, at which time we accelerated the amortization of lease intangibles.

Impairment Charge

For the three months ended March 31, 2022, we recorded an impairment charge of $1.6 million on the development 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.

The development land is currently classified as held for sale.

There was no impairment charge recorded for the three months ended March 31, 2021.

Professional Fees

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

For the nine months ended September 30, 2021 as compared to the same period in 2020, other operating expenses decreased by $0.1 million as a result of un-reimbursed transaction-related costs incurred in 2020.

There were no such costs incurred in 2021.

For the three months ended March 31, 2022 as compared to the same period in 2021, professional fees increased by $0.2 million, primarily due to legal fees incurred in connection with a loan refinancing in 2022 which we accounted for as a loan modification.

Interest Expense from Obligations under Participation Agreements

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

For the three months ended March 31, 2022 as compared to the same period in 2021, interest expense from obligations under participation agreements decreased by $0.8 million, primarily due to a decrease in weighted average principal amount outstanding on obligations under participation agreements.

Interest Expense on Repurchase Agreement Payable

On December 12, 2018, we entered into a master repurchase agreement that provides for advances of up to $150.0 million in the aggregate, which we use to finance certain secured performing commercial real estate loans.

Advances under the 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.

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

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

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

On November 8, 2021, we entered into a master repurchase agreement that provides for advances of up to $195 million which we expect to use to finance certain secured performing commercial real estate loans, including senior mortgage loans.

Additionally, on February 18, 2022, we entered into another master repurchase agreement that provides for advances of up to $200 million, 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.

For the three months ended March 31, 2022, interest expense on repurchase agreement payable was $0.8 million.

There was no interest expense on repurchase agreement payable for the three months ended March 31, 2021.

Interest Expense on Mortgage Loan Payable

For the three and nine months ended September 30, 2021 as compared to the same periods in 2020, interest expense on mortgage loan payable decreased by $0.2 million and $0.3 million, respectively, as a result of a decrease in the weighted average amount outstanding.

For the three months ended March 31, 2022 as compared to the same period in 2021, interest expense on mortgage loan payable decreased by $0.2 million, as a result of a decrease in the weighted average principal amount outstanding on mortgage loan payable.

Interest Expense on Revolving Line of Credit

On June 20, 2019, we entered into a credit agreement to provide for revolving credit loans of up to $35.0 million in the aggregate, which we use for short term financing needed to bridge the timing of anticipated loans repayments and funding obligations.

On October 2, 2020, we amended the credit facility and reduced the commitment to $15.0 million.

On March 16, 2021, the credit facility was terminated.

On March 12, 2021, we entered into a business loan and security agreement to provide for advances up to the lesser of $75.0 million or the amount determined by the borrowing base, which is based on the eligible assets pledged to the lender.

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

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

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

On March 12, 2021, we entered into a Business Loan and Security Agreement (the “revolving line of credit”) to provide for advances up to the lesser of $75.0 million or the amount determined by the borrowing base, which is based on the eligible assets pledged to the lender.

On January 4, 2022, we amended the revolving line of credit to increase the maximum amount available to $125.0 million.

For the three months ended March 31, 2022 as compared to the same period in 2021, interest expense on revolving line of credit increased by $0.5 million, due to an increase in weighted average principal amount outstanding on the revolving line of credit.

Interest Expense on Term Loan Payable

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

and financed under the indenture and credit agreement.

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

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

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

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

On February 18, 2022, we refinanced this loan with a new repurchase agreement.

For the three months ended March 31, 2022 as compared to the same period in 2021, interest expense on term loan payable decreased by $1.5 million, as a result of a decrease in the weighted average principal amount outstanding on term loan payable.

Additionally, in connection with the refinancing, we reversed the previously accrued step-up interest of $0.4 million during the three months ended March 31, 2022.

Interest Expense on Secured Borrowing

2 unchanged sentences

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

For the three and nine months ended September 30, 2021 as compared to the same periods in 2020, interest expense on secured borrowing increased by $0.2 million and $0.7 million, respectively, as a result of an increase in the weighted average amount outstanding.

For the three months ended March 31, 2022 as compared to the same period in 2021, interest expense on secured borrowing increased by $0.3 million, as a result of an increase in the weighted average principal amount outstanding.

Interest Expense on Unsecured Notes Payable

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

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

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

Net Loss on Extinguishment of Obligations under Participation Agreements

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

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

Income from Equity Investment in a Limited Partnership

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

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

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

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

Realized Loss on Repayment of Loans

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

There was no such loss recognized during the same period in 2020.

For the three months ended March 31, 2022, interest expense on unsecured notes payable was $1.4 million.

There was no such interest expense for the three months ended March 31, 2021 because the notes were not yet issued.

Net Unrealized Losses on Marketable Securities

For the three months ended March 31, 2022 as compared to the same period in 2021, net unrealized losses on marketable securities increased by $0.1 million, as result of a decrease in the price of the marketable securities.

Income from Equity Investment in Unconsolidated Investments

In August 2020, we entered into a subscription agreement with RESOF, an affiliate managed by our Manager, whereby we committed to fund up to $50.0 million to purchase 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.

As of March 31, 2022 and December 31, 2021, we owned 44.2% and 50.0% of the equity interest in RESOF, respectively.

In the fourth quarter of 2021, we purchased 80% equity interests in two joint ventures with one owns a 1.4 million square feet industrial facility located in Arlington, Texas and the other one owns a 147,000 square feet warehouse facility located in Miami, Florida.

Additionally, in the first quarter of 2022, we purchased a 90% equity interest in a joint venture that owns a three-property 371-unit multifamily facilities in South Florida.

We account for our equity interests in these investments using the equity method of accounting.

For the three months ended March 31, 2022, we recognized income from equity investment in unconsolidated investments of $1.4 million, which consisted of equity income from RESOF of $1.3 million and equity income from the joint ventures of $0.1 million.

For the three months ended March 31, 2021, we recognized income from equity investment in unconsolidated investments of $1.3 million on our investment in RESOF.

Realized Gains on Marketable Securities

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

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

For the three months ended March 31, 2022, we sold marketable securities and recognized realized gains on marketable securities of $0.1 million.

For the three months ended March 31, 2021, we did not sell any marketable securities and did not recognize any realized gains or losses on marketable securities.

Net (Loss) Income

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

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

For the three months ended March 31, 2022, the resulting net loss was $0.8 million, compared the resulting net income of $1.5 million for the same period in 2021.

Financial Condition, Liquidity and Capital Resources

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Our primary sources of cash generally consist of payments of principal and interest we receive on our portfolio of investments, cash generated from our operating results and unused borrowing capacity under our financing sources.

We deploy moderate amounts of leverage as part of our operating strategy and use a number of sources to finance our target assets, including our term loan and the revolving line of credit.

We deploy moderate amounts of leverage as part of our operating strategy and use a number of sources to finance our target assets, including our senior notes, term loan, repurchase agreement and revolving line of credit.

We may use other sources to finance our target assets, including bank financing and arranged financing facilities with domestic or international financing providers.

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Additionally, we expect to fund approximately $72.0 million of the unfunded commitments to borrowers during the next twelve months.

We expect to maintain sufficient cash on hand to fund such commitments through matching these commitments with principal repayments on outstanding loans.

We expect to maintain sufficient cash on hand to fund such commitments through matching these commitments with principal repayments on outstanding loans or draw downs on our credit facilities.

Additionally, we had $31.8 million of borrowings outstanding under a mortgage loan payable that bear interest at an annual rate of LIBOR plus 3.85% with a LIBOR floor of 2.23%, that is collateralized by an office building.

The mortgage loan payable matures on September 27, 2022.

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

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

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

On March 12, 2021, we entered into a Business Loan and Security Agreement (the “Revolving Line of Credit”) to provide for advances up to the lesser of $75.0 million or the amount determined by the borrowing base, which is based on the eligible assets pledged to the lender.

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

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

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

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

We expect to refinance the mortgage loan payable before it matures.

Summary of Financing

The table below summarizes our debt financing as of March 31, 2022:

Type of Financing Maximum Amount Available Outstanding Balance Amount Remaining Available Interest Rate Maturity Date

Senior unsecured notes N/A $ 85,125,000 N/A 6.00% 6/30/2026

Variable Rate:

Mortgage loan payable N/A $ 31,757,725 N/A LIBOR plus 3.85% with a LIBOR floor of 2.23% 9/27/2022

Line of credit $ 125,000,000 64,953,549 $ 60,046,451 LIBOR plus 3.25% with a combined floor of 4.0% 3/12/2024

UBS repurchase agreement 195,000,000 58,169,600 136,830,400 LIBOR or Term SOFR if LIBOR is not available plus a spread ranging from 1.60% to 2.25% 11/7/2024

GS repurchase agreement 200,000,000 118,349,549 81,650,451 Term SOFR (subject to underlying loan floors on a case-by-case basis) plus a spread ranging from 1.75% to 3.00%) 2/18/2024

$ 520,000,000 $ 273,230,423 $ 278,527,302

Cash Flows From Operating Activities

For the nine months ended September 30, 2021 as compared to the same period in 2020, cash flows from operating activities decreased by $11.4 million, primarily due to a decrease in contractual interest income, payment for real estate tax on our operating real estate as well as payment for additional ground rent as a result of the rent reset.

For the three months ended March 31, 2022 as compared to the same period in 2021, cash flows from operating activities increased by $4.9 million, primarily due to an increase in contractual interest income.

Additionally, cash flows from operating activities increased due to payment made in 2021 for real estate tax on our operating real estate.

Cash Flows Used In Investing Activities

For the nine months ended September 30, 2021, cash flows used in investing activities were $74.4 million, primarily related to origination and purchase of loans of $163.5 million, purchase of partnership interest in a limited partnership of $14.1 million and purchase of marketable securities of $6.5 million, partially offset by proceeds from repayments of loans of $105.9 million and proceeds from sale of marketable securities of $3.3 million.

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

For the three months ended March 31, 2022, cash flows used in investing activities were $107.6 million, primarily related to origination and purchase of loans of $88.1 million and purchase of equity interests in unconsolidated investments of $21.2 million.

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

Cash Flows From Financing Activities

For the nine months ended September 30, 2021, cash flows from financing activities were $112.8 million, primarily due to proceeds from issuance of unsecured notes payable, net of discount, of $82.5 million, proceeds from obligations under participation agreements and secured borrowing of $70.3 million and proceeds from borrowings under the term loan and revolving line of credit of $27.9 million.

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

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

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

For the three months ended March 31, 2022, cash flows from financing activities were $78.9 million, primarily due to proceeds from borrowings under the revolving line of credit and repurchase agreements of $158.3 million and proceeds from obligations under participation agreements and secured borrowing of $18.7 million.

These cash inflows were partially offset by repayments on borrowings under the term loan of $93.8 million and distributions paid of $3.9 million.

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

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

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

Critical Accounting Policies and Use of Estimates

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

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

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

reporting periods.

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

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

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

In addition, we consider the overall economic environment, real estate sector, and geographic submarket 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;

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and (iv) loan to value.

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

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

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

Contractual Obligations

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

Total Less than

1 year 1-3 years 3-5 years More than 5 years

Obligations under participation

agreements — principal (1)

$ 105,566,232 $ 105,566,232 $ — $ — $ —

Secured borrowing — principal (1)

31,477,882 31,477,882 — — —

Mortgage loan payable — principal (2)

32,164,575 32,164,575 — — —

Term loan payable — principal (3)

93,595,027 — 44,795,218 48,799,809 —

Unsecured notes payable — principal (4)

85,125,000 — — 85,125,000 —

Revolving Line of Credit payable —

principal (5)

25,299,713 — 25,299,713 — —

Interest on borrowings (6)

53,578,703 23,197,066 20,270,912 10,110,725 —

Unfunded lending commitments (7)

80,682,850 59,979,762 18,800,458 1,902,630 —

Ground lease commitment (8)

135,221,625 2,079,000 4,158,000 4,158,000 124,826,625

$ 642,711,607 $ 254,464,517 $ 113,324,301 $ 150,096,164 $ 124,826,625

___________________________

(1) In the normal course of business, we enter into participation agreements with related parties, and to a lesser extent, unrelated parties, whereby we transfer a portion of the loans to them.

Additionally, we may sell a portion of a loan to a third-party.

These loan participations and sale do not qualify for sale treatment.

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

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

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

(2) Amount excludes unamortized origination and exit fees of $0.1 million.

(3) Amount excludes unamortized deferred financing costs of $2.0 million.

(4) Amount excludes unamortized debt insurance costs of $3.4 million.

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

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

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

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

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

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

Management Agreement with Terra REIT Advisors

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Origination and extension fee expense (1)(2)

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Disposition fee (3)

342,508 95,889 657,196 391,833

Total $ 4,452,352 $ 3,368,880

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

(2) Amount for the three months ended March 31, 2022 excluded $0.2 million of origination fee paid to the Manager in connection with our equity investment in an unconsolidated investment.

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

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

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We have also sold a portion of a loan to a third-party that did not qualify for sale accounting.

In March 2020, we settled an aggregate of $49.8 million of participation interests in loans held by us with affiliates.

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

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

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

As of March 31, 2022, the principal balance of our participation obligations totaled $57.9 million, all of which were participation obligations to Terra Fund 6.

Additionally, as of March 31, 2022, the principal balance of our secured borrowing was $37.4 million.

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

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Our Manager may experience conflicts in allocating investments as a result of differing compensation arrangements of the Manager and its affiliates and Terra Fund 6.

The loans that are subject to participation agreements are held in our name, but each of the participant’s rights and obligations, including with respect to 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 agreements.

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 agreements.

We do not have direct liability to a participant 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).

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

For the three and nine months ended September 30, 2021, the weighted average outstanding principal balance on obligations under participation agreements was approximately $136.0 million and $113.1 million, and the weighted average interest rate was approximately 11.4% and 10.9%, respectively, compared to weighted average outstanding principal balance of approximately $81.5 million and $81.3 million, and weighted average interest rate of approximately 10.7% 11.1% for the three and nine months ended September 30, 2020, respectively.

Off-Balance Sheet Arrangements

Other than contractual commitments and other legal contingencies incurred in the normal course of our business, we do not have any off-balance sheet financings or liabilities.

For the three months ended March 31, 2022, the weighted average outstanding principal balance on obligations under participation agreements was approximately $79.0 million and the weighted average interest rate was approximately 10.4%, compared to weighted average outstanding principal balance of approximately $88.6 million and weighted average interest rate of approximately 10.1% for the three months ended March 31, 2021.

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

What changed 10-Q

Item 1. Financial Statements