What changed in this filing

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Item 1. Financial Statements

2022-08-12 compared with 2022-05-12 · 413 added, 335 removed, 1432 unchanged (34% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Cash and cash equivalents $ 28,978,788 $ 35,783,956

8 unchanged sentences

Lease intangible assets, net 4,838,667 7,451,771

Assets held for sale 8,395,011 —

Operating lease right-of-use asset 27,387,013 27,394,936

21 unchanged sentences

Unearned income 365,003 449,690

Distributions payable 3,906 —

Other liabilities 2,066,305 4,289,967

3 unchanged sentences

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

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

125 shares authorized and 125 shares issued and outstanding at June 30, 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 March 31, 2022 and December 31, 2021 194,875 194,875

shares issued and outstanding at June 30, 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 March 31,

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

2022 2021 2022 2021

Interest income $ 10,274,051 $ 8,750,466 $ 19,156,202 $ 16,871,415

Real estate operating revenue 2,991,321 2,265,700 5,970,775 4,277,341

Prepayment fee income 1,174,760 — 1,174,760 —

Other operating income 247,981 240,131 498,646 396,793

14 unchanged sentences

Other income and expenses

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

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

Interest expense from obligations under

participation agreements ( 1,238,655 ) ( 2,772,801 ) ( 2,313,764 ) ( 4,652,882 )

Interest expense on repurchase agreement

payable ( 1,665,283 ) — ( 2,421,109 ) —

Interest expense on mortgage loan payable ( 520,829 ) ( 656,859 ) ( 1,039,446 ) ( 1,343,009 )

3 unchanged sentences

Interest expense on secured borrowing ( 556,855 ) ( 334,905 ) ( 1,109,640 ) ( 634,710 )

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

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

Net unrealized (losses) gains on marketable

securities ( 34,950 ) 248,874 ( 133,994 ) 234,266

Loss on sale of real estate ( 51,984 ) — ( 51,984 ) —

Income from equity investment in

unconsolidated investments 1,364,332 1,400,839 2,783,667 2,738,666

Realized gains on marketable securities 32,278 — 83,411 —

( 4,805,560 ) ( 4,260,546 ) ( 8,455,919 ) ( 7,493,977 )

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

Net income (loss) $ 1,292,434 $ ( 104,771 ) $ 534,547 $ 1,371,325

Series A preferred stock dividend declared ( 3,906 ) ( 3,906 ) ( 7,812 ) ( 7,812 )

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

(loss) earnings per share — basic and diluted

Net income (loss) allocable to common stock $ 1,288,528 $ ( 108,677 ) $ 526,735 $ 1,363,513

Earnings (loss) per share — basic and diluted

$ 0.07 $ ( 0.01 ) $ 0.03 $ 0.07

15 unchanged sentences

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

Distributions declared on common shares

($0.19 per share) — — — — — — ( 3,780,568 ) ( 3,780,568 )

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

Net income — — — — — — 1,292,434 1,292,434

Balance at June 30, 2022 $ — 125 $ 125,000 19,487,460 $ 194,875 $ 373,443,672 $ ( 107,067,397 ) $ 266,696,150

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

8 unchanged sentences

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 )

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

See notes to unaudited consolidated financial statements .

1 unchanged sentence

Consolidated Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

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

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

Net income $ 534,547 $ 1,371,325

Adjustments to reconcile net income to net cash provided by operating

Paid-in-kind interest income, net — ( 383,089 )

11 unchanged sentences

Net unrealized losses on marketable securities 133,994 ( 234,266 )

Loss on sale of real estate 51,984 —

Income from equity investment in excess of distributions received ( 1,765,734 ) ( 2,738,666 )

8 unchanged sentences

Other liabilities ( 2,223,662 ) 546,318

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

Net cash provided by operating activities 3,371,932 127,264

Cash flows from investing activities:

2 unchanged sentences

Purchase of equity interests in unconsolidated investments ( 20,915,067 ) ( 14,065,197 )

Proceeds from sale of real estate 8,585,500 —

Distributions in excess of net income 497,920 —

4 unchanged sentences

Consolidated Statements of Cash Flows (Continued)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from financing activities:

1 unchanged sentence

Proceeds from obligations under participation agreements 16,522,472 54,550,858

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

Proceeds from borrowings under repurchase agreements 148,089,549 —

Proceeds from borrowings under revolving line of credit 41,169,295 9,213,759

Repayments of borrowings under revolving line of credit ( 30,920,124 ) —

Distributions paid ( 7,681,975 ) ( 8,330,759 )

1 unchanged sentence

Proceeds from secured borrowing 3,629,034 7,569,135

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

Repayment of mortgage principal ( 413,065 ) ( 3,619,098 )

2 unchanged sentences

Payment of financing costs ( 975,947 ) ( 1,529,600 )

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)

Net cash provided by financing activities 60,665,809 127,988,731

Net (decrease) increase in cash, cash equivalents and restricted cash ( 10,345,252 ) 71,816,691

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

1 unchanged sentence

$ 40,753,395 $ 104,737,014

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental Disclosure of Cash Flows Information:

3 unchanged sentences

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2022

June 30, 2022

Terra Property Trust, Inc.

(and, together with its consolidated subsidiaries, the “Company” or “Terra Property Trust”) was incorporated under the general corporation laws of the State of Maryland on December 31, 2015.

(and, together with its consolidated subsidiaries, the “Company” or “Terra Property Trust”) was incorporated under the Maryland General Corporation Law on December 31, 2015.

Terra Property Trust is a real estate credit focused company that originates, structures, funds and manages commercial real estate investments, including mezzanine loans, first mortgage loans, subordinated mortgage loans and preferred equity investments.

4 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 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”).

As of June 30, 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.

1 unchanged sentence

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

The Company’s investment activities are externally managed by Terra REIT Advisors, LLC (“Terra REIT Advisors” or the “Manager”), a subsidiary of the Company’s sponsor, Terra Capital Partners, LLC (“Terra Capital Partners”), pursuant to a management agreement (the “Management Agreement”), under the oversight of the Company’s board of directors ( Note 7 ).

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

3 unchanged sentences

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

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 .

Notes to Unaudited Consolidated Financial Statements

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.

On June 24, 2022, the Company filed with the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-4 containing a proxy statement/prospectus related to the Merger.

On July 18, 2022, the SEC declared the registration statement effective.

The Merger is expected to close in September 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.

Summary of Significant Accounting Policies

8 unchanged sentences

The Company accounts for investments in which it has significant influence but not a controlling financial interest using the equity method of accounting (see Note 4 ).

Notes to Unaudited Consolidated Financial Statements

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

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

Notes to Unaudited Consolidated Financial Statements

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

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

32 unchanged sentences

5 Highest risk

Notes to Unaudited Consolidated Financial Statements

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

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

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

Such concessionary modifications are classified as troubled debt restructurings (“TDRs”) unless the

Notes to Unaudited Consolidated Financial Statements

modification solely results in a delay in a payment that is insignificant.

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

22 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 if there were any.

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 Company’s lease term may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option.

25 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

Notes to Unaudited Consolidated Financial Statements

operating payments.

Restricted cash is not available for general corporate purposes.

5 unchanged sentences

Cash held in escrow by lender 4,352,755 3,617,787

7,651,900 2,039,349

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

statements of cash flows $ 40,753,395 $ 104,737,014

_______________

(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.

Notes to Unaudited Consolidated Financial Statements

Participation Interests

17 unchanged sentences

Marketable securities are financial instruments that are reported at fair value.

Notes to Unaudited Consolidated Financial Statements

Deferred Financing Costs

9 unchanged sentences

federal and state income taxes at regular corporate rates.

As of March 31, 2022, the Company has satisfied all the requirements for a REIT.

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

The Company recognizes interest and penalties, if any, related to unrecognized tax liabilities as

Notes to Unaudited Consolidated Financial Statements

income tax expense in its consolidated statements of operations.

For the three and six months ended June 30, 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 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 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 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

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

During the course of the pandemic, many countries have re-instituted, or strongly encouraged, varying levels of quarantines and restrictions on travel and in some cases have at times limited operations of certain businesses and taken other restrictive measures designed to help slow the spread of COVID-19 and its variants.

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 the Company’ loans.

Moreover, with the potential for new strains of COVID-19 or outbreaks of other infectious diseases, governments and businesses may re-impose aggressive measures to help slow the spread of infectious diseases in the future.

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

The Company believes the estimates and assumptions underlying its consolidated financial statements are reasonable and supportable based on the information available as of June 30, 2022, however uncertainty over the ultimate impact of COVID-19, rising inflation and increases in interest rates on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of June 30, 2022 inherently less certain than they would be absent the current and potential impacts of COVID-19, macroeconomic changes, and geopolitical events.

Segment Information

13 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

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

13 unchanged sentences

Portfolio Summary

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

The following table provides a summary of the Company’s loan portfolio as of June 30, 2022 and December 31, 2021:

June 30, 2022 December 31, 2021

Fixed Rate Floating

9 unchanged sentences

term (years) 1.60 1.08 1.13 1.93 1.45 1.53

Notes to Unaudited Consolidated Financial Statements

_______________

(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.

Coupon rate shown was determined using LIBOR of 1.79 %, average SOFR of 1.09 % and forward-looking term rate based on SOFR (“Term SOFR”) of 1.69 % as of June 30, 2022 and LIBOR of 0.10 % as of December 31, 2021.

(2) As of June 30, 2022 and December 31, 2021, amount included $ 348.6 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 June 30, 2022 and December 31, 2021, sixteen and thirteen of these loans, respectively, are subject to a LIBOR or SOFR floor, as applicable.

Notes to Unaudited Consolidated Financial Statements

Lending Activities

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

The following table presents the activities of the Company’s loan portfolio for the six months ended June 30, 2022 and 2021:

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

6 unchanged sentences

Provision for loan losses ( 75,929 ) — ( 75,929 )

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

Balance, June 30, 2022 $ 520,520,022 $ 13,322,380 $ 533,842,402

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

8 unchanged sentences

Provision for loan losses ( 849,081 ) — ( 849,081 )

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

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

_______________

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 $ 0.5 million for the three months ended March 31, 2021.

Notes to Unaudited Consolidated Financial Statements

PIK interest related to obligations under participation agreements amounted $ 1.0 million for the six months ended June 30, 2021.

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 March 31, 2022 and December 31, 2021:

March 31, 2022 December 31, 2021

The tables below detail the types of loans in the Company’s loan portfolio, as well as the property type and geographic location of the properties securing these loans as of June 30, 2022 and December 31, 2021:

June 30, 2022 December 31, 2021

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

5 unchanged sentences

Total $ 543,961,917 $ 533,842,402 100.0 % $ 480,151,151 $ 469,673,314 100.0 %

March 31, 2022 December 31, 2021

Notes to Unaudited Consolidated Financial Statements

June 30, 2022 December 31, 2021

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

3 unchanged sentences

Hotel - full/select service 43,222,382 43,722,443 8.2 % 56,847,381 57,395,682 12.2 %

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 %

Mixed use 29,212,391 29,268,113 5.5 % 28,940,658 28,977,024 6.2 %

Student housing 28,000,000 28,633,217 5.4 % 31,000,000 31,565,670 6.7 %

Infill land 16,995,416 17,160,703 3.2 % 28,960,455 28,923,827 6.2 %

Allowance for loan losses — ( 13,734,410 ) ( 2.6 ) % — ( 13,658,481 ) ( 2.9 ) %

Total $ 543,961,917 $ 533,842,402 100.0 % $ 480,151,151 $ 469,673,314 100.0 %

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

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

3 unchanged sentences

Georgia 55,449,700 55,707,130 10.4 % 53,289,288 53,536,884 11.4 %

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

Washington 46,667,704 46,831,846 8.8 % 3,523,401 3,382,683 0.7 %

New Jersey 38,745,970 38,777,861 7.3 % — — — %

North Carolina 28,622,301 28,745,505 5.4 % 44,492,971 44,704,699 9.5 %

Utah 28,000,000 28,633,217 5.4 % 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 %

Massachusetts 7,000,000 7,000,000 1.3 % 7,000,000 7,000,000 1.5 %

Texas — — — % 13,625,000 13,725,690 2.9 %

South Carolina — — — % 3,000,000 3,145,614 0.7 %

1 unchanged sentence

Total $ 543,961,917 $ 533,842,402 100.0 % $ 480,151,151 $ 469,673,314 100.0 %

Notes to Unaudited Consolidated Financial Statements

Loan Risk Rating

1 unchanged sentence

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

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

March 31, 2022 December 31, 2021

Notes to Unaudited Consolidated Financial Statements

The following table allocates the principal balance and the carrying value of the Company’s loans based on the loan risk rating as of June 30, 2022 and December 31, 2021:

June 30, 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

10 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 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,

As of both June 30, 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 June 30, 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 $ 0.005 million and $ 0.01 million for the three and six months ended June 30, 2022, respectively.

As of June 30, 2021, the Company had one loan with a loan risk rating of “4” and no loans with a loan risk rating of “5” and reversed the previously recorded general allowance for loan losses of $ 0.5 million and $ 0.4 million for the three and six months ended June 30, 2021, respectively.

Additionally, as of June 30, 2022 and 2021, the Company had two and five loans, respectively, deemed impaired and recorded specific allowance for loan losses of $ 0.02 million and $ 1.0 million for the three months ended June 30, 2022 and 2021, respectively, and $ 0.06 million and $ 1.3 million for the six months ended June 30, 2022 and 2021, 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 six months ended June 30, 2022 and 2021:

Six Months Ended June 30,

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

3 unchanged sentences

Allowance for loan losses, end of period $ 13,734,410 $ 4,587,839

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.

As of both June 30, 2022 and December 31, 2021, the Company had one loan that was in maturity default.

Additionally, for the three months ended June 30, 2022 and 2021, the Company suspended interest income accrual of $ 1.2 million and $ 0.7 million on two loans, respectively, because recovery of such income was doubtful.

For the six months ended June 30, 2022 and 2021, the Company suspended interest income accrual of $ 2.3 million and $ 1.3 million on two loans, respectively, because recovery of such income was doubtful.

Troubled Debt Restructuring

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

As of June 30, 2022, there were no investments qualified as trouble debt restructuring.

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

This investment was repaid in full in April 2022.

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

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

Subsequently on September 23,

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.

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.

4 unchanged sentences

Post-modified recorded carrying value (1)

_______________

(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 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.

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

For the period from January 1, 2022 through the date of repayment on April 1, 2022, income from the new senior loan was $ 0.3 million.

Equity Investment in Unconsolidated Investments

9 unchanged sentences

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.

As of June 30, 2022 and December 31, 2021, the unfunded commitment was $ 16.6 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.

As of June 30, 2022 and December 31, 2021, the Company owned 36.6 % and 50.0 % of the equity interest in RESOF, respectively.

As of June 30, 2022 and December 31, 2021, the carrying value of the Company ’ s investment in RESOF was $ 41.1 million and $ 40.5 million, respectively.

For the three and six months ended June 30, 2022, the Company recorded equity income from RESOF of $ 1.6 million and $ 2.9 million, respectively, and did not receive any distributions from RESOF.

For the three and six months ended June 30, 2021, the Company recorded equity income from RESOF of $ 1.4 million and $ 2.7 million, respectively, 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.

2 unchanged sentences

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Investments at fair value (cost of $125,222,394 and $107,261,022, respectively) $ 127,820,410 $ 108,359,898

7 unchanged sentences

Partners’ capital $ 109,591,981 $ 79,286,048

Three Months Ended March 31,

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

2022 2021 2022 2021

Total investment income $ 5,891,371 $ 2,698,223 $ 10,736,035 $ 4,740,323

2 unchanged sentences

Unrealized appreciation on investments 1,493,140 129,286 1,562,191 182,983

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

Net increase in partners’ capital resulting from

operations $ 5,622,697 $ 2,283,146 $ 9,243,096 $ 3,907,731

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.

As of June 30, 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.

1 unchanged sentence

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

Ownership Interest at June 30, 2022 Carrying Value at

Entity Co-owner June 30, 2022 December 31, 2021

LEL Arlington JV LLC Third party 80 % $ 23,457,972 $ 23,949,044

8 unchanged sentences

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

June 30, 2022 December 31, 2021

Net investments in real estate $ 198,090,733 $ 115,636,424

5 unchanged sentences

Members’ capital $ 59,905,594 $ 35,741,866

Three Months Ended March 31,

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

2022 2021 2022 2021

Revenues $ 3,681,032 $ — $ 6,131,470 $ —

3 unchanged sentences

Unrealized gains 1,170,866 — 1,406,377 —

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.

Net loss $ ( 164,378 ) $ — $ ( 71,502 ) $ —

For the three and six months ended June 30, 2022, the Company recorded equity loss from the joint ventures of $ 0.2 million and $ 0.1 million, respectively, and received distributions from the joint ventures of $ 0.4 million and $ 0.7 million, respectively.

There was no such equity income or loss recorded or distributions received for the three and six months ended June 30, 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.

1 unchanged sentence

Real Estate Activities

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.

2022 — In June 2022, the Company sold the 4.9 acres of adjacent land located in Pennsylvania for net proceeds of $ 8.6 million, and recognized a net loss on sale of $ 0.05 million excluding impairment charges of $ 1.6 million recognized in March 2022 and $ 3.4 million recognized in December 2021.

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

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

8 unchanged sentences

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

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

15 unchanged sentences

_______________

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

(1) The land was sold in the second quarter of 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 March 31,

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

2022 2021 2022 2021

Real estate operating revenues:

20 unchanged sentences

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

Had the new base rent been recorded on November 1, 2020, lease expense including amortization of above-market ground lease would have been $ 0.5 million 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.

Had the new base rent been recorded on November 1, 2020, lease expense including amortization of above-market ground lease would have been $ 0.5 million and $ 1.0 million for the three and six months ended June 30, 2021, respectively, and total real estate operating expenses would have been $ 1.2 million and $ 2.3 million for the three and six months ended June 30, 2021, respectively .

As of June 30, 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 ground lease had a remaining lease term of 64.6 years as of June 30, 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.

8 unchanged sentences

Scheduled Future Minimum Rent Income

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

Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants, under non-cancelable operating leases at June 30, 2022 are as follows:

Years Ending December 31, Total

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

2022 (July 1 through December 31) $ 3,499,952

2023 4,235,538

4 unchanged sentences

Scheduled Annual Net Amortization of Intangibles

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:

Based on the intangible assets and liabilities recorded at June 30, 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)

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

2022 (July 1 through December 31) $ ( 433,802 ) $ 2,352,588 $ ( 65,174 ) $ 1,853,612

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

11 unchanged sentences

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Operating lease

4 unchanged sentences

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

Three Months Ended March 31,

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

2022 2021 2022 2021

Operating lease cost (1)

1 unchanged sentence

_______________

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

(1) The decrease in operating lease cost was a result of the ground rent reset in 2021 as described above.

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

Three Months Ended March 31,

Six Months Ended June 30,

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

5 unchanged sentences

Years Ending December 31, Operating Lease

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

2022 (July 1 through December 31) $ 1,039,500

2023 2,079,000

22 unchanged sentences

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

As of 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.

As of June 30, 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.

5 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 March 31, 2022 and December 31, 2021, according to the fair value hierarchy:

March 31, 2022

Fair Value Measurements

Level 1 Level 2 Level 3 Total

Marketable Securities:

Equity securities $ 510,151 $ — $ — $ 510,151

Total $ 510,151 $ — $ — $ 510,151

As of June 30, 2022, the Company didn’t own any marketable securities.

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

December 31, 2021

5 unchanged sentences

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

Three Months Ended March 31,

Six Months Ended June 30,

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

1 unchanged sentence

Proceeds from sale ( 1,259,417 ) —

Unsettled sale ( 123,223 ) —

Reclassification of net realized gains on marketable securities into earnings 83,411 —

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

Unrealized (losses) gains on marketable securities ( 133,994 ) 234,266

Ending balance $ — $ 8,000,914

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:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

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

15 unchanged sentences

Total liabilities $ 439,879,746 $ 434,530,673 $ 433,404,847 $ 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 March 31, 2022 and December 31, 2021 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 June 30, 2022 and December 31, 2021 due to their short-term nature.

Valuation Process for Fair Value Measurement

18 unchanged sentences

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

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

The following table summarizes the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 loans as of June 30, 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 March 31, 2022 Primary Valuation Technique Unobservable Inputs March 31, 2022

Fair Value at June 30, 2022 Primary Valuation Technique Unobservable Inputs June 30, 2022

Asset Category Minimum Maximum Weighted Average

27 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

that are included on the consolidated statements of operations:

Three Months Ended March 31,

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

2022 2021 2022 2021

Origination and extension fee expense (1)(2)

4 unchanged sentences

Disposition fee (3)

479,500 63,700 479,500 314,688

Total $ 5,038,428 $ 3,757,085 $ 9,490,780 $ 7,125,965

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.

(2) Amount for the six months ended June 30, 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.

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

As of June 30, 2022 and December 31, 2021, the Company has not received any breakup fees.

Operating Expenses

The Company reimburses the Manager for operating expenses incurred in connection with services provided to the operations of the Company, including the Company’s allocable share of the Manager’s overhead, such as rent, employee costs, utilities, and technology costs.

Notes to Unaudited Consolidated Financial Statements

Disposition Fee

3 unchanged sentences

Distributions Paid

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 ).

For the three months ended June 30, 2022 and 2021, the Company made distributions to Terra JV and Terra Offshore REIT totaling $ 3.8 million and $ 4.4 million, respectively, of which $ 2.8 million and $ 4.4 million were returns of capital, respectively ( Note 10 ).

For the six months ended June 30, 2022 and 2021, the Company made distributions to Terra JV and Terra Offshore REIT totaling $ 7.7 million and $ 8.3 million, respectively, of which $ 5.7 million and $ 6.8 million were returns of capital, respectively.

Due to Manager

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.

As of June 30, 2022 and December 31, 2021, approximately $ 3.1 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 June 30, 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.

13 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 March 31, 2022 and December 31, 2021.

March 31, 2022

Notes to Unaudited Consolidated Financial Statements

The table below lists the participation interests purchased by the Company pursuant to participation agreements as of June 30, 2022 and December 31, 2021.

June 31, 2022

Participating Interests Principal Balance Carrying Value

15 unchanged sentences

Transfers of Participation Interest by the Company

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

Transfers Treated as Obligations Under Participation Agreements as of

March 31, 2022

The following tables summarize the loans that were subject to participation agreements with affiliated entities and third-parties as of June 30, 2022 and December 31, 2021:

Transfers Treated as Obligations Under Participation Agreements as of June 30, 2022

Principal Balance Carrying Value % Transferred Principal Balance Carrying Value

1 unchanged sentence

$ 60,911,857 $ 60,911,857 35.00 % $ 21,319,150 $ 21,319,149

Post Brothers Holdings LLC (1)

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

RS JZ Driggs, LLC (1)

18 unchanged sentences

, 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.

The Participants’ share of the investments is repayable only from the proceeds received from the related borrower/issuer of the investments and, therefore, the Participants also are subject to credit risk ( i.e.

, risk of default by the underlying borrower/issuer).

Pursuant to the participation agreements with these entities, the Company receives and allocates the interest income and other related investment income to the Participants based on their respective pro rata participation interest.

Pursuant to the participation agreements with these

Notes to Unaudited Consolidated Financial Statements

entities, the Company receives and allocates the interest income and other related investment income to the Participants based on their respective pro rata participation interest.

The Participants pay any expenses, including any fees to the Manager, only on their respective pro rata participation interest, subject to the terms of the respective governing fee arrangements.

3 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 March 31, 2022 and December 31, 2021:

Transfers Treated as Secured Borrowing as of March 31, 2022

The following table summarizes the loan that was transferred to a third-party that was accounted for as secured borrowing as of June 30, 2022 and December 31, 2021:

Transfers Treated as Secured Borrowing as of June 30, 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 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

As of June 30, 2022 and December 31, 2021, the Company was in compliance with the covenants included in the Indenture.

Notes to Unaudited Consolidated Financial Statements

The table below presents detailed information regarding the unsecured notes payable at June 30, 2022 and December 31, 2021:

June 30, 2022 December 31, 2021

Principal Balance Carrying Value (1)

2 unchanged sentences

_______________

(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.

(1) Amount is net of unamortized issue discount of $ 2.2 million and $ 2.4 million, and unamortized deferred financing costs of $ 0.8 million and $ 0.9 million as of June 30, 2022 and December 31, 2021, respectively.

Revolving Line of Credit

7 unchanged sentences

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

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

As of June 30, 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.

3 unchanged sentences

In connection with the closing of the Revolving Line of Credit, the Company also incurred financing fees of $ 0.6 million, to be amortized to interest expense over the life of the Revolving Line of Credit.

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

March 31, 2022

The following tables present detailed information with respect to each borrowing under the Revolving Line of Credit as of June 30, 2022 and December 31, 2021 :

June 30, 2022

Borrowing Base Borrowings Under the Revolving Line of Credit

1 unchanged sentence

870 Santa Cruz, LLC $ 21,373,119 $ 21,576,127 $ 21,616,421 $ 14,651,926

606 Fayetteville LLC and 401 E.

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

AAESUF Property LLC 16,995,416 17,160,703 17,665,678 8,082,267

AARSHW Property LLC 21,750,554 21,617,158 21,912,880 13,920,392

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

D-G Acquisition #6, LLC and D-G Quimisa, LLC 8,902,444 8,917,380 8,942,875 6,231,711

The Lux Washington, LLC 9,492,704 9,497,010 9,575,185 5,938,770

$ 78,514,237 $ 78,768,378 $ 79,713,039 $ 48,825,066

Notes to Unaudited Consolidated Financial Statements

December 31, 2021

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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

D-G Acquisition #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.

For the six months ended June 30, 2022 and 2021, the Company received proceeds from the Revolving Line of Credit of $ 41.2 million and $ 9.2 million, respectively, and made repayments of $ 30.9 million and $ 0.00 million, respectively.

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”).

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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.

Notes to Unaudited Consolidated Financial Statements

For the three and six months ended June 30, 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 $ 2.0 million, respectively.

Repurchase Agreements

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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

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 June 30, 2022 and December 31, 2021, the Company was in compliance with these covenants.

Notes to Unaudited Consolidated Financial Statements

The following table presents detailed information with respect to each borrowing under the UBS Master Repurchase Agreement as of June 30, 2022 and December 31, 2021:

June 30, 2022

Collateral Borrowings Under Master Repurchase Agreement

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Grandview’s Madison Place, LLC 17,000,000 17,109,144 17,109,144 3/7/2022 13,600,000 Term SOFR + 1.965%

Grandview’s Remington Place,

LLC $ 20,175,000 $ 20,225,692 $ 20,265,338 5/06/2022 $ 16,140,000 Term SOFR + 1.965%

$ 104,808,577 $ 106,333,111 $ 106,627,353 $ 74,309,600

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$ 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.

For the six months ended June 30, 2022, the Company borrowed $ 29.7 million under the UBS Master Repurchase Agreement for the financing of new investments, and did not make any repayments.

Goldman Master Repurchase Agreement

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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.

Subject to certain exceptions, the maximum liability under the Repurchase Agreement will not exceed

Notes to Unaudited Consolidated Financial Statements

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.

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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

as of June 30, 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 June 30, 2022:

June 30, 2022

Collateral Borrowings Under Repurchase Agreement

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$ 165,287,460 $ 166,372,258 $ 162,508,620 $ 118,349,549

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

For the six months ended June 30, 2022, the Company borrowed $ 118.3 million under the Repurchase Agreement and did not make any repayments.

Mortgage Loan Payable

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

As of June 30, 2022, the Company had a $ 31.5 million mortgage loan payable collateralized by a multi-tenant office building that the Company acquired through foreclosure.

The following table presents certain information about the mortgage loan payable as of June 30, 2022 and December 31, 2021:

June 30, 2022 December 31, 2021

Lender Current

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(LIBOR Floor of 2.23%) September 27, 2022 $ 31,549,627 $ 31,790,254 $ 43,188,308 $ 31,962,692 $ 32,134,295 $ 46,067,129

Notes to Unaudited Consolidated Financial Statements

Scheduled Debt Principal Payments

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

Scheduled debt principal payments for each of the five calendar years following June 30, 2022 are as follows:

Years Ending December 31, Total

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

2022 (July 1 to December 31) $ 31,549,627

2024 241,484,215

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Total $ 352,442,877

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

At June 30, 2022 and December 31, 2021, the unamortized deferred debt issuance costs were $ 5.7 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 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.

As of June 30, 2022 and December 31, 2021, obligations under participation agreements had a carrying value of approximately $ 43.8 million and $ 42.2 million, respectively, and the carrying value of the loans that are associated with these obligations under participation agreements was approximately $ 104.3 million and $ 101.0 million, respectively, (see “ Participation Agreements ” in Note 7 ).

Additionally, as of June 30, 2022 and December 31, 2021, secured borrowing had a carrying value of approximately $ 38.3 million and $ 34.6 million, and the carrying value of the loan that is associated with the secured borrowing was $ 55.5 million and $ 50.3 million, respectively.

The weighted-average interest rate on the obligations under participation agreements and secured borrowing was approximately 10.3 % and 10.4 % as of June 30, 2022 and December 31, 2021, respectively.

Commitments and Contingencies

Impact of COVID-19

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.

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 June 30, 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.

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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 $ 101.2 million and $ 71.8 million as of March 31, 2022 and December 31, 2021, respectively.

These fundings amounted to approximately $ 96.0 million and $ 71.8 million as of June 30, 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.

Notes to Unaudited Consolidated Financial Statements

Unfunded Investment Commitment

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.

As of June 30, 2022 and December 31, 2021, the unfunded investment commitment was $ 16.6 million and $ 15.1 million, respectively.

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

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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.

Real Estate Owned, Net—Real Estate Operating Revenue and Expenses,” as of June 30, 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.

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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.

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 months ended March 31, 2022 and 2021:

Three Months Ended March 31,

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

The following table presents earnings per share for the three and six months ended June 30, 2022 and 2021:

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

2022 2021 2022 2021

Net income (loss) $ 1,292,434 $ ( 104,771 ) $ 534,547 $ 1,371,325

Series A preferred stock dividend declared ( 3,906 ) ( 3,906 ) ( 7,812 ) ( 7,812 )

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

Net income (loss) allocable to common stock $ 1,288,528 $ ( 108,677 ) $ 526,735 $ 1,363,513

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

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

Earnings (loss) per share - basic and diluted $ 0.07 $ ( 0.01 ) $ 0.03 $ 0.07

Preferred Stock Classes

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The Company’s charter gives it authority to issue 50,000,000 shares of preferred stock, $ 0.01 par value per share (“Preferred Stock”).

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

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

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

As of June 30, 2022 and December 31, 2021, there were no Preferred Stock issued or outstanding.

Notes to Unaudited Consolidated Financial Statements

Series A Preferred Stock

On November 30, 2016, the Company’s board of directors classified and designated 125 shares of preferred stock as a separate class of preferred stock to be known as the 12.5 % Series A Redeemable Cumulative Preferred Stock, $ 1,000 liquidation value per share (“Series A Preferred Stock”).

On November 30, 2016, the Board classified and designated 125 shares of preferred stock as a separate class of preferred stock to be known as the 12.5 % Series A Redeemable Cumulative Preferred Stock, $ 1,000 liquidation value per share (“Series A Preferred Stock”).

In December 2016, the Company sold 125 shares of the Series A Preferred Stock for $ 125,000 .

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

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.

As of June 30, 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 June 30, 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 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 .

All distributions will be made at the discretion of the Board and will depend upon its taxable income, financial condition, maintenance of REIT status, applicable law, and other factors as the Board deems relevant.

Additionally, for each of the three and six months ended June 30, 2022 and 2021, the Company made distributions to preferred stockholders of $ 3,906 and $ 7,812 , respectively.

Subsequent Events

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

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

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

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

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

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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

As of June 30, 2022, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 22 loans in eight states with an aggregate net principal balance of $462.2 million, a weighted average

coupon rate of 8.0%, a weighted average loan-to-value ratio of 71.0% and a weighted average remaining term to maturity of 1.3 years.

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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.

As of June 30, 2022, our portfolio included underlying properties located in 22 markets, across eight 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, preferred equity investments and credit facilities.

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

We were incorporated under the Maryland General Corporation Law on December 31, 2015.

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

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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.

As of June 30, 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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as each other share of our 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 our board of directors (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.

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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.

On June 24, 2022, we filed with the SEC a registration statement on Form S-4 containing a proxy statement/prospectus related to the Merger.

On July 18, 2022, the SEC declared the registration statement effective.

The Merger is expected to close in September 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.

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

Many countries have at times re-instituted, or strongly encouraged, varying levels of quarantines and restrictions on travel and in some cases have at times limited operations of certain businesses and taken other restrictive measures designed to help slow the spread of COVID-19 and its variants.

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

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 March 31, 2022 and December 31, 2021:

March 31, 2022

The following tables provide a summary of our net loan portfolio as of June 30, 2022 and December 31, 2021:

June 30, 2022

Fixed Rate Floating

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(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.

Coupon rate shown was determined using LIBOR of 1.79%, average SOFR of 1.09% and forward-looking term rate based on SOFR (“Term SOFR”) of 1.69% as of June 30, 2022 and LIBOR of 0.10% as of December 31, 2021.

(2) As of June 30, 2022 and December 31, 2021, amount included $348.6 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 June 30, 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 June 30, 2022, we owned a multi-tenant office building acquired pursuant to a foreclosure and as of December 31, 2021, we owned 4.9 acres of adjacent land acquired pursuant to a deed in lieu of foreclosure and the multi-tenant office building.

The adjacent land was sold in the second quarter of 2022.

The real estate and related lease intangible assets and liabilities had a net carrying value of $43.2 million and $56.1 million as of June 30, 2022 and December 31, 2021, respectively.

The mortgage loan payable encumbering the office building had an outstanding principal amount of $31.5 million and $32.0 million as of June 30, 2022 and December 31, 2021, respectively.

Additionally, as of June 30, 2022 and December 31, 2021, we owned 36.6% 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.

As of June 30, 2022 and December 31, 2021, these equity interests had total carrying value of $91.9 million and $69.7 million, respectively.

Portfolio Investment Activity

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.

For the three months ended June 30, 2022 and 2021, we invested $0.3 million and $13.8 million in new and add-on investments and had $10.6 million and $6.4 million of repayments, resulting in net repayments of $10.9 million and net investments of $7.4 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.

For the six months ended June 30, 2022 and 2021, we invested $25.7 million and $29.3 million in new and add-on investments and had $11.9 million and $31.3 million of repayments, resulting in net investments of $13.7 million and net repayments of $2.0 million, respectively.

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.

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Loan Structure Principal Balance Carrying

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Total $ 462,241,013 $ 451,754,607 100.0 % $ 403,581,753 $ 392,855,158 100.0 %

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Property Type Principal Balance Carrying

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Industrial 49,415,498 49,400,743 10.9 % 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 %

Student housing 31,000,000 31,667,292 6.9 % 31,000,000 31,565,670 8.0 %

Mixed use 29,212,391 29,268,113 6.5 % 28,940,658 28,977,024 7.4 %

Student housing 28,000,000 28,633,217 6.3 % 31,000,000 31,565,670 8.0 %

Infill land 16,995,416 17,160,703 3.8 % 28,960,455 28,923,827 7.4 %

Allowance for loan losses — (13,734,410) (3.0) % — (13,658,481) (3.5) %

Total $ 462,241,013 $ 451,754,607 100.0 % $ 403,581,753 $ 392,855,158 100.0 %

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Geographic Location Principal Balance Carrying

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Georgia 55,449,700 55,707,130 12.3 % 53,289,288 53,536,884 13.6 %

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

Washington 46,667,704 46,831,846 10.4 % 3,523,401 3,382,683 0.9 %

New Jersey 38,745,970 38,777,861 8.6 % — — — %

North Carolina 28,622,301 28,745,505 6.4 % 44,492,971 44,704,699 11.4 %

Utah 28,000,000 28,633,217 6.3 % 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 %

Massachusetts 7,000,000 7,000,000 1.5 % 7,000,000 7,000,000 1.8 %

Texas — — — % 13,625,000 13,725,690 3.5 %

Pennsylvania — — — % — — — %

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If we do not collect a prepayment fee in connection with a prepayment or are unable to invest the proceeds of such prepayments received, the yield on the portfolio will decline.

In addition, we may acquire assets at a discount or premium and if the asset does not repay when expected, the anticipated yield may be impacted.

In addition, we may acquire assets at a discount or premium and if the asset does not

repay when expected, the anticipated yield may be impacted.

Under certain interest rate and prepayment scenarios we may fail to recoup fully our cost of acquisition of certain loans.

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Results of Operations

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

The following table presents the comparative results of our operations for the three and six months ended June 30, 2022 and 2021:

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

2022 2021 Change 2022 2021 Change

Interest income $ 10,274,051 $ 8,750,466 $ 1,523,585 $ 19,156,202 $ 16,871,415 $ 2,284,787

Real estate operating revenue 2,991,321 2,265,700 725,621 5,970,775 4,277,341 1,693,434

Prepayment fee income 1,174,760 — 1,174,760 1,174,760 — 1,174,760

Other operating income 247,981 240,131 7,850 498,646 396,793 101,853

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Operating expenses

Operating expenses reimbursed to Manager 1,928,563 1,342,758 585,805

Operating expenses reimbursed to

Manager 2,140,635 2,007,069 133,566 4,069,198 3,349,827 719,371

Asset management fee 1,640,628 1,156,696 483,932 3,128,723 2,313,239 815,484

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Operating income 6,097,994 4,155,775 1,942,219 8,990,466 8,865,302 125,164

Three Months Ended March 31,

2022 2021 Change

Other income and expenses —

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)

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

Interest expense from obligations

under participation agreements (1,238,655) (2,772,801) 1,534,146 (2,313,764) (4,652,882) 2,339,118

Interest expense on repurchase

agreement payable (1,665,283) — (1,665,283) (2,421,109) — (2,421,109)

Interest expense on mortgage loan

payable (520,829) (656,859) 136,030 (1,039,446) (1,343,009) 303,563

Interest expense on revolving line

of credit (700,737) (162,651) (538,086) (1,225,031) (180,497) (1,044,534)

Interest expense on term loan

payable — (1,646,182) 1,646,182 (164,969) (3,318,950) 3,153,981

Interest expense on secured

borrowing (556,855) (334,905) (221,950) (1,109,640) (634,710) (474,930)

Interest expense on unsecured

notes payable (1,432,877) (336,861) (1,096,016) (2,863,060) (336,861) (2,526,199)

Net unrealized (losses) gains on

marketable securities (34,950) 248,874 (283,824) (133,994) 234,266 (368,260)

Loss on sale of real estate (51,984) — (51,984) (51,984) — (51,984)

Income from equity investment in

unconsolidated investments 1,364,332 1,400,839 (36,507) 2,783,667 2,738,666 45,001

Realized gains on marketable

securities 32,278 — 32,278 83,411 — 83,411

(4,805,560) (4,260,546) (545,014) (8,455,919) (7,493,977) (961,942)

Net (loss) income $ (757,887) $ 1,476,096 $ (2,233,983)

Net income (loss) $ 1,292,434 $ (104,771) $ 1,397,205 $ 534,547 $ 1,371,325 $ (836,778)

Net Loan Portfolio

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 months ended March 31, 2022 and 2021 :

Three Months Ended March 31, 2022 Three Months Ended March 31, 2021

The following tables presents a reconciliation of our loan portfolio from a gross basis to net basis for the three and six months ended June 30, 2022 and 2021 :

Three Months Ended June 30, 2022 Three Months Ended June 30, 2021

Weighted Average Principal Amount (1)

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$ 92,151,571 12.2 % $ 100,077,908 11.6 %

Six Months Ended June 30, 2022 Six Months Ended June 30, 2021

Weighted Average Principal Amount (1)

Weighted Average Coupon Rate (2)

Weighted Average Principal Amount (1)

Weighted Average Coupon Rate (2)

Total portfolio

Gross loans $ 531,915,282 8.4 % $ 417,362,153 8.5 %

Obligations under participation agreements

and secured borrowing (82,267,911) 10.5 % (100,798,932) 10.4 %

Repurchase agreement payable (144,128,510) 3.5 % — — %

Term loan payable (20,836,327) 5.3 % (107,441,217) 5.3 %

Revolving line of credit (53,252,643) 5.0 % (5,102,351) 4.0 %

Net loans (3)

$ 231,429,891 11.8 % $ 204,019,653 9.4 %

Gross loans 394,099,125 7.1 % 259,783,669 6.4 %

Obligations under participation agreements

and secured borrowing (37,026,717) 8.1 % (48,600,589) 8.6 %

Repurchase agreement payable (144,128,510) 3.5 % — — %

Term loan payable (20,836,327) 5.3 % (107,441,217) 5.3 %

Revolving line of credit (53,252,643) 5.0 % (5,102,351) 4.0 %

Net loans (3)

$ 138,854,928 11.7 % $ 98,639,512 6.6 %

Subordinated loans (4)

Gross loans 137,816,157 12.3 % 157,578,484 11.9 %

Obligations under participation agreements (45,241,194) 12.4 % (52,198,343) 12.2 %

Net loans (3)

$ 92,574,963 12.3 % $ 105,380,141 11.8 %

_______________

(1) Amount is calculated based on the number of days each loan is outstanding.

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Interest Income

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.

For the three and six months ended June 30, 2022 as compared to the same periods in 2021, interest income increased by $1.5 million and $2.3 million, respectively, primarily due to an increase in contractual interest income as a result an increase in the weighted average principal balance of gross loans.

Real Estate Operating Revenue

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 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.

For the three and six months ended June 30, 2022 as compared to the same periods in 2021, real estate operating revenue increased by $0.7 million and $1.7 million, respectively, as a result of lease termination income recognized in 2022 in connection with a termination notice received in November 2021.

Prepayment Fee Income

For both the three and six months ended June 30, 2022, we recognized prepayment fee income of $1.2 million on the early repayment of two loans.

There was no prepayment fee income recognized for the three and six months ended June 30, 2021.

Operating Expenses Reimbursed to Manager

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.

For the three and six months ended June 30, 2022 as compared to the same periods in 2021, operating expenses reimbursed to the Manager increased by $0.1 million and $0.7 million, respectively, 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 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.

For the three and six months ended June 30, 2022 as compared to the same periods in 2021, asset management fees increased by $0.5 million and $0.8 million, respectively, 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 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.

For each of the three and six months ended June 30, 2022 as compared to the same periods in 2021, asset servicing fees increased by $0.1 million and $0.2 million, respectively, primarily due to an increase in total assets under management.

Provision for Loan Losses

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

As of 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.

As of June 30, 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 $0.005 million and $0.01 million and for the three and six months ended June 30, 2022, respectively.

As of June 30, 2021, we had one loan with a loan risk rating of “4” and no loans with a loan risk rating of “5” and reversed the previously recorded general allowance for loan losses of $0.5 million and $0.4 million for the three and six months ended June 30, 2021, respectively.

Additionally, as of June 30, 2022 and 2021, we had two and five loans, respectively, deemed impaired and recorded specific allowance for loan losses of $0.02 million and $1.0 million for the three months ended June 30, 2022 and 2021, respectively, and $0.06 million and $1.3 million for the six months ended June 30, 2022 and 2021, respectively, as a result of a decline in the value of the underlying collateral.

Real Estate Operating Expenses

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.

For the three months ended June 30, 2022 as compared to the same period in 2021, real estate operating expenses decreased by $0.3 million, due to an increase in ground rent expense on the multi-tenant office building resulting from a rent reset in June 2021 effective November 2020, and our recording of the rent increase related to the 2020 period in the 2021 period.

For the six months ended June 30, 2022 as compared to the same period in 2021, real estate operating expenses remained substantially the same.

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.

As of June 30, 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.

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Depreciation and Amortization

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.

For the three and six months ended June 30, 2022 as compared to the same periods in 2021, depreciation and amortization increased by $0.8 million and $1.6 million, respectively, 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.

For the six months ended June 30, 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 was sold in the second quarter of 2022.

There was no impairment charge recorded for the three months ended June 30, 2022 or the three and six months ended June 30, 2021.

Professional Fees

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.

For the three and six months ended June 30, 2022 as compared to the same periods in 2021, professional fees increased by $0.5 million and $0.8 million, respectively, primarily due to legal fees incurred in connection with litigation related to the ground rent described above as well as a loan refinancing in 2022 which we accounted for as a loan modification.

For the three and six months ended June 30, 2022 as compared to the same periods in 2021, other expense increased by $0.2 million and $0.3 million, respectively, as a result of a fee paid to a third-party in connection with the sale of a parcel of land.

Interest Expense from 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.

For the three and six months ended June 30, 2022 as compared to the same periods in 2021, interest expense from obligations under participation agreements decreased by $1.5 million and $2.3 million, respectively, primarily due to a decrease in weighted average principal amount outstanding on obligations under participation agreements.

Interest Expense on Repurchase Agreement Payable

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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.

For the three and six months ended June 30, 2022, interest expense on repurchase agreement payable was $1.7 million and $2.4 million, respectively.

There was no interest expense on repurchase agreement payable for the three and six months ended June 30, 2021.

Interest Expense on Mortgage Loan Payable

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.

For the three and six months ended June 30, 2022 as compared to the same periods in 2021, interest expense on mortgage loan payable decreased by $0.1 million and $0.3 million, respectively, as a result of a decrease in the weighted average principal amount outstanding on mortgage loan payable.

Interest Expense on Revolving Line of Credit

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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.

For the three and six months ended June 30, 2022 as compared to the same periods in 2021, interest expense on revolving line of credit increased by $0.5 million and $1.0 million, respectively, due to an increase in weighted average principal amount outstanding on the revolving line of credit.

Interest Expense on Term Loan Payable

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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.

For the three and six months ended June 30, 2022 as compared to the same periods in 2021, interest expense on term loan payable decreased by $1.6 million and $3.2 million, respectively, 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 first quarter of 2022.

Interest Expense on Secured Borrowing

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The portion that was sold is reflected as secured borrowing in the consolidated balance sheet, and the associated interest is reflected as interest expense on secured borrowing in the consolidated statements of operations.

For the three 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.

For the three and six months ended June 30, 2022 as compared to the same periods in 2021, interest expense on secured borrowing increased by $0.2 million and $0.5 million, respectively, 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 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.

For the three and six months ended June 30, 2022 as compared to the same periods in 2021, interest expense on unsecured notes payable increased by $1.1 million and $2.5 million, respectively, as a result of an increase in the weighted average principal amount outstanding.

Net Unrealized (Losses) Gains on Marketable Securities

For the three and six months ended June 30, 2022, we recognized net unrealized losses on marketable securities of $0.03 million and $0.13 million, compared to net unrealized gains on marketable securities of $0.25 million and $0.23 million recognized in the same periods in the prior year, as result of selling the marketable securities, at which time we reversed the previously unrealized gains on marketable securities.

Loss on Sale of Real Estate

In June 2022, we sold the 4.9 acres of adjacent land located in Pennsylvania for net proceeds of $8.6 million, and recognized a net loss on sale of $0.05 million for three and six months ended June 30, 2022, excluding impairment charges of $1.6 million recognized in March 2022 and $3.4 million recognized in December 2021.

There was no loss on sale of real estate for the three and six months ended June 30, 2021.

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.

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).

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.

As of June 30, 2022 and December 31, 2021, we owned 36.6% and 50.0% of the equity interest in RESOF, respectively.

In the fourth quarter of 2021, we purchased an 80% equity interest in two joint ventures with one of the jolint ventures owning a 1.4 million square feet industrial facility located in Arlington, Texas and the other one owning 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.

For the three and six months ended June 30, 2022, we recognized income from equity investment in unconsolidated investments of $1.4 million and $2.8 million, which consisted of equity income from RESOF of $1.6 million and $2.9 million and equity loss from the joint ventures of $0.2 million and $0.1 million, respectively.

For the three and six months ended June 30, 2021, we recognized income from equity investment in unconsolidated investments of $1.4 million and $2.7 million, respectively, on our investment in RESOF.

Realized Gains on Marketable Securities

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 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.

For the three and six months ended June 30, 2022, we sold marketable securities and recognized realized gains on marketable securities of $0.03 million and $0.08 million.

For the three and six months ended June 30, 2021, we did not sell any marketable securities and did not recognize any realized gains or losses on marketable securities.

Net Income (Loss)

For the three months ended June 30, 2022, the resulting net income was $1.3 million, compared to the resulting net loss of $0.1 million for the same period in 2021.

For the six months ended June 30, 2022 as compared to the same period in 2021, the resulting net income decreased by $0.8 million

Financial Condition, Liquidity and Capital Resources

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Summary of Financing

The table below summarizes our debt financing as of March 31, 2022:

The table below summarizes our debt financing as of June 30, 2022:

Type of Financing Maximum Amount Available Outstanding Balance Amount Remaining Available Interest Rate Maturity Date

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Line of credit $ 125,000,000 48,825,066 $ 76,174,934 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

UBS repurchase agreement 195,000,000 74,309,600 120,690,400 LIBOR or Term SOFR depending on repurchased asset index 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

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Cash Flows From Operating Activities

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.

For the six months ended June 30, 2022 as compared to the same period in 2021, cash flows from operating activities increased by $3.2 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 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.

For the six months ended June 30, 2022, cash flows used in investing activities were $74.4 million, primarily related to origination and purchase of loans of $120.4 million and purchase of equity interests in unconsolidated investments of $20.9 million, partially offset by proceeds from repayments of loans of $56.6 million, proceeds from sale of real estate of $8.6 million and proceeds from sale of marketable securities of $1.3 million.

For the six months ended June 30, 2021, cash flows used in investing activities were $56.3 million, primarily related to origination and purchase of loans of $82.1 million, purchase of partnership interest in a limited partnership of $14.1 million and purchase of marketable securities of $6.5 million, partially offset by proceeds from repayments of loans of $46.4 million.

Cash Flows From Financing Activities

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.

For the six months ended June 30, 2022, cash flows from financing activities were $60.7 million, primarily due to proceeds from borrowings under the repurchase agreements of $148.1 million and proceeds from obligations under participation agreements and secured borrowing of $20.2 million.

These cash inflows were partially offset by repayments on borrowings under the term loan of $93.8 million, repayments of obligations under participation agreements of $15.0 million and distributions paid of $7.7 million.

Additionally, for the six months ended June 30, 2022, we received proceeds from borrowings under the revolving line of credit of $41.2 million and made repayments on borrowings under the revolving line of credit of $30.9 million.

For the six months ended June 30, 2021, cash flows from financing activities were $128.0 million, primarily due to proceeds from issuance of unsecured notes payable, net of discount, of $82.5 million;

proceeds from obligations under participation agreements and secured borrowing of $62.6 million;

proceeds from borrowings under the term loan and revolving line of credit of $11.2 million;

and an increase in interest reserve and other deposits hold on investments of $0.7 million.

These cash inflows were partially offset by repayments on obligations under participation agreements of $12.4 million, distributions paid of $8.3 million, payment of mortgage principal of $3.6 million, repayment on borrowings under the term loan of $2.6 million and payment for deferred financing costs of $1.5 million.

Critical Accounting Policies and Use of Estimates

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.

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.

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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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 March 31,

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

2022 2021 2022 2021

Origination and extension fee expense (1)(2)

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Disposition fee (3)

479,500 63,700 479,500 314,688

Total $ 5,038,428 $ 3,757,085 $ 9,490,780 $ 7,125,965

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 our equity investment in an unconsolidated investment.

(2) Amount for the six months ended June 30, 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 unchanged sentences

We have also sold a portion of a loan to a third party that did not qualify for sale accounting.

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.

As of June 30, 2022, the principal balance of our participation obligations totaled $43.6 million, all of which were participation obligations to Terra Fund 6.

Additionally, as of June 30, 2022, the principal balance of our secured borrowing was $38.2 million.

Terra Fund 6 is managed by Terra Income Advisors, LLC, an affiliate of our Manager.

1 unchanged sentence

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.

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.

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.

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).

5 unchanged sentences

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 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.

For the three and six months ended June 30, 2022, the weighted average outstanding principal balance on obligations under participation agreements and secured borrowing was approximately $85.5 million and $82.3 million, respectively, and the weighted average interest rate was approximately 10.5% and 10.5%, respectively, compared to weighted average outstanding principal balance of approximately $112.6 million and $100.8 million, respectively, and weighted average interest rate of approximately 10.6% and 10.4% for the three and six months ended June 30, 2021, respectively.

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