What changed in this filing

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Item 1. Financial Statements

2022-11-14 compared with 2022-08-12 · 437 added, 389 removed, 1456 unchanged (36% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Cash and cash equivalents $ 21,957,216 $ 35,783,956

9 unchanged sentences

Operating lease right-of-use asset 27,382,939 27,394,936

Deal deposit 8,600,000 —

Interest receivable 2,192,868 2,463,037

20 unchanged sentences

Unearned income 373,516 449,690

Distributions payable 3,906 —

Other liabilities 1,068,328 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 June 30, 2022

December 31, 2021 125,000 125,000

125 shares authorized and 125 shares issued and outstanding at

September 30, 2022 and 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 June 30, 2022 and December 31, 2021 194,875 194,875

shares issued and outstanding at September 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 June 30, Six Months Ended June 30,

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

2022 2021 2022 2021

16 unchanged sentences

16,865,716 6,839,447 34,675,633 19,519,694

Operating income 6,097,994 4,155,775 8,990,466 8,865,302

Operating (loss) income ( 3,202,550 ) 5,806,671 5,787,916 14,671,973

Other income and expenses

8 unchanged sentences

Interest expense on secured borrowing ( 397,932 ) ( 467,957 ) ( 1,507,572 ) ( 1,102,667 )

Net unrealized (losses) gains on marketable

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

Net unrealized losses on marketable securities — ( 257,329 ) ( 133,994 ) ( 23,063 )

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

1 unchanged sentence

unconsolidated investments 1,483,846 1,824,825 4,267,513 4,563,491

Gain on sale of interests in unconsolidated

investments 799,827 — 799,827 —

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

Realized gains on marketable securities — 22,428 83,411 22,428

( 3,689,392 ) ( 6,534,429 ) ( 12,145,311 ) ( 14,028,406 )

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

Net (loss) income $ ( 6,891,942 ) $ ( 727,758 ) $ ( 6,357,395 ) $ 643,567

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

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

Earnings (loss) per share — basic and diluted

Net (loss) income allocable to common stock $ ( 6,895,848 ) $ ( 731,664 ) $ ( 6,369,113 ) $ 631,849

(Loss) earnings per share — basic and diluted

$ ( 0.35 ) $ ( 0.04 ) $ ( 0.33 ) $ 0.03

20 unchanged sentences

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

Distributions declared on common shares

($0.19 per share) — — — — — — ( 3,724,053 ) ( 3,724,053 )

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

Net loss — — — — — — ( 6,891,942 ) ( 6,891,942 )

Balance at September 30, 2022 $ — $ 125 $ 125,000 19,487,460 $ 194,875 $ 373,443,672 $ ( 117,687,298 ) $ 256,076,249

See notes to unaudited consolidated financial statements .

Terra Property Trust, Inc.

Consolidated Statements of Changes in Equity (Continued)

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

13 unchanged sentences

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

Distributions declared on common shares

($0.20 per share) — — — — — — ( 3,893,594 ) ( 3,893,594 )

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

Net loss — — — — — — ( 727,758 ) ( 727,758 )

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

See notes to unaudited consolidated financial statements .

1 unchanged sentence

Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

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

Adjustments to reconcile net income to net cash provided by operating

Net (loss) income $ ( 6,357,395 ) $ 643,567

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

Paid-in-kind interest income, net — ( 1,000,028 )

9 unchanged sentences

Amortization of above-market rent ground lease ( 97,761 ) ( 97,762 )

Realized gains on marketable securities ( 83,411 ) —

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

Realized loss on loan repayments — 517,989

Realized gain on marketable securities ( 83,411 ) ( 22,428 )

Unrealized losses on marketable securities 133,994 23,063

Loss on sale of real estate 51,984 —

Income from equity investment in excess of distributions received ( 2,781,380 ) —

Gain on sale of interests in unconsolidated investments ( 799,827 ) —

Changes in operating assets and liabilities:

Deal deposits ( 8,600,000 ) ( 9,529,476 )

Interest receivable 270,169 ( 182,778 )

6 unchanged sentences

Other liabilities ( 3,221,639 ) 802,166

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

Net cash used in operating activities ( 3,733,199 ) ( 5,167,585 )

Cash flows from investing activities:

2 unchanged sentences

Purchase of equity interests in unconsolidated investments ( 18,207,679 ) ( 14,065,197 )

Proceeds from sale of interests in unconsolidated investments 33,688,430 —

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

5 unchanged sentences

Consolidated Statements of Cash Flows (Continued)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from financing activities:

5 unchanged sentences

Distributions paid ( 11,406,028 ) ( 12,224,353 )

Proceeds from borrowings under the term loan — 2,595,576

Repayment of borrowings under the term loan ( 93,763,471 ) ( 16,585,001 )

Proceeds from secured borrowing 4,151,186 13,196,034

Repayment of secured borrowing ( 38,672,291 ) —

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

Repayment of mortgage principal ( 624,342 ) ( 11,855,650 )

Proceeds from borrowings under the term loan — 2,031,572

Change in interest reserve and other deposits held on investments ( 1,890,731 ) ( 1,944,027 )

Payment of financing costs ( 989,032 ) ( 1,663,250 )

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

Net cash (used in) provided by financing activities ( 12,144,792 ) 112,762,298

Net (decrease) increase in cash, cash equivalents and restricted cash ( 18,923,132 ) 33,198,009

2 unchanged sentences

$ 32,175,515 $ 66,118,332

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental Disclosure of Cash Flows Information:

3 unchanged sentences

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2022

September 30, 2022

Terra Property Trust, Inc.

6 unchanged sentences

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

As of 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”).

As of September 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.

7 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.

On October 1, 2022, pursuant to certain Agreement and Plan of Merger, dated as of May 2, 2022 (the “Merger Agreement”), Terra Income Fund 6, Inc.

(“Terra BDC”), merged with and into Terra Income Fund 6, LLC (formerly Terra Merger Sub, LLC) (“Terra LLC”), a wholly owned subsidiary of the Company, with Terra LLC continuing as the surviving entity of the merger (the “Merger”) and as a wholly owned subsidiary of the Company ( Note 11 ).

Summary of Significant Accounting Policies

4 unchanged sentences

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

The Company is required to first apply the VIE model to determine whether it holds a variable interest in an entity, and if so, whether the entity is a VIE.

The Company is required to first apply the VIE model to determine whether it holds a

Notes to Unaudited Consolidated Financial Statements

variable interest in an entity, and if so, whether the entity is a VIE.

If the Company determines it does not hold a variable interest in a VIE, it then applies the voting interest model.

2 unchanged sentences

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

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.

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

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

The Company consolidates entities that are VIEs when the Company determines it is the primary beneficiary.

26 unchanged sentences

Based on a 5-point scale, the Company’s loans are rated “1” through “5”, from less risk to greater risk, as follows:

Notes to Unaudited Consolidated Financial Statements

Risk Rating Description

5 unchanged sentences

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 (“TDRs”) unless the

Notes to Unaudited Consolidated Financial Statements

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

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

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

20 unchanged sentences

Management reviews the Company’s real estate for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The review of recoverability is based on estimated future cash flows and the estimated liquidation value of such real estate assets, and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the real estate assets.

The review of recoverability is based on estimated future cash flows and the estimated liquidation value of such real estate assets, and provide for impairment if such undiscounted cash flows are

Notes to Unaudited Consolidated Financial Statements

insufficient to recover the carrying amount of the real estate assets.

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

5 unchanged sentences

The Company uses the implicit rate when readily determinable.

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

Notes to Unaudited Consolidated Financial Statements

if there were any.

The operating lease ROU asset also includes any lease payments made in advance and excludes lease incentives if there were any.

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

29 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

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

September 30,

Cash and cash equivalents $ 21,957,216 $ 51,975,601

3 unchanged sentences

statements of cash flows $ 32,175,515 $ 66,118,332

Notes to Unaudited Consolidated Financial Statements

Participation Interests

23 unchanged sentences

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

As a REIT, the Company is not subject to federal income taxes on income and gains distributed to the stockholders as long as certain requirements are satisfied, principally relating to the nature of income and the level of distributions, as well as other factors.

As a REIT, the

Notes to Unaudited Consolidated Financial Statements

Company is not subject to federal income taxes on income and gains distributed to the stockholders as long as certain requirements are satisfied, principally relating to the nature of income and the level of distributions, as well as other factors.

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

2 unchanged sentences

federal and state income taxes at regular corporate rates.

As of June 30, 2022, the Company has satisfied all the requirements for a REIT.

As of September 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

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.

The Company recognizes interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in its consolidated statements of operations.

For the three and nine months ended September 30, 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.

15 unchanged sentences

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.

The Company believes the estimates and assumptions underlying its consolidated financial statements are reasonable and supportable based on the information available as of September 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 September 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

3 unchanged sentences

The Company operates in a single segment focused on mezzanine loans, other loans and preferred equity investments, and to a lesser extent, owning and managing real estate.

Notes to Unaudited Consolidated Financial Statements

Recent Accounting Pronouncements

8 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.

In July 2017, the U.K.

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

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

10 unchanged sentences

Portfolio Summary

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

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

September 30, 2022 December 31, 2021

Fixed Rate Floating

11 unchanged sentences

(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 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.

Coupon rate shown was determined using LIBOR of 3.14 %, average SOFR of 2.47 % and forward-looking term rate based on SOFR (“Term SOFR”) of 3.04 % as of September 30, 2022 and LIBOR of 0.10 % as of December 31, 2021.

Notes to Unaudited Consolidated Financial Statements

(2) As of September 30, 2022 and December 31, 2021, amount included $ 333.5 million and $ 290.6 million of senior mortgages used as collateral for $ 219.4 million and $ 176.9 million of borrowings under credit facilities, respectively ( Note 8 ).

(3) As of September 30, 2022 and December 31, 2021, fifteen and thirteen of these loans, respectively, are subject to a LIBOR or SOFR floor, as applicable.

Lending Activities

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

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

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

6 unchanged sentences

Provision for loan losses ( 9,264,058 ) — ( 9,264,058 )

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

Balance, September 30, 2022 $ 445,320,278 $ 44,858,965 $ 490,179,243

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

7 unchanged sentences

net 938,233 ( 44,053 ) 894,180

Realized loss on loan repayments (2)(3)

( 651,553 ) — ( 651,553 )

Provision for loan losses ( 1,565,245 ) — ( 1,565,245 )

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

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

_______________

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 $ 1.0 million for the six months ended June 30, 2021.

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

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

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

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

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

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

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

Notes to Unaudited Consolidated Financial Statements

Portfolio Information

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

June 30, 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 September 30, 2022 and December 31, 2021:

September 30, 2022 December 31, 2021

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

1 unchanged sentence

Preferred equity investments 81,321,345 81,321,345 16.6 % 92,252,340 92,400,572 19.7 %

Credit facility 25,000,000 25,220,416 4.7 % 25,000,000 25,206,964 5.4 %

Mezzanine loans 32,319,357 32,446,235 6.6 % 17,444,357 17,622,804 3.8 %

Credit facility 25,000,000 25,228,903 5.1 % 25,000,000 25,206,964 5.4 %

Allowance for loan losses — ( 22,922,539 ) ( 4.7 ) % — ( 13,658,481 ) ( 2.9 ) %

Total $ 509,264,614 $ 490,179,243 100.0 % $ 480,151,151 $ 469,673,314 100.0 %

Notes to Unaudited Consolidated Financial Statements

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

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

2 unchanged sentences

Industrial 63,349,686 63,622,877 13.0 % 32,000,000 32,206,964 6.9 %

Infill land 48,079,150 48,619,458 9.9 % 28,960,455 28,923,827 6.2 %

Hotel - full/select service 43,222,382 43,738,349 8.9 % 56,847,381 57,395,682 12.2 %

1 unchanged sentence

Student housing 28,000,000 28,742,362 5.9 % 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 — ( 22,922,539 ) ( 4.7 ) % — ( 13,658,481 ) ( 2.9 ) %

Total $ 509,264,614 $ 490,179,243 100.0 % $ 480,151,151 $ 469,673,314 100.0 %

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

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

5 unchanged sentences

New Jersey 48,428,836 48,748,885 9.9 % — — — %

Arizona 31,000,000 31,264,547 6.4 % — — — %

North Carolina 28,888,283 29,015,661 5.9 % 44,492,971 44,704,699 9.5 %

5 unchanged sentences

Total $ 509,264,614 $ 490,179,243 100.0 % $ 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.

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

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

September 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 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,

As of both September 30, 2022 and December 31, 2021, the specific allowance for loan losses on these loans were $ 22.9 million and $ 12.8 million, respectively, as a result of a decline in the fair value of the respective collateral.

As of September 30, 2022, the Company did not have any loans with a loan risk rating of “4” or “5”, and did not record any general allowance for loan losses for the three and nine months ended September 30, 2022.

As of September 30, 2022, the Company had three loans deemed impaired and recorded specific allowance for loan losses of $ 9.2 million and $ 9.3 million for the three and nine months ended September 30, 2022, respectively.

As of September 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 $ 0.4 million for the nine months ended September 30, 2021.

Additionally, as of September 30, 2021, the Company had three loans deemed impaired and recorded specific allowance for loan losses of $ 0.7 million and $ 2.0 million for the three and nine months ended September 30, 2021, respectively.

The following table presents the activity in the Company’s allowance for loan losses for the nine months ended September 30, 2022 and 2021:

Nine Months Ended September 30,

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

1 unchanged sentence

Charge-offs (1)

— ( 984,440 )

Recoveries — —

Allowance for loan losses, end of period $ 22,922,539 $ 4,319,563

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.

_______________

(1) Amount related to the TDR below.

As of September 30, 2022 and December 31, 2021, the Company had two loans and one loan that were in default, respectively.

Additionally, for the three months ended September 30, 2022 and 2021, the Company suspended interest income accrual of $ 2.8 million and $ 1.1 million on three loans, respectively, because recovery of such income was doubtful.

For the nine months ended September 30, 2022 and 2021, the Company suspended interest income accrual of $ 5.1 million and $ 2.4 million on three loans, respectively, because recovery of such income was doubtful.

Notes to Unaudited Consolidated Financial Statements

Troubled Debt Restructuring

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

As of September 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.

2 unchanged sentences

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

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.

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

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

6 unchanged sentences

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.

For the period ended September 30, 2021, interest income from the new senior loan was $ 0.2 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 June 30, 2022 and December 31, 2021, the unfunded commitment was $ 16.6 million and $ 15.1 million, respectively.

As of September 30, 2022 and December 31, 2021, the unfunded commitment was $ 19.3 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 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.

As of September 30, 2022 and December 31, 2021, the Company owned 30.9 % and 50.0 % of the equity interest in RESOF, respectively.

As of September 30, 2022 and December 31, 2021, the carrying value of the Company ’ s investment in RESOF was $ 39.9 million and $ 40.5 million, respectively.

For the three and nine months ended September 30, 2022, the Company recorded equity income from RESOF of $ 2.1 million and $ 5.0 million, respectively, and did not receive any distributions from RESOF.

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

Notes to Unaudited Consolidated Financial Statements

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

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Investments at fair value (cost of $177,463,756 and $107,261,022, respectively) $ 179,957,744 $ 108,359,898

7 unchanged sentences

Partners’ capital $ 126,090,514 $ 79,286,048

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

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

2022 2021 2022 2021

2 unchanged sentences

Net investment income 9,146,729 2,626,988 16,827,634 6,351,736

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

Unrealized (depreciation) appreciation on

investments ( 644,446 ) ( 80,655 ) 917,745 102,328

Net increase in partners’ capital resulting from

1 unchanged sentence

Equity Investment in Joint Ventures

As of June 30, 2022, the Company owned equity interests in three joint ventures that invest in real estate properties.

As of September 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.

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

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

Ownership Interest at 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

LEL NW 49th JV LLC Third party 80 % 5,204,008 5,306,467

In September 2022, the Company sold a 53 % effective interest in two joint ventures and 59 % effective interest in another joint venture for a total of $ 33.7 million and recognized a gain on sale of $ 0.8 million.

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

September 30, 2022 December 31, 2021

Entity Co-owner (1)

Beneficial Ownership Interest Carrying Value Beneficial Ownership Interest Carrying Value

LEL Arlington JV LLC (1)

Affiliate/Third party 27 % $ 7,930,844 80 % $ 23,949,044

LEL NW 49th JV LLC (1)

Affiliate/Third party 27 % 1,737,626 80 % 5,306,467

TCG Corinthian FL Portfolio

Third Party 90 % 22,156,688 —

JV LLV (1)(2)

Affiliate/Third Party 31 % 7,465,926 90 % —

$ 17,134,396 $ 29,255,511

_______________

(1) This investment was purchased in March 2022.

(1) The Company sold a portion of the interest in this investment to an affiliate in September 2022.

(2) This investment was purchased from a third party in March 2022.

Notes to Unaudited Consolidated Financial Statements

1 unchanged sentence

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Net investments in real estate $ 197,690,556 $ 115,636,424

5 unchanged sentences

Members’ capital $ 59,986,884 $ 35,741,866

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

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

2022 2021 2022 2021

5 unchanged sentences

Net loss $ ( 78,683 ) $ — $ ( 150,185 ) $ —

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.

For the three and nine months ended September 30, 2022, the Company recorded equity loss from the joint ventures of $ 0.6 million and $ 0.7 million, respectively, and received distributions from the joint ventures of $ 0.2 million and $ 0.9 million, respectively.

There was no such equity income or loss recorded or distributions received for the three and nine months ended September 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 — 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.

2022 — In June 2022, the Company sold 4.9 acres of land it owned in Pennsylvania for net proceeds of $ 8.6 million, and recognized a net loss on sale of $ 0.1 million excluding impairment charges of $ 1.6 million and $ 3.4 million recognized in March 2022 and December 2021, respectively.

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 .

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

Additionally, the lease provides for a fixed rental payment plus a percentage rent that is based on 6 % of the gross sales of the tenant’s business.

2 unchanged sentences

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

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

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

Notes to Unaudited Consolidated Financial Statements

Real Estate Owned, Net

Real estate owned is comprised of 4.9 acres of adjacent land located in Pennsylvania and a multi-tenant office building, with lease intangible assets and liabilities, located in California.

Real estate owned was comprised of 4.9 acres of land located in Pennsylvania and a multi-tenant office building, with lease intangible assets and liabilities, located in California.

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

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

15 unchanged sentences

_______________

(1) The land was sold in the second quarter of 2022.

(1) The 4.9 acres of land in Pennsylvania was sold by the Company 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 June 30, Six Months Ended June 30,

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

2022 2021 2022 2021

8 unchanged sentences

Management fees 68,867 55,609 206,954 205,915

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

Lease expense, including amortization of

above-market ground lease (1)

487,163 487,163 1,461,489 1,597,239

2 unchanged sentences

_______________

Notes to Unaudited Consolidated Financial Statements

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

The last rent reset was on November 1, 2020.

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

Based on information available to the Company as of November 1, 2020, including the fact that there was a global pandemic with a potentially significant negative impact on real estate

Notes to Unaudited Consolidated Financial Statements

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

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

2 unchanged sentences

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

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

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

As of September 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 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 ground lease had a remaining lease term of 64.6 years as of September 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 June 30, 2022 are as follows:

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

Years Ending December 31, Total

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

2022 (October 1 through December 31) $ 1,625,511

2023 4,235,538

4 unchanged sentences

Scheduled Annual Net Amortization of Intangibles

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:

Based on the intangible assets and liabilities recorded at September 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 (July 1 through December 31) $ ( 433,802 ) $ 2,352,588 $ ( 65,174 ) $ 1,853,612

2022 (October 1 through December 31) $ ( 187,426 ) $ 1,050,427 $ ( 32,588 ) $ 830,413

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:

June 30, 2022 December 31, 2021

September 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 June 30, Six Months Ended June 30,

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

2022 2021 2022 2021

2 unchanged sentences

_______________

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

(1) The decrease in operating lease cost for the nine months ended September 30, 2022 as compared to the same period in 2021 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:

Six Months Ended June 30,

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

Nine Months Ended September 30,

Amounts included in the measurement of lease liability:

Operating cash flows from an operating lease $ 1,559,250 $ 1,695,000

4 unchanged sentences

Years Ending December 31, Operating Lease

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

2022 (October 1 through December 31) $ 519,750

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 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.

As of September 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.

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

As of September 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:

6 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

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

2 unchanged sentences

Reclassification of net realized gains on marketable securities into earnings 83,411 22,428

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

Unrealized losses on marketable securities ( 133,994 ) ( 23,063 )

Ending balance $ — $ 4,437,855

Notes to Unaudited Consolidated Financial Statements

Financial Instruments Not Carried at Fair Value

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

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

15 unchanged sentences

Total liabilities $ 372,707,055 $ 367,805,898 $ 356,804,428 $ 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 June 30, 2022 and December 31, 2021 due to their short-term nature.

Notes to Unaudited Consolidated Financial Statements

The Company estimated that its other financial assets and liabilities, not included in the tables above, had fair values that approximated their carrying values at both September 30, 2022 and December 31, 2021 due to their short-term nature.

Valuation Process for Fair Value Measurement

14 unchanged sentences

Valuations determined by the valuation committee are supported by pertinent data and, in addition to a proprietary valuation model, are based on market data, industry accepted third-party valuation models and discount rates or other methods the valuation committee deems to be appropriate.

Because there is no readily available

Notes to Unaudited Consolidated Financial Statements

market for these investments, the fair values of these investments are approved in good faith by the Manager pursuant to the Company’s valuation policy.

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

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

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

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

Asset Category Minimum Maximum Weighted Average

6 unchanged sentences

Mortgage loan payable 31,612,338 Discounted cash flow Discount rate 6.08 % 6.08 % 6.08 %

Secured borrowing 38,120,030 Discounted cash flow Discount rate 7.98 % 7.98 % 7.98 %

Revolving line of credit 24,135,865 Discounted cash flow Discount rate 6.39 % 6.39 % 6.39 %

Total Level 3 Liabilities $ 284,448,178

Notes to Unaudited Consolidated Financial Statements

Fair Value at December 31, 2021 Primary Valuation Technique Unobservable Inputs December 31, 2021

15 unchanged sentences

The Management Agreement runs co-terminus with the amended and restated operating agreement for Terra Fund 5, which is scheduled to terminate on December 31, 2023 unless Terra Fund 5 is dissolved earlier.

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

Notes to Unaudited Consolidated Financial Statements

that are included on the consolidated statements of operations:

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

The following table presents a summary of fees paid and costs reimbursed to the Manager in connection with providing services to the Company that are included on the consolidated statements of operations:

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

2022 2021 2022 2021

10 unchanged sentences

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

(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.

(2) Amount for the nine months ended September 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.

5 unchanged sentences

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

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

The Company pays a monthly asset management fee at an

Notes to Unaudited Consolidated Financial Statements

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

Asset Servicing Fee

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

As of September 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

2 unchanged sentences

If the Company takes ownership of a property as a result of a workout or foreclosure of a loan, the Company will pay a disposition fee upon the sale of such property equal to 1% of the sales price.

Cost Sharing and Reimbursement Agreement

The Company and Terra LLC have entered into a cost sharing and reimbursement agreement effective October 1, 2022 (the “Cost Sharing and Reimbursement Agreement”) pursuant to which Terra LLC will be responsible for its allocable share of the Company’s expenses, including fees paid by the Company to the Manager based on relative assets under management.

Distributions Paid

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.

For the three months ended September 30, 2022 and 2021, the Company made distributions to Terra JV and Terra Offshore REIT totaling $ 3.7 million and $ 3.9 million, respectively, of which $ 0.0 and $ 3.9 million were returns of capital, respectively ( Note 10 ).

For the nine months ended September 30, 2022 and 2021, the Company made distributions to Terra JV and Terra Offshore REIT totaling $ 11.4 million and $ 12.2 million, respectively, of which $ 5.4 million and $ 10.7 million were returns of capital, respectively.

Due to 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.

As of September 30, 2022 and December 31, 2021, approximately $ 2.9 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 June 30, 2022, there was no amount due from related party.

As of September 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.

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

Notes to Unaudited Consolidated Financial Statements

Mavik Real Estate Special Opportunities Fund, LP

11 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.

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

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

September 30, 2022

Participating Interests Principal Balance Carrying Value

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30.00 % $ 6,088,283 $ 6,113,748

Mesa AZ Industrial Owner, LLC (2)(3)

38.27 % 31,000,000 31,264,547

UNJ Sole Member, LLC (2)

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________________

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

(1) The loan is held in the name of Terra BDC, a formerly affiliated fund that was advised by Terra Income Advisors, LLC, an affiliate of the Company’s sponsor and Manager.

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

(3) The Company acquired its interest in this investment in September 2022.

Notes to Unaudited Consolidated Financial Statements

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 June 30, 2022 and December 31, 2021:

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

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

Transfers Treated as Obligations Under Participation Agreements as of

September 30, 2022

Principal Balance Carrying Value % Transferred Principal Balance Carrying Value

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________________

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

(1) Participant is Terra BDC.

These investments are held in the name of the Company, but each of the Participant’s rights and obligations, including interest income and other income ( e.g.

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

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.

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

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

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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 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

Windy Hill PV Five CM, LLC $ 55,205,494 $ 55,506,041 69.11 % $ 38,150,138 $ 38,312,920

$ 55,205,494 $ 55,506,041 $ 38,150,138 $ 38,312,920

In August 2022, the secured borrowing was repaid in full.

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

Transfers Treated as Secured Borrowing as of December 31, 2021

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$ 49,954,068 $ 50,264,568 $ 34,521,104 $ 34,586,129

Notes to Unaudited Consolidated Financial Statements

Unsecured Notes Payable

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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 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

As of September 30, 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 September 30, 2022 and December 31, 2021:

September 30, 2022 December 31, 2021

Principal Balance Carrying Value (1)

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_______________

(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.

(1) Amount is net of unamortized issue discount of $ 2.1 million and $ 2.4 million, and unamortized deferred financing costs of $ 0.7 million and $ 0.9 million as of September 30, 2022 and December 31, 2021, respectively.

Revolving Line of Credit

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On January 4, 2022, the Company amended the Revolving Line of Credit to increase the maximum amount available to $ 125.0 million and extended the maturity date of the facility to March 12, 2024 with an annual 12-month extension available at the Company’s option, which are subject to certain conditions.

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

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

On August 3, 2022, the Company further amended the Revolving Line of Credit to increase the borrowing sub-limit in New York City and to allow for loans acquired through participation agreements as eligible assets.

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

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

(ii) a $ 3.5 million quarterly operating profit, as defined within the agreement;

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

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

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

Notes to Unaudited Consolidated Financial Statements

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

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

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

June 30, 2022

Borrowing Base Borrowings Under the Revolving Line of Credit

Principal Amount Carrying Value Fair

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

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

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

Borrowing Base Borrowings Under the Revolving Line of Credit

Principal Amount Carrying Value Fair

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

606 Fayetteville LLC and 401 E.

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

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

D-G 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 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.

As of September 30, 2022 and December 31, 2021, borrowings under the Revolving Line of Credit were $ 24.1 million and $ 38.6 million, respectively, collateralized by $ 61.3 million and $ 60.1 million of eligible assets, respectively.

For the nine months ended September 30, 2022 and 2021, the Company received proceeds from the Revolving Line of Credit of $ 41.2 million and $ 25.3 million, respectively, and made repayments of $ 55.6 million and $ 0.0 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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On February 18, 2022, the Company refinanced the Term Loan with a new repurchase agreement and expects continued covenant compliance under the terms of the new repurchase agreement.

Notes to Unaudited Consolidated Financial Statements

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

10 unchanged sentences

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

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.

For the nine months ended September 30, 2022 and 2021, the Company made repayments on borrowings under the Term Loan of $ 93.8 million and $ 16.6 million, respectively, and received proceeds from borrowings under the Term Loan of $ 0.0 million and $ 2.6 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 June 30, 2022 and December 31, 2021, the Company was in compliance with these covenants.

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 September 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

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

September 30, 2022

Collateral Borrowings Under Master Repurchase Agreement

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$ 67,384,000 $ 68,509,209 $ 68,981,995 $ 44,569,600

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.

For the nine months ended September 30, 2022, the Company borrowed $ 30.9 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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Upon the occurrence of a margin deficit event, the GS Buyer may require the GS Seller to make a payment to reduce the purchase price to eliminate any margin deficit.

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

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

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.

Repurchase Agreement.

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

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

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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 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

as of September 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 September 30, 2022:

September 30, 2022

Collateral Borrowings Under Repurchase Agreement

9 unchanged sentences

$ 165,654,037 $ 166,761,609 $ 162,800,483 $ 119,826,606

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

For the nine months ended September 30, 2022, the Company borrowed $ 119.8 million under the Repurchase Agreement and did not make any repayments.

Mortgage Loan Payable

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

As of September 30, 2022, the Company had a $ 31.3 million mortgage loan payable collateralized by a multi-tenant office building that the Company acquired through foreclosure.

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

September 30, 2022 December 31, 2021

Lender Current

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Centennial Bank LIBOR + 3.85%

(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

(LIBOR Floor of 2.23%) November 14, 2022 $ 31,338,350 $ 31,612,338 $ 41,748,898 $ 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 June 30, 2022 are as follows:

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

Years Ending December 31, Total

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

2022 (October 1 to December 31) $ 31,338,350

2024 219,412,071

2 unchanged sentences

Total $ 330,853,060

At June 30, 2022 and December 31, 2021, the unamortized deferred debt issuance costs were $ 5.7 million and $ 5.9 million, respectively.

At September 30, 2022 and December 31, 2021, the unamortized deferred debt issuance costs were $ 5.0 million and $ 5.9 million, respectively.

Obligations Under Participation Agreements and Secured Borrowing

2 unchanged sentences

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 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.

As of September 30, 2022 and December 31, 2021, obligations under participation agreements had a carrying value of approximately $ 37.0 million and $ 42.2 million, respectively, and the carrying value of the loans that are associated with these obligations under participation agreements was approximately $ 90.6 million and $ 101.0 million, respectively, (see “ Participation Agreements ” in Note 7 ).

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

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

The secured borrowing was repaid in August 2022.

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 June 30, 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 September 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.

2 unchanged sentences

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 $ 96.0 million and $ 71.8 million as of June 30, 2022 and December 31, 2021, respectively.

These fundings amounted to approximately $ 63.6 million and $ 71.8 million as of September 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.

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

As of September 30, 2022 and December 31, 2021, the unfunded investment commitment was $ 19.3 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 June 30, 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 September 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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Earnings Per Share

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,

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

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

2022 2021 2022 2021

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

Net (loss) income $ ( 6,891,942 ) $ ( 727,758 ) $ ( 6,357,395 ) $ 643,567

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

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

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

Net (loss) income allocable to common stock $ ( 6,895,848 ) $ ( 731,664 ) $ ( 6,369,113 ) $ 631,849

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 $ ( 0.35 ) $ ( 0.04 ) $ ( 0.33 ) $ 0.03

Preferred Stock Classes

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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.

As of September 30, 2022 and December 31, 2021, there were no Preferred Stock issued or outstanding other than the Series A Preferred Stock (defined below).

Notes to Unaudited Consolidated Financial Statements

11 unchanged sentences

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

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.

As of September 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 September 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.

On October 1, 2022, in connection with the Merger, the Company amended its charter to increase the shares authorized 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, $ 0.01 par value per share (“Class B Common Stock”), and 50,000,000 shares of Preferred Stock.

Concurrently, 4,847,910 shares of Class B Common Stock were issued to former Terra BDC stockholders and each share of the Company’s common stock issued and outstanding immediately prior to the effective time of the Merger was automatically changed into one issued and outstanding share of Class B Common Stock ( Note 11 ).

Distributions

2 unchanged sentences

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.

For the three months ended September 30, 2022 and 2021, the Company made distributions to Terra JV and Terra Offshore REIT totaling $ 3.7 million and $ 3.9 million, respectively, of which $ 0.0 million and $ 3.9 million were returns of capital, respectively.

Additionally, for each of the three and nine months ended September 30, 2022 and 2021, the Company made distributions to preferred stockholders of $ 3,906 and $ 11,718 , 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 that would require adjustment to, or disclosure in, the Company’s consolidated financial statements.

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

On October 1, 2022 (the “Closing Date”), pursuant to the Merger Agreement, Terra BDC merged with and into Terra LLC, with Terra LLC surviving as a wholly owned subsidiary of the Company.

The Certificate of Merger and Articles of Merger with respect to the Merger were filed with the Secretary of State of the State of Delaware and State Department of Assessments and Taxation of Maryland (the “SDAT”), respectively, with an effective time and date of 12:02 a.m., Eastern Time, on the Closing Date (the “Effective Time”).

Notes to Unaudited Consolidated Financial Statements

At 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 shares were automatically retired and ceased to exist with no consideration paid therefor, each issued and outstanding share of Terra BDC Common Stock was automatically cancelled and retired and converted into the right to receive (i) 0.595 shares of the newly designated 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 Stock to which such holder would otherwise be entitled by (y) $ 14.38 .

Pursuant to the terms of the transactions described in the Merger Agreement, approximately 4,847,910 shares of Class B Common Stock were issued to former Terra BDC stockholders in connection with the Merger, based on the number of outstanding shares of Terra BDC Common Stock as of the Closing Date.

Following the consummation of the Merger, former Terra BDC stockholders owned approximately 19.9 % of the common equity of the Company.

Assumption of Notes

As previously reported by Terra BDC, on February 3, 2021, Terra BDC and Terra Income Advisors, LLC entered into an Underwriting Agreement with Ladenburg Thalmann & Co.

Inc., on behalf of the underwriters named in Schedule I thereto (the “Underwriters”), in connection with the offer and sale by Terra BDC to the Underwriters of $ 34,750,000 aggregate principal amount of Terra BDC’s 7.00 % Notes due 2026 (the “TIF6 Notes”), which closed on February 10, 2021.

On February 25, 2021, the Underwriters partially exercised their over-allotment option to purchase an additional $ 3,635,000 aggregate principal amount of the TIF6 Notes, which closed on February 26, 2021.

Pursuant to the Merger Agreement, Terra LLC agreed to take all necessary action to assume the payment of the principal of and interest on all of the TIF6 Notes outstanding as of the Effective Time and the performance of every covenant of the Indenture, dated February 10, 2021 (the “TIF6 Indenture”), between Terra BDC and the Trustee, as supplemented by the First Supplemental Indenture, dated February 10, 2021, by and between Terra BDC and the Trustee (the “First Supplemental Indenture”), to be performed or observed by Terra BDC, including, without limitation, the execution and delivery to the Trustee of a supplement to the TIF6 Indenture in form satisfactory to the Trustee.

On the Closing Date, Terra BDC, Terra LLC and the Trustee entered into a Second Supplemental Indenture pursuant to which Terra LLC assumed the payment of the TIF6 Notes and the performance of every covenant of the TIF6 Indenture, as supplemented by the First Supplemental Indenture, to be performed or observed by Terra BDC.

The TIF6 Notes will mature on March 31, 2026 , unless earlier repurchased or redeemed.

The TIF6 Notes bear interest at a rate of 7.00 % per annum, payable on March 30, June 30, September 30 and December 30 of each year.

The TIF6 Notes are Terra LLC’s direct unsecured obligations and rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by Terra LLC;

effectively subordinated in right of payment to any of Terra LLC’s existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness;

and structurally subordinated to all existing and future indebtedness and other obligations of any of Terra LLC’s subsidiaries and financing vehicles.

Terra LLC may redeem the TIF6 Notes in whole or in part at any time on or after February 10, 2023, at a redemption price equal to 100% of the outstanding principal amount thereof, plus accrued and unpaid interest.

The TIF6 Indenture contains certain covenants that, among other things, limit the ability of Terra LLC, subject to exceptions, to incur indebtedness in violation of the Investment Company Act of 1940, as amended, and to make distributions, incur indebtedness or repurchase shares of Terra LLC’s capital stock unless it satisfies asset coverage requirements set forth in the First Supplemental Indenture after giving effect to such transaction.

The TIF6 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 TIF6 Notes to become or to be declared due and payable.

Amendment to Credit Facility

As previously reported by Terra BDC, on April 9, 2021, Terra BDC, as borrower, entered into a credit agreement (the “Credit Agreement”) with Eagle Point Credit Management LLC, as the administrative agent and collateral agent (“Eagle Point”), and certain funds and accounts managed by Eagle Point, as lenders (in such capacity, collectively, the “Lenders”).

The Credit Agreement provides for (i) a delayed draw term loan of $ 25,000,000 and (ii) additional incremental loans in a minimum amount of $ 1,000,000 and multiples of $ 500,000 in excess thereof, which may be approved by a Lender in its sole discretion.

On September 27, 2022, Terra BDC, Terra LLC, Eagle Point and the Lenders entered into a Consent Letter and Amendment (the “Credit Facility Amendment”) effective October 1, 2022.

Pursuant to the Credit Facility Amendment (i) Eagle

Notes to Unaudited Consolidated Financial Statements

Point and the Lenders consented to the consummation of the Merger and the assumption by Terra LLC of all of the obligations of Terra BDC under the Credit Agreement, (ii) and the Credit Agreement was amended to, among other things, change the scheduled maturity date to July 1, 2023, and remove the make whole premium on voluntary prepayments of the loans.

Amendment to the Charter

On the Closing Date, the Company filed with the SDAT 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 were increased from 500,000,000 to 950,000,000 , consisting of 450,000,000 shares of Class A Common Stock, 450,000,000 shares of Class B Common Stock, and 50,000,000 shares of Preferred Stock, and (ii) each share of the Company’s common stock issued and outstanding immediately prior to the Effective Time was automatically changed into one issued and outstanding share of Class B Common Stock.

The Class B Common Stock rank equally with and 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, except as set forth below with respect to conversion.

On the date that is 180 calendar days (or, if such date is not a business day, the next business day) after the date (the “First Conversion 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, 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.

Appointment of Directors

As of the Effective Time and in accordance with the Merger Agreement, the size of the Board was increased by three members and each of Spencer Goldenberg, Adrienne Everett and Gaurav Misra (each a “Terra BDC Designee”, and collectively, the “Terra BDC Designees”) were elected to the Board to fill the vacancies created by such increase, with each Terra BDC Designee to serve until the Company’s next annual meeting of stockholders and until his or her successor is duly elected and qualifies.

Each of the other members of the Board immediately prior to the Effective Time will continue as members following the Effective Time.

Voting Support Agreement

On the Closing Date, the Company, Terra JV and Terra Offshore REIT entered into a Voting Support Agreement (the “Voting Support Agreement”).

Pursuant to the Voting Support Agreement, effective as of the Closing Date, Terra JV and Terra Offshore REIT have agreed to, at any meeting of the Company’s stockholders called for the purpose of electing directors (or by any consent in writing or by electronic transmission in lieu of any such meeting), cast all votes entitled to be cast by each of them in favor of the election of the Terra BDC Designees until the earlier of (i) the first anniversary of the Closing Date, (ii) the TPT Class B Common Stock Distributions (as defined in the Voting Support Agreement) or (iii) an amendment and restatement of the amended and restated management agreement between the Company and Terra REIT Advisors approved by the Company’s Board, including the Terra BDC Designees.

Indemnification Agreements

The Company has entered into customary indemnification agreements with each member of the Board (including each Terra BDC Designee).These agreements, among other things, require the Company to indemnify each director to the maximum extent permitted by Maryland law, including indemnification of expenses such as attorney’s fees, judgments, fines and settlement amounts incurred in any action or proceeding, including any action or proceeding by or in right of the Company, arising out of his or her service as a director.

Notes to Unaudited Consolidated Financial Statements

Cost Sharing and Reimbursement Agreement

On October 1, 2022, the Company and Terra LLC have entered into the Cost Sharing and Reimbursement Agreement pursuant to which Terra LLC will be responsible for its allocable share of the Company’s expenses, including fees paid by the Company to the Manager based on relative assets under management.

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

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

• our ability to achieve the expected synergies, cost savings and other benefits from the Merger (as defined below);

• risks associated with achieving expected synergies, cost savings and other benefits from our increased scale;

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

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• actual and potential conflicts of interest with any of the following affiliated entities:

Terra Fund Advisors, LLC, Terra REIT Advisors, LLC (“Terra REIT Advisors” or the “Manager”), Terra Income Advisors, LLC;

Terra Fund Advisors, LLC, Terra REIT Advisors, LLC (“Terra REIT Advisors” or our “Manager”), Terra Income Advisors, LLC;

Terra Capital Partners, LLC (“Terra Capital Partners”), our sponsor;

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

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

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

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

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

• actions and initiatives of the U.S.

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

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.

As of September 30, 2022, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 21 loans in eight states with an aggregate net principal balance of $472.4 million, a weighted average coupon rate of 9.8%, a weighted average loan-to-value ratio of 72.5% and a weighted average remaining term to maturity of 1.1 years.

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

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

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.

As of September 30, 2022, our portfolio included underlying properties located in 21 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.

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

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

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

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 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.

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

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

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

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

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

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

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

as each other share of our common stock.

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.

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

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.

On October 1, 2022 (the “Closing Date”), pursuant to certain Agreement and Plan of Merger, dated as of May 2, 2022 (the “Merger Agreement”), Terra BDC merged with and into Terra Income Fund 6, LLC (formerly Terra Merger Sub, LLC), our wholly owned subsidiary (“Terra LLC”), with Terra LLC continuing as the surviving entity of the merger (the “Merger”) and as our wholly owned subsidiary.

At the Effective Time, except for any shares of common stock, par value $0.001 per share, of Terra BDC (“Terra BDC Common Stock”) held by us or any of our wholly owned subsidiaries or Terra BDC, which shares were automatically retired and ceased to exist with no consideration paid therefor, each issued and outstanding share of Terra BDC Common Stock was automatically cancelled and retired and converted into the right to receive (i) 0.595 shares of our newly designated Class B Common Stock, par value $0.01 per share (“Class B Common Stock”), and (ii) cash, without interest, in lieu of any fractional shares of Class B Common Stock otherwise issuable in an amount, rounded to the nearest whole cent, determined by multiplying (x) the fraction of a share of Class B Common Stock to which such holder would otherwise be entitled by (y) $14.38.

Following the consummation of the Merger, former Terra BDC stockholders owned approximately 19.9% of our common equity.

On the Closing Date, we filed with the SDAT our Articles of Amendment to the Articles of Amendment and Restatement (the “Charter Amendment”).

Pursuant to the Charter Amendment, (i) the authorized shares of our stock which we have authority to issue were 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 (“Preferred Stock”), and (ii) each share of our common stock issued and

outstanding immediately prior to the Effective Time was automatically changed into one issued and outstanding share of Class B Common Stock.

The Class B Common Stock rank equally with and have identical preferences, rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption as each other share of our common stock, except as set forth below with respect to conversion.

On the date that is 180 calendar days (or, if such date is not a business day, the next business day) after the date (the “First Conversion 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 (our “Board”), 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 our 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 our 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.

As of the Effective Time and in accordance with the Merger Agreement, the size of our Board was increased by three members and each of Spencer Goldenberg, Adrienne Everett and Gaurav Misra (each a “Terra BDC Designee) was elected to our Board to fill the vacancies created by such increase, with each Terra BDC Designee to serve until our next annual meeting of stockholders and until his or her successor is duly elected and qualifies.

Each of the other members of our Board immediately prior to the Effective Time will continue as members following the Effective Time.

COVID-19 Pandemic

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Portfolio Summary

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

June 30, 2022

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

September 30, 2022

Fixed Rate Floating

Rate (1)(2)(3)

Total Gross Loans Obligations under Participation Agreements and Secured Borrowing Total Net Loans

Total Gross Loans Obligations under Participation Agreements Total Net Loans

Number of loans 4 17 21 3 21

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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 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.

(3) As of September 30, 2022 and December 31, 2021, fifteen 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 September 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 land acquired pursuant to a deed in lieu of foreclosure and the multi-tenant office building.

The parcel of 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 $41.7 million and $56.1 million as of September 30, 2022 and December 31, 2021, respectively.

The mortgage loan payable encumbering the office building had an outstanding principal amount of $ 31.3 million and $32.0 million as of September 30, 2022 and December 31, 2021, respectively.

Additionally, as of September 30, 2022 and December 31, 2021, we owned 30.9 % 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 June 30, 2022 and December 31, 2021, these equity interests had total carrying value of $91.9 million and $69.7 million, respectively.

As of September 30, 2022 and December 31, 2021, these equity interests had total carrying value of $ 57.1 million and $69.7 million, respectively.

Portfolio Investment Activity

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.

For the three months ended September 30, 2022 and 2021, we invested $94.8 million and $56.5 million in new and add-on investments and had $31.6 million and $37.7 million of repayments, resulting in net investments of $63.2 million and $18.8 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.

For the nine months ended September 30, 2022 and 2021, we invested $120.5 million and $85.9 million in new and add-on investments and had $43.5 million and $69.0 million of repayments, resulting in net investments of $77.0 million and $16.9 million, respectively.

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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.

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Loan Structure Principal Balance Carrying

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Total $ 472,432,980 $ 453,226,406 100.0 % $ 403,581,753 $ 392,855,158 100.0 %

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Property Type Principal Balance Carrying

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Multifamily 119,902,801 121,113,385 26.7 % 72,999,417 73,955,240 18.8 %

Hotel - full/select service 43,222,382 43,722,443 9.7 % 56,847,381 57,395,682 14.6 %

Industrial 50,112,186 50,264,172 11.1 % 18,762,500 18,859,876 4.8 %

Infill land 48,079,150 48,619,458 10.7 % 28,960,455 28,923,827 7.4 %

Hotel - full/select service 43,222,382 43,738,349 9.7 % 56,847,381 57,395,682 14.6 %

Mixed use 29,497,123 29,558,901 6.5 % 28,940,658 28,977,024 7.4 %

Student housing 28,000,000 28,742,362 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 — (22,922,539) (5.1) % — (13,658,481) (3.5) %

Total $ 472,432,980 $ 453,226,406 100.0 % $ 403,581,753 $ 392,855,158 100.0 %

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Geographic Location Principal Balance Carrying

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New Jersey 48,428,836 48,748,885 10.8 % — — — %

Arizona 31,000,000 31,264,547 6.9 % — — — %

North Carolina 28,888,283 29,015,661 6.4 % 44,492,971 44,704,699 11.4 %

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

Pennsylvania — — — % — — — %

South Carolina — — — % 3,000,000 3,145,614 0.8 %

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

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

(iv) to the extent applicable under the terms of our

investments, prepayments on real estate-related loans to increase;

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

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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 and six months ended June 30, 2022 and 2021:

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

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

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

2022 2021 Change 2022 2021 Change

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16,865,716 6,839,447 10,026,269 34,675,633 19,519,694 15,155,939

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

Operating (loss) income (3,202,550) 5,806,671 (9,009,221) 5,787,916 14,671,973 (8,884,057)

Other income and expenses —

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payable — (1,653,250) 1,653,250 ( 164,969 ) ( 4,972,200 ) 4,807,231

Interest expense on secured

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

Interest expense on unsecured

notes payable ( 1,436,107 ) (1,409,274) (26,833) ( 4,299,167 ) ( 1,746,135 ) (2,553,032)

Net unrealized (losses) gains on

Interest expense on secured

borrowing ( 397,932 ) ( 467,957 ) 70,025 ( 1,507,572 ) ( 1,102,667 ) (404,905)

Net unrealized losses on

marketable securities — ( 257,329 ) 257,329 ( 133,994 ) ( 23,063 ) (110,931)

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unconsolidated investments 1,483,846 1,824,825 (340,979) 4,267,513 4,563,491 (295,978)

Gain on sale of interests in

unconsolidated investments 799,827 — 799,827 799,827 — 799,827

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

Realized gains on marketable

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(3,689,392) (6,534,429) 2,845,037 (12,145,311) (14,028,406) 1,883,095

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

Net (loss) income $ (6,891,942) $ (727,758) $ (6,164,184) $ (6,357,395) $ 643,567 $ (7,000,962)

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 and six months ended June 30, 2022 and 2021 :

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

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

Three Months Ended September 30, 2022 Three Months Ended September 30, 2021

Weighted Average Principal Amount (1)

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$ 95,880,160 13.1 % $ 120,346,425 10.2 %

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

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021

Weighted Average Principal Amount (1)

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Interest Income

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.

For the three and nine months ended September 30, 2022 as compared to the same periods in 2021, interest income decreased by $0.1 million and increased by $2.2 million, respectively, primarily due to the suspension of interest income on three loans because recovery of such income was doubtful, partially offset and more than offset, respectively, by an increase in contractual interest income as a result of an increase in the weighted average principal balance of gross loans and as well an increase in the weighted average coupon rate.

Real Estate Operating Revenue

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.

For the three and nine months ended September 30, 2022 as compared to the same periods in 2021, real estate operating revenue increased by $0.8 million and $2.5 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.

Prepayment fee income represents prepayment fees charged to borrowers for the early repayment of loans.

For both the three and nine months ended September 30, 2022 as compared to the same periods in 2021, prepayment fee income increased by $0.6 million and $1.8 million, respectively, as a result of an increase in loans with minimum yield provisions repaid before maturity.

Other Operating Income

For the three and nine months ended September 30, 2022 as compared to the same periods in 2021, other operating income decreased by $0.3 million and $0.2 million, respectively, as a result of a decrease in dividend income earned on the marketable securities we invested in.

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 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.

Under the terms of a management agreement (the “Management Agreement”) with our Manager, we reimburse our Manager for operating expenses incurred in connection with services provided to us, including our allowable share of our Manager’s overhead, such as rent, employee costs, utilities and technology costs.

For the three and nine months ended September 30, 2022 as compared to the same periods in 2021, operating expenses reimbursed to our Manager increased by $0.5 million and $1.2 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 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.

Under the terms of the Management Agreement with our Manager, we paid our Manager a monthly asset management fee at an annual rate of 1% of the aggregate funds under management, which included the aggregate gross acquisition price, net of participation interest sold to affiliates, for each real estate-related investment and cash held by us.

For the three and nine months ended September 30, 2022 as compared to the same periods in 2021, asset management fees increased by $0.2 million and $1.0 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 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.

Under the terms of the Management Agreement with our Manager, we paid our Manager a monthly servicing fee at an annual rate of 0.25% of the aggregate gross origination price or acquisition price for each real estate-related loan held by us.

For each of the three and nine months ended September 30, 2022 as compared to the same periods in 2021, asset servicing fees increased by $0.1 million and $0.3 million, respectively, primarily due to an increase in total assets under management.

Provision for Loan Losses

The Manager performs a quarterly evaluation for possible impairment of our portfolio of loans.

Our Manager performs a quarterly evaluation for possible impairment of our portfolio of loans.

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 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 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 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.

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

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

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

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

Our position has prevailed in all three of the prior arbitrations to reset the ground rent.

We intend vigorously to pursue the litigation.

While we believe our arguments will likely prevail, the outcome of the legal proceeding cannot be predicted with certainty.

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

As of September 30, 2022, we did not have any loans with a loan risk rating of “4” or “5”, and did not record any general allowance for loan losses for the three and nine months ended September 30, 2022.

As of September 30, 2022, we had three loans deemed impaired and recorded specific allowance for loan losses of $ 9.2 million and $ 9.3 million for the three and nine months ended September 30, 2022, respectively.

As of September 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 $ 0.4 million for the nine months ended September 30, 2021.

Additionally, as of September 30, 2021, we had three loans deemed impaired and recorded specific allowance for loan losses of $ 0.7 million and $ 2.0 million for the three and nine months ended September 30, 2021, respectively.

Depreciation and Amortization

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.

For the three and nine months ended September 30, 2022 as compared to the same periods in 2021, depreciation and amortization increased by $0.8 million and $2.4 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 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.

For the nine months ended September 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

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.

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

Professional Fees

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.

For the three and nine months ended September 30, 2022 as compared to the same periods in 2021, professional fees increased by $0.1 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 months ended September 30, 2022 as compared to the same period in 2021, other expense was substantially the same.

For the nine months ended September 30, 2022 as compared to the same period in 2021, other expense increased by $0.2 million, 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 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.

For the three and nine months ended September 30, 2022 as compared to the same periods in 2021, interest expense from obligations under participation agreements decreased by $2.7 million and $5.1 million, respectively, as a result of 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 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.

For the three and nine months ended September 30, 2022, interest expense on repurchase agreement payable was $2.4 million and $4.8 million, respectively.

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

Interest Expense 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.

For the three and nine months ended September 30, 2022 as compared to the same periods in 2021, interest expense on mortgage loan payable decreased by $0.04 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 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.

For the three and nine months ended September 30, 2022 as compared to the same periods in 2021, interest expense on revolving line of credit increased by $0.4 million and $1.5 million, respectively, due to an increase in weighted average principal amount outstanding on the revolving line of credit.

Interest Expense on Term Loan Payable

On September 3, 2020, we entered into an indenture and credit agreement that provided for a floating rate loan of $103.0 million, $3.6 million of additional future advances, and up to $11.6 million of additional future discretionary advances, in connection with certain outstanding funding commitments under the mortgage assets owned by us and financed under the indenture and credit agreement.

indenture and credit agreement.

The loan bore interest at LIBOR plus 4.25% with a LIBOR floor of 1.0%.

On February 18, 2022, we refinanced this loan with a new repurchase agreement.

For the three 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.

For the three and nine months ended September 30, 2022 as compared to the same periods in 2021, interest expense on term loan payable decreased by $1.7 million and $4.8 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.

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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 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.

The secured borrowing was repaid in August 2022.

For the three months ended September 30, 2022 as compared to the same period in 2021, interest expense on secured borrowing decreased by $0.1 million reflecting the repayment in August 2022.

For the nine months ended September 30, 2022 as compared to the same period in 2021, interest expense on secured borrowing increased by $0.4 million as a result of an increase in the weighted average principal amount outstanding.

Interest Expense on Unsecured Notes Payable

In June 2021, we issued $85.1 million in aggregate principal amount of 6.00% notes due 2026, for net proceeds of $82.5 million after deducting underwriting commissions of $2.7 million, but before offering expenses payable by us.

For the three and 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.

For the three and nine months ended September 30, 2022 as compared to the same periods in 2021, interest expense on unsecured notes payable increased by $0.03 million and $2.6 million, respectively, as a result of an increase in the weighted average principal amount outstanding.

Income from Equity Investment in Unconsolidated Investments

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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 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.

As of September 30, 2022 and December 31, 2021, we owned 30.9 % 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 joint 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 facility in South Florida.

We account for our equity interests in these investments using the equity method of accounting.

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 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

In September 2022, we sold a 53% effective interest in two joint ventures and 59% effective interest in another joint venture.

For the three and nine months ended September 30, 2022, we recognized income from equity investment in unconsolidated investments of $1.5 million and $4.3 million, which consisted of equity income from RESOF of $ 2.1 million and $ 5.0 million and equity loss from the joint ventures of $ 0.6 million and $ 0.7 million, respectively.

For the three and nine months ended September 30, 2021, we recognized income from equity investment in unconsolidated investments of $1.8 million and $4.6 million, respectively, on our investment in RESOF.

Gain on Sale of Interests in Unconsolidated Investments

In September 2022, we sold a 53% effective interest in two joint ventures and 59% effective interest in another joint venture for a total of $ 33.7 million and recognized a gain on sale of $ 0.8 million for the three and nine months ended September 30, 2022.

There was no such gain for the three and nine months ended September 30, 2021.

Realized Loss on Repayment of Loans

For the three and nine months ended September 30, 2022, we did not recognize any gain or loss on repayment of loans.

For the three and nine months ended September 30, 2021, two previously defaulted loans were repaid at a discount and we recognized a net loss on loan repayment of $0.5 million, excluding previously accrued allowance for loan losses of $1.0 million.

Net (loss) Income

For the three months ended September 30, 2022 as compared to the same period in 2021, the resulting net loss increased by $6.2 million.

For the nine months ended September 30, 2022, the resulting net loss was $6.4 million, compared to the resulting net income of $0.6 million for the same period in 2021.

Financial Condition, Liquidity and Capital Resources

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These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for our business.

Obligations under participation agreements totaling $30.3 million and secured borrowing of $38.2 million will mature in the next twelve months.

Obligations under participation agreements totaling $24.0 million will mature in the next twelve months.

We expect to use the proceeds from the repayment of the corresponding investments to repay the participation obligations.

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Additionally, we had $ 31.3 million of borrowings outstanding under a mortgage loan payable that bear interest at an annual rate of LIBOR plus 3.85% with a LIBOR floor of 2.23%, that is collateralized by an office building.

The mortgage loan payable matures on September 27, 2022.

The mortgage loan payable matures on November 14, 2022.

We expect to refinance the mortgage loan payable before it matures.

Summary of Financing

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

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

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

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$ 520,000,000 $ 250,750,421 $ 300,587,929

Cash Flows From Operating Activities

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 Operating Activities

For the nine months ended September 30, 2022 as compared to the same period in 2021, cash flows used in operating activities decreased by $1.4 million, primarily due to an increase in contractual interest income.

Cash Flows Used In Investing Activities

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 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.

For the nine months ended September 30, 2022, cash flows used in investing activities were $3.0 million, primarily related to origination and purchase of loans of $187.9 million and purchase of equity interests in unconsolidated investments of $18.2 million, partially offset by proceeds from repayments of loans of $158.8 million, proceeds from sale of interests in joint ventures of $33.7 million, proceeds from sale of real estate of $8.6 million and proceeds from sale of marketable securities of $1.3 million.

For the nine months ended September 30, 2021, cash flows used in investing activities were $74.4 million, primarily related to origination and purchase of loans of $163.5 million, purchase of partnership interest in a limited partnership of $14.1 million and purchase of marketable securities of $6.5 million, partially offset by proceeds from repayments of loans of $105.9 million and proceeds from sale of marketable securities of $3.3 million.

Cash Flows (Used In) From Financing Activities

For the nine months ended September 30, 2022, cash flows used in financing activities were $12.1 million, primarily due to

repayments on borrowings under the term loan of $ 93.8 million, repayments of obligations under participation agreements and secured borrowing of $60.9 million and distributions paid of $11.4 million, offset by proceeds from borrowings under the repurchase agreements of $150.7 million and proceeds from obligations under participation agreements and secured borrowing of $21.2 million.

Additionally, 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 $ 55.6 million.

For the nine months ended September 30, 2021, cash flows from financing activities were $112.8 million, primarily due to proceeds from issuance of unsecured notes payable, net of discount, of $82.5 million, proceeds from obligations under participation agreements and secured borrowing of $70.3 million and proceeds from borrowings under the term loan and revolving line of credit of $27.9 million.

These cash inflows were partially offset by repayments on obligations under participation agreements of $23.6 million, distributions paid of $12.2 million, payment of mortgage principal of $11.9 million, repayment on borrowings under the term loan of $16.6 million, a decrease in interest reserve and other deposits hold on investments of $1.9 million and payment for deferred financing costs of $1.7 million.

Critical Accounting Policies and Use of Estimates

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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 June 30, Six Months Ended June 30,

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

2022 2021 2022 2021

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

(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.

(2) Amount for the nine months ended September 30, 2022 excluded $ 0.2 million of origination fee paid to our Manager in connection with our equity investment in an unconsolidated investment.

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

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

Participation Agreements and Secured Borrowing

Cost Sharing and Reimbursement Agreement with Terra LLC

We have entered into a cost sharing and reimbursement agreement effective October 1, 2022 pursuant to which Terra LLC will be responsible for its allocable share of our expenses, including fees paid by us to our Manager based on relative assets under management.

Participation Agreements

We have further diversified our exposure to loans and borrowers by entering into participation agreements whereby we transferred a portion of certain of our loans on a pari passu basis to related parties, primarily other affiliated funds managed by our Manager or its affiliates, and to a lesser extent, unrelated parties.

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

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.

If we enter into participation agreements in the future, we generally expect to enter into such agreements only at the time of origination of the investment.

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.

As of September 30, 2022, the principal balance of our participation obligations totaled $36.8 million, all of which were participation obligations to Terra BDC.

In connection with the Merger on October 1, 2022, these obligations were eliminated.

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.

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

For the three and 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.

For the three and nine months ended September 30, 2022, the weighted average outstanding principal balance on obligations under participation agreements and secured borrowing was approximately $68.2 million and $77.5 million, respectively, and the weighted average interest rate was approximately 10.5% and 10.6%, respectively, compared to weighted average outstanding principal balance of approximately $136.0 million and $113.1 million, respectively, and weighted average interest rate of approximately 11.4% and 10.9% for the three and nine months ended September 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