What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2023-03-13 compared with 2022-03-11 · 164 added, 158 removed, 314 unchanged (51% of the section changed)

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Market Information

There is no established trading market for our shares of common stock.

As of March 11, 2022, we had 19,487,460 shares of common stock outstanding held by two investors.

There is no established trading market for our Class B Common Stock.

As of March 10, 2023, we had 24,335,379 shares of Class B Common Stock outstanding held by 2,121 investors.

As of March 10, 2023, there were no outstanding options, warrants to purchase our common stock or securities convertible into our shares of common stock.

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

As of December 31, 2021, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 21 loans in nine states with an aggregate net principal balance of $403.6 million, a weighted average coupon rate of 7.4%, a weighted average loan-to-value ratio of 74.1% and a weighted average remaining term to maturity of 1.7 years.

As of December 31, 2022, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 31 loans in 10 states with an aggregate net principal balance of $633.2 million, a weighted average coupon rate of 11.5%, a weighted average loan-to-value ratio of 70.1% 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 December 31, 2021, our portfolio included underlying properties located in 21 markets, across nine states and includes property types such as multifamily housing, hotels, student housing, commercial offices, medical offices, mixed-use and industrial properties.

As of December 31, 2022, our portfolio included underlying properties located in 31 markets, across 10 states and includes property types such as multifamily housing, student housing, commercial offices, medical offices, mixed-use and industrial properties.

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

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

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

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

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

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

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

On March 1, 2020, Terra Property Trust 2 merged with and into our company, and we continued as the surviving corporation.

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

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

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

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

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

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

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

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

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

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.

Following the consummation of the BDC Merger and as of December 31, 2022, former Terra BDC stockholders owned approximately 19.9% of our common equity, Terra JV held 70.0% of the issued and outstanding shares of our common stock with the remainder of 10.1% held by Terra Offshore REIT;

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

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

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Recent Developments

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

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

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

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

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

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

On October 1, 2022, pursuant to that certain Agreement and Plan of Merger, dated as of May 2, 2022, Terra BDC merged with and into Terra LLC, our wholly owned subsidiary, with Terra LLC continuing as the surviving entity of the merger and as our wholly owned subsidiary.

The Certificate of Merger and Articles of Merger with respect to the BDC Merger were filed with the Secretary of State of the State of Delaware and SDAT, respectively, at the Effective Time.

At the Effective Time, except for any shares of 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, 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 BDC Merger, based on the number of outstanding shares of Terra BDC Common Stock as of the Closing Date.

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

On the Closing Date, we filed with the SDAT 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, 450,000,000 shares of Class B Common Stock, and 50,000,000 shares of 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 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, 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 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 Third Conversion Date, 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 continued as members following the Effective Time.

Portfolio Summary

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

The following tables provide a summary of our net loan portfolio as of:

December 31, 2022

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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 8 23 31 1 31

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_______________

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

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

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

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

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

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

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

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

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

The land and building and related lease intangible assets and liabilities had a net carrying value of $56.1 million and $62.9 million as of December 31, 2021 and 2020, respectively.

The mortgage loan payable encumbering the office building had an outstanding principal amount of $32.0 million and $44.0 million as of December 31, 2021 and 2020, respectively.

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

Coupon rate shown was determined using LIBOR of 4.39%, average SOFR of 4.06% and Term SOFR of 4.36% as of December 31, 2022, and LIBOR of 0.10% as of December 31, 2021.

(2) As of December 31, 2022 and 2021, amount included $413.1 million and $163.1 million of senior mortgages used as collateral for $261.0 million and $93.8 million of borrowings under credit facilities, respectively.

(3) As of December 31, 2022 and 2021, twenty-one 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 December 31, 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 aforementioned 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 $40.6 million and $56.1 million as of December 31, 2022 and 2021, respectively.

The mortgage loan payable encumbering the multi-tenant office building had an outstanding principal amount of $29.3 million and $32.0 million as of December 31, 2022 and 2021, respectively.

Additionally, as of December 31, 2022 and 2021, we owned 27.9% 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 2021, we purchased equity interests in two joint ventures.

As of December 31, 2021 and 2020, these equity interests had total carrying value of $69.7 million and $36.3 million, respectively.

W e also beneficially owned equity interests in three joint ventures that invest in real estate properties.

In 2022, in connection with a mezzanine loan we originated, we entered into a residual profit sharing arrangement with the borrower.

We accounted for this arrangement as an equity investment.

As of December 31, 2022 and 2021, these equity investments had total carrying value of $62.5 million and $69.7 million, respectively.

Book Value Per Share

We calculate our book value per share by dividing our net equity by the number of outstanding shares of our common stock, unless otherwise determined by our Board.

Our book value per share of Class B Stock Common Stock as of December 31, 2022 was $13.23.

Portfolio Investment Activity

For the years ended December 31, 2022 and 2021, we invested $126.9 million and $117.3 million in new and add-on investments and had $33.3 million and $85.1 million of repayments, resulting in net investments of $93.6 million and $32.2 million, respectively.

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

Net Loan Portfolio Information

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

December 31, 2022 December 31, 2021

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Preferred equity investments 121,231,434 122,132,177 19.9 % 63,441,546 63,515,633 16.2 %

Mezzanine loans 17,444,357 17,622,804 4.5 % 23,946,549 24,287,203 7.3 %

Credit facility 28,802,833 29,080,183 4.7 % 11,762,500 11,859,876 3.0 %

Mezzanine loans 26,767,345 26,770,521 4.4 % 17,444,357 17,622,804 4.5 %

Allowance for loan losses — (25,471,890) (4.1) % — (13,658,481) (3.5) %

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Office $ 171,611,750 $ 172,042,063 27.9 % $ 166,071,342 $ 166,836,320 42.5 %

Industrial 147,796,164 148,891,742 24.3 % 18,762,500 18,859,876 4.8 %

Multifamily 104,589,464 105,570,432 17.2 % 72,999,417 73,955,240 18.8 %

Mixed-use 64,880,450 65,838,965 10.7 % 28,940,658 28,977,024 7.4 %

Infill land 48,860,291 49,565,437 8.1 % 28,960,455 28,923,827 7.4 %

Hotel - full/select service 43,222,382 43,758,804 7.1 % 56,847,381 57,395,682 14.6 %

Student housing 31,000,000 31,774,261 5.2 % 31,000,000 31,565,670 8.0 %

Infill land 28,960,455 28,923,827 7.4 % 5,847,837 5,901,575 1.8 %

Mixed use 28,940,658 28,977,024 7.4 % 16,767,984 16,767,984 5.0 %

Industrial 18,762,500 18,859,876 4.8 % 7,000,000 7,000,000 2.1 %

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

Infrastructure 21,250,000 21,840,359 3.6 % — — — %

Allowance for loan losses — (25,471,890) (4.1) % — (13,658,481) (3.5) %

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Georgia 72,401,718 73,101,964 11.9 % 53,289,288 53,536,884 13.6 %

North Carolina 44,492,971 44,704,699 11.4 % 28,647,837 28,802,869 8.7 %

Utah 28,000,000 28,420,056 7.2 % — — — %

Texas 67,625,000 68,142,046 11.1 % 13,625,000 13,725,690 3.5 %

Massachusetts 7,000,000 7,000,000 1.8 % 7,000,000 7,000,000 2.1 %

New Jersey 62,228,622 62,958,482 10.3 % — — — %

Washington 56,671,267 57,027,639 9.3 % 3,523,401 3,382,683 0.9 %

Utah 49,250,000 50,698,251 8.3 % 28,000,000 28,420,056 7.2 %

North Carolina 43,520,028 44,041,162 7.2 % 44,492,971 44,704,699 11.4 %

Arizona 31,000,000 31,276,468 5.1 % — — — %

Massachusetts 7,000,000 7,000,000 1.1 % 7,000,000 7,000,000 1.8 %

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

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We seek to manage these risks through our Manager's underwriting and asset management processes.

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

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

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

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Results of Operations

The following table presents the comparative results of our operations for the years ended December 31, 2021 and 2020:

The following table presents the comparative results of our operations:

Years Ended December 31,

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Interest expense on term loan payable (524,344) (6,835,877) 6,311,533

Interest expense on secured borrowing (1,576,502) (633,850) (942,652)

Interest expense on unsecured notes payable (6,682,937) (3,173,673) (3,509,264)

Net loss on extinguishment of obligations under participation

agreements — (319,453) 319,453

Net change in unrealized gains on marketable securities 22,500 111,494 (88,994)

Income from equity investment in a limited partnership 5,925,802 38,640 5,887,162

Interest expense on secured borrowing (1,507,572) (1,576,502) 68,930

Net unrealized (losses) gains on marketable securities (122,299) 22,500 (144,799)

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

Income from equity investment in unconsolidated investments 2,731,477 5,925,802 (3,194,325)

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

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

Gain on extinguishment of obligations under participation

agreements 3,435,902 — 3,435,902

Realized gains on marketable securities 83,411 129,248 (45,837)

(17,780,914) (20,126,581) 2,345,667

Net (loss) income $ (12,355,727) $ 5,255,730 $ (17,611,457)

Net loss $ (6,951,693) $ (12,355,727) $ 5,404,034

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 years ended December 31, 2021 and 2020 :

The following table presents a reconciliation of our loan portfolio on a weighted average basis from gross to net :

Year Ended December 31, 2022 Year Ended December 31, 2021

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(4) Subordinated loans include mezzanine loans, preferred equity investments and credit facilities.

For the year ended December 31, 2021 as compared to the same period in 2020, the decrease in weighted average coupon rate was primarily due to a higher volume of loan originations with lower coupon rates.

Interest Income

For the year ended December 31, 2021 as compared to the same period in 2020, interest income decreased by $2.6 million, primarily due to the suspension of interest income accrual of $3.6 million on three loans, because recovery of such income was doubtful, partially offset by an increase in contractual interest income as a result an increase in the weighted average principal balance of gross loans.

For the year ended December 31, 2022 as compared to the same period in 2021, interest income increased by $5.8 million, primarily due to an increase in contractual interest income as a result of an increase in the weighted average principal balance of gross loans due to new loans we originated in 2022 and loans we acquired in connection with the BDC Merger, as well as an increase in the weighted average coupon rate due to increases in the underlying index rates.

Real Estate Operating Revenue

For the year ended December 31, 2021 as compared to the same period in 2020, real estate operating revenue decreased by $1.5 million, as a result of a lease termination in the third quarter of 2020.

For the year ended December 31, 2022 as compared to the same period in 2021, real estate operating revenue increased by $2.6 million, as a result of lease termination income recognized in 2022 in connection with a termination notice received in November 2021.

Prepayment Fee Income

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

For the year ended December 31, 2021, we received a prepayment fee income of $0.2 million on a loan that the borrower repaid one year before maturity.

There was no prepayment fee income for the year ended December 31, 2020.

For the year ended December 31, 2022 as compared to the same period in 2021, prepayment fee income increased by $1.8 million, as a result of an increase in loans with minimum yield provisions repaid before maturity.

Other Operating Income

For the year ended December 31, 2021 as compared to the same period in 2020, other operating income increased by $0.4 million, as a result of dividend income earned on the marketable securities we invested in.

For the year ended December 31, 2022 as compared to the same period in 2021, other operating income decreased by $0.3 million, as a result of a decrease in dividend income earned on the marketable securities resulting from a decrease in the weighted average balance of the marketable securities.

Operating Expenses Reimbursed to Manager

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

For the year ended December 31, 2021 as compared to the same period in 2020, operating expenses reimbursed to the Manager increased by $0.9 million as a result of an increase in the Manager’s overhead costs.

Under the terms of 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 year ended December 31, 2022 as compared to the same period in 2021, operating expenses reimbursed to our Manager increased by $1.2 million, as a result of an increase in the allocation ratio resulting from an increase in total assets under management due to new loans we originated as well as loans acquired in connection with the BDC Merger.

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 year ended December 31, 2021 as compared to the same period in 2020, asset management fees increased by $0.7 million, 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 year ended December 31, 2022 as compared to the same period in 2021, asset management fees increased by $1.4 million, primarily due to an increase in total assets under management resulting from new loans we originated as well as loans acquired in connection with the BDC Merger.

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 year ended December 31, 2021 as compared to the same period in 2020, asset servicing fees increased by $0.2 million, 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 year ended December 31, 2022 as compared to the same period in 2021, asset servicing fees increased by $0.4 million, primarily due to an increase in total assets under management resulting from new loans we originated as well as loans acquired in connection with the BDC Merger.

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 December 31, 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 year ended December 31, 2022.

As of December 31, 2022, we had four loans deemed impaired and recorded specific allowance for loan losses of $11.8 million for the year ended December 31, 2022.

As of December 31, 2021, 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 $0.6 million for the year ended December 31, 2021.

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

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

Real Estate Operating Expenses

For the year ended December 31, 2021 as compared to the same period in 2020, real estate operating expenses increased by $0.5 million, primarily due to an increase in ground rent expense on the multi-tenant office building resulting from a recent rent reset.

Additionally, as of December 31, 2021, we had three loans deemed impaired and recorded specific allowance for loan losses of $10.3 million for the year ended December 31, 2021.

Depreciation and Amortization

For each of the year ended December 31, 2021 as compared to the same period in 2020, depreciation and amortization decreased by $0.6 million, primarily due to a lease termination in the third quarter of 2020, at which time we wrote off the related intangible assets and liabilities.

For the year ended December 31, 2022 as compared to the same period in 2021, depreciation and amortization increased by $2.5 million, primarily due to a lease termination notice received in November 2021, at which time we accelerated the amortization of lease intangibles.

Impairment Charge

For the year ended December 31, 2021, we recorded an impairment charge of $3.4 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.

There was no such impairment charge recorded for the year ended December 31, 2020.

For the years ended December 31, 2022 and 2021, we recorded an impairment charge of $1.6 million and $3.4 million, respectively, on 4.9 acres of the development land located in Pennsylvania in order to reduce the carrying value of the land to

its estimated fair value, which is the estimated selling price less the cost of sale.

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

Professional Fees

For the year ended December 31, 2021 as compared to the same period in 2020, professional fees increased by $0.1 million, primarily due to legal fees incurred in connection with a financing transaction that was terminated.

For the year ended December 31, 2022 as compared to the same period in 2021, professional fees increased by $1.9 million, 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 year ended December 31, 2022 as compared to the same period in 2021, other expense increased by $0.3 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 year ended December 31, 2021 as compared to the same period in 2020, interest expense from obligations under participation agreements increased by $2.1 million, primarily due to an increase in weighted average principal amount outstanding on obligations under participation agreements.

For the year ended December 31, 2022 as compared to the same period in 2021, interest expense from obligations under participation agreements decreased by $7.4 million, as a result of a decrease in the weighted average principal amount outstanding on obligations under participation agreements, partly due to the release of obligations under participation agreements with Terra BDC in connection with the BDC Merger.

Interest Expense on Repurchase Agreement Payable

On December 12, 2018, we entered into a master repurchase agreement that provided for advances of up to $150.0 million in the aggregate, which we used to finance certain secured performing commercial real estate loans.

On September 3, 2020, we terminated the master repurchase agreement and replaced it with the indenture and credit agreement.

On November 8, 2021, we entered into a new master repurchase agreement that provides for advances of up to $195 million which we expect to use to finance certain secured performing commercial real estate loans, including senior mortgage loans.

For the year ended December 31, 2021 as compared to the same period in 2020, interest expense on repurchase agreement payable decreased by $3.6 million as a result of a decrease in the weighted average principal amount outstanding on repurchase agreement payable.

On November 8, 2021, we entered into a master repurchase agreement that provides for advances of up to $195 million which we expect to use to finance certain secured performing commercial real estate loans, including senior mortgage loans.

Additionally, on February 18, 2022, we entered into another master repurchase agreement that provides for advances of up to $200 million, which we expect to use to finance the originations of certain secured performing commercial real estate loans and the acquisitions of certain secured non-performing commercial real estate loans.

For the year ended December 31, 2022, interest expense on repurchase agreement payable increased by $7.8 million, as a result of an increase in the weighted average principal amount outstanding on repurchase agreement payable.

Interest Expense on Mortgage Loan Payable

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Interest Expense on Revolving Line of Credit

On June 20, 2019, we entered into a credit agreement to provide for revolving credit loans of up to $35.0 million in the aggregate, which we used for short term financing needed to bridge the timing of anticipated loans repayments and funding obligations.

On October 2, 2020, we amended the credit facility and reduced the commitment to $15.0 million.

On March 16, 2021, the credit facility was terminated.

On March 12, 2021, we entered into a Business Loan and Security Agreement (the “revolving line of credit”) to provide for advances up to the lesser of $75.0 million or the amount determined by the borrowing base, which is based on the eligible assets pledged to the lender.

For the year ended December 31, 2021 as compared to the same period in 2020, interest expense on revolving line of credit decreased by $0.5 million, due to a decrease in weighted average principal amount outstanding on the revolving line of credit.

On January 4, 2022, we amended the revolving line of credit to increase the maximum amount available to $125.0 million.

For the year ended December 31, 2022 as compared to the same period in 2021, interest expense on revolving line of credit increased by $1.8 million, due to an increase in weighted average principal amount outstanding on the revolving line of credit.

Interest Expense on Term Loan Payable

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

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

For the year ended December 31, 2021 as compared to the same period in 2020, interest expense on term loan payable increased by $4.7 million, as a result of an increase in the weighted average principal amount outstanding 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.

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.

In connection with the BDC Merger, we assumed a delayed

draw term loan of $25.0 million.

The delayed draw term loan bears interest at an annual rate of 5.625% and matures on July 1, 2023.

For the year ended December 31, 2022 as compared to the same period in 2021, interest expense on term loan payable decreased by $6.3 million, as a result of a decrease in the weighted average principal amount outstanding on term loan payable.

Additionally, in connection with the refinancing, we reversed the previously accrued step-up interest of $0.4 million during the first quarter of 2022.

Interest Expense on Secured Borrowing

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

For the year ended December 31, 2021 as compared to the same period in 2020, interest expense on secured borrowing increased by $0.9 million, as a result of an increase in the weighted average principal amount outstanding.

The secured borrowing was repaid in August 2022.

For the year ended December 31, 2022 as compared to the same period in 2021, interest expense on secured borrowing decreased by $0.1 million as a result of a decrease 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 year ended December 31, 2021, interest expense on unsecured notes payable was $3.2 million.

There was no such interest expense for the year ended December 31, 2020 because the notes were not yet issued.

Net Loss on Extinguishment of Obligations under Participation Agreements

In March 2020, as a result of the Merger and Issuance of Common Stock to Terra Offshore REIT transactions, we settled an aggregate of $49.8 million of participation interests in loans that we owned with affiliates and recognized a net loss on extinguishment of obligations under participation agreements of $0.3 million, which was primarily related to transaction costs incurred in connection with both transactions.

There was no such loss recognized for the year ended December 31, 2021.

In June 2021, we issued $85.1 million in aggregate principal amount of 6.00% notes due 2026.

In connection with the BDC Merger, we assumed $38.4 million in aggregate principal amount of 7.00% notes due in 2026.

For the year ended December 31, 2022 as compared to the same periods in 2021, interest expense on unsecured notes payable increased by $3.5 million, as a result of an increase in the weighted average principal amount outstanding.

Income from Equity Investment in Unconsolidated Investments

In August 2020, we entered into a subscription agreement whereby we committed to fund up to $50.0 million to purchase partnership interest in a limited partnership.

In the fourth quarter of 2021, we purchased 80% equity interests in two joint ventures that own real estate properties.

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

For the year ended December 31, 2021, we recognized income from equity investment in unconsolidated investments of $5.9 million, which consisted of equity income from the limited partnership of $6.2 million, partially offset by equity loss from two joint ventures of $0.2 million.

For the year ended December 31, 2020, we recognized income from equity investment in unconsolidated investments of $0.04 million due to operations of the limited partnership that began in December 2020.

In August 2020, we entered into a subscription agreement with RESOF, an affiliate managed by our Manager, whereby we committed to fund up to $50.0 million to purchase partnership interest in RESOF.

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

RESOF 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 December 31, 2022 and 2021, we owned 27.9% and 50.0% of the equity interest in RESOF, respectively.

W e also owned beneficial equity interests in three joint ventures that invest in real estate properties.

In 2022, in connection with a mezzanine loan we originated, we entered into a residual profit sharing arrangement with the borrower.

We accounted for this arrangement as an equity investment.

For the year ended December 31, 2022, we recognized income from equity investment in unconsolidated investments of $2.7 million, which consisted of equity income from RESOF of $5.2 million and equity loss from the joint ventures of $2.5 million.

For the year ended December 31, 2021, we recognized income from equity investment in unconsolidated investments of $5.9 million, which consisted of equity income from RESOF of $6.2 million, partially offset by equity loss from two joint ventures of $0.2 million.

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 year ended December 31, 2022.

There was no such gain for the year ended December 31, 2021.

Realized Loss on Repayment of Loans

For the year ended December 31, 2022, we did not recognize any gain or loss on repayment of loans.

For the year ended December 31, 2021, two previously defaulted loans were repaid at a discount and we recognized a net loss on loan repayment of $0.5 million, excluding previously accrued allowance for loan losses of $1.0 million.

There was no such loss recognized during the same period in 2020.

Realized Gains on Marketable Securities

For the year ended December 31, 2021, we sold marketable securities and recognized realized gains on marketable securities of $0.1 million.

For the year ended December 31, 2020, we sold marketable securities and recognized realized gains on marketable securities of $1.2 million.

Net (Loss) Income

For the year ended December 31, 2021, the resulting net loss was $12.4 million, compared to the resulting net income of $5.3 million for the same period in 2020.

Gain on Extinguishment of Obligations Under Participation Agreements

In connection with the BDC Merger, the obligations under participation agreements with Terra BDC totaling $37.0 million were effectively extinguished and we recognized a net gain of $3.4 million for the year ended December 31, 2022, representing the difference between the carrying value of the Company’s obligations under participation agreements and the fair value of Terra BDC’s investments acquired through participation agreements.

The was no such gain for the year ended December 31, 2021.

For the year ended December 31, 2022 as compared to the same period in 2021, net loss decreased by $5.4 million.

Financial Condition, Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, funding and maintaining our assets and operations, making distributions to our stockholders and other general business needs.

We use significant cash to purchase our target assets, repay principal and interest on our borrowings, make

distributions to our investors and fund our operations.

We use significant cash to purchase our target assets, repay principal and interest on our borrowings, make distributions to our investors and fund our operations.

Our primary sources of cash generally consist of payments of principal and interest we receive on our portfolio of investments, cash generated from our operating results and unused borrowing capacity under our financing sources.

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As part of our capital raising transactions, we may grant to one or more of these vehicles certain control rights over our activities including rights to approve major decisions we take as part of our business.

In order to qualify as a REIT, we must distribute to our stockholders, each calendar year, at least 90% of our REIT taxable income (including certain items of non-cash income), determined without regard to the deduction for dividends paid and excluding net capital gain.

In order to qualify as a REIT, we must distribute to our stockholders, each calendar year, dividends equal to at least 90% of our REIT taxable income (including certain items of non-cash income), determined without regard to the deduction for dividends paid and excluding net capital gain.

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

Obligations under participation agreements totaling $7.8 million and secured borrowing of $34.5 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.

Additionally, we expect to fund approximately $53.0 million of the unfunded commitments to borrowers during the next twelve months.

We expect to maintain sufficient cash on hand to fund such commitments through matching these commitments with principal repayments on outstanding loans.

We expect to fund approximately $44.1 million of the unfunded commitments to borrowers during the next twelve months.

We expect to maintain sufficient cash on hand to fund such commitments through matching these commitments with principal repayments on outstanding loans or draw downs on our credit facilities.

Additionally, we had $29.3 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 May 31, 2023.

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

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

The floating rate term loan bears interest at a rate equal to LIBOR plus 4.25% with a LIBOR floor of 1.0%, and was scheduled to mature on March 14, 2025.

On February 18, 2022, we refinanced the term loan with a new repurchase agreement that provides for advances up to $200.0 million with an initial term of two years.

As of December 31, 2021, the amount outstanding under the indenture and credit agreement was $93.8 million.

On March 12, 2021, we entered into the revolving line of credit to provide for advances up to the lesser of $75.0 million or the amount determined by the borrowing base, which is based on the eligible assets pledged to the lender.

Borrowings under the revolving line of credit bear interest at an annual rate of LIBOR + 3.25% with a combined floor of 4.0% per annum.

The revolving line of credit was scheduled to mature on March 12, 2023.

On January 4, 2022, we 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 our option, which are subject to certain conditions.

As of December 31, 2021, the revolving line of credit had an outstanding balance of $38.6 million.

Net proceeds from the notes issuance were used to make new investments as well as for general corporate purposes.

On November 8, 2021, we entered into a master repurchase agreement that provides for advances of up to $195.0 million in the aggregate, which we expect to use to finance certain secured performing commercial real estate loans, including senior mortgage loans.

Advances under the master repurchase agreement accrue interest at an annual rate equal to the sum of LIBOR plus an applicable spread, which ranges from 1.60% to 1.85%, and have a maturity date of November 7, 2024.

As of December 31, 2021, the master repurchase agreement had an outstanding balance of $44.6 million.

Cash Flows From Operating Activities

For the year ended December 31, 2021 as compared to the same period in 2020, cash flows from operating activities decreased by $3.8 million, primarily due to a decrease in contractual interest income, payment for real estate tax on our operating real estate as well as payment for additional ground rent as a result of the rent reset.

In connection with the BDC Merger, we assumed a $25.0 million delayed draw term loan.

This term loan bears interest at an annual rate of 5.625% and matures on July 1, 2023.

We expect to either maintain sufficient cash on hand to repay the facility or refinance the facility.

Summary of Financing

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

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

Senior unsecured notes N/A $ 85,125,000 N/A 6.00% 6/30/2026

Senior unsecured notes N/A 38,375,000 N/A 7.00% 3/31/2026

Delayed draw term loan $ 25,000,000 25,000,000 — 5.625% 7/1/2023

$ 25,000,000 $ 148,500,000 $ —

Variable Rate:

Mortgage loan payable N/A $ 29,252,308 N/A LIBOR plus 3.85% with a LIBOR floor of 2.23%

Line of credit $ 125,000,000 90,135,865 $ 34,864,135 LIBOR plus 3.25% with a combined floor of 4.00%

UBS repurchase agreement 195,000,000 51,050,000 143,950,000 LIBOR or Term SOFR depending on repurchased asset index plus a spread ranging from 1.60% to 2.25%

GS repurchase agreement 200,000,000 119,826,606 80,173,394 Term SOFR (subject to underlying loan floors on a case-by-case basis) plus a spread ranging from 1.75% to 3.00%)

$ 520,000,000 $ 290,264,779 $ 258,987,529

Cash Flows Provided by Operating Activities

For the year ended December 31, 2022 as compared to the same period in 2021, cash flows provided by operating activities decreased by $3.7 million, primarily due to payment for a deposit for a potential investment partially offset by an increase in net contractual interest income.

Cash Flows Used in Investing Activities

For the year ended December 31, 2021, cash flows used in investing activities were $87.7 million, primarily related to origination and purchase of loans of $252.4 million, purchase of equity interests in unconsolidated investments of $32.2 million and purchase of marketable securities of $6.5 million, partially offset by proceeds from repayments of loans of $196.8 million and proceeds from sale of marketable securities of $6.6 million.

For the year ended December 31, 2020, cash flows used in investing activities were $78.2 million, primarily related to payments for investments of $150.4 million, partially offset by proceeds from sales and repayments of investments of $72.2 million.

Cash Flows From Financing Activities

For the year ended December 31, 2021, cash flows from financing activities were $101.8 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 $87.9 million and proceeds from borrowings under the term loan, revolving line of credit and repurchase agreement of $85.9 million.

These cash inflows were partially offset by repayments on obligations under participation agreements of $101.7 million, distributions paid of $17.1 million, payment of mortgage principal of $12.1 million, repayment on borrowings under the term loan of $16.6 million, a decrease in interest reserve and other deposits hold on investments of $4.7 million and payment for deferred financing costs of $2.3 million.

For the year ended December 31, 2020, cash flows from financing activities were $52.7 million, primarily due to proceeds from obligations under participation agreements of $22.5 million, proceeds from borrowings under our repurchase agreement of $22.9 million, cash acquired from Terra Property Trust 2 of $16.9 million and cash contributed by Terra Offshore REIT of $8.6 million, partially offset by distributions paid of $21.2 million, a decrease in interest reserve and other deposits held on investments of $6.4 million, payment for repurchase of common stock of $3.6 million and repayments on obligations under participation agreements of $5.9 million.

Additionally, we replaced the repurchase agreement with an indenture and credit agreement, and received proceeds from borrowings under the indenture and credit agreement of $107.6 million and made repayments for borrowings under the repurchase agreement of $104.0 million, and made payments for financing costs of $2.4 million.

We also received proceeds of $35.0 million from borrowings under revolving credit facility which we repaid in the same period.

For the year ended December 31, 2022, cash flows used in investing activities were $49.1 million, primarily related to origination and purchase of loans of $290.0 million and purchase of equity interests in unconsolidated investments of $25.5 million, partially offset by proceeds from repayments of loans of $197.5 million, proceeds from sale of interests in joint ventures of $33.7 million, cash and restricted cash acquired in connection with the BDC Merger of $24.6 million, proceeds from sale of real estate of $8.6 million and proceeds from sale of marketable securities of $1.3 million.

For the year ended December 31, 2021, cash flows used in investing activities were $87.7 million, primarily related to origination and purchase of loans of $252.4 million, purchase of partnership interest in a limited partnership of $32.2 million and purchase of marketable securities of $6.5 million, partially offset by proceeds from repayments of loans of $196.8 million and proceeds from sale of marketable securities of $6.6 million.

Cash Flows Provided by Financing Activities

For the year ended December 31, 2022, cash flows provided by financing activities were $34.1 million, primarily due to proceeds from borrowings under the repurchase agreements of $151.9 million, proceeds from borrowings under the revolving line of credit of $130.5 million, and proceeds from obligations under participation agreements of $29.6 million, partially offset by repayments of borrowings under the term loan of $93.8 million, repayments on borrowings under the revolving line of credit of $79.0 million, repayment of secured borrowing of $38.7 million, repayments of borrowings under repurchase agreements of $25.6 million, repayments of obligations under participation agreements of $22.2 million and distributions paid of $16.1 million.

For the year ended December 31, 2021, cash flows provided by financing activities were $101.8 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 $87.9 million and proceeds from borrowings under the term loan, revolving line of credit and repurchase agreement of $85.9 million.

investments of $4.7 million and payment for deferred financing costs of $2.3 million.

Distribution Reinvestment Plan

On January 20, 2023, our Board adopted a distribution reinvestment plan (the “Plan”), pursuant to which our stockholders may elect to reinvest cash distributions payable by us in additional shares of Class A Common Stock and Class B Common Stock, at the price per share determined pursuant to the Plan.

Critical Accounting Policies and Use of Estimates

Our consolidated financial statements are prepared in conformity with U.S.

GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

Our consolidated financial statements are prepared in conformity with United States generally accepted accounting principles, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods.

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In addition, we consider the overall economic environment, real estate sector, and geographic submarket in which the borrower operates.

Such analyses are completed and reviewed by asset management and finance personnel, who utilize various data

sources, including (i) periodic financial data such as debt service coverage ratio, property occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, the capitalization and discount rates;

Such analyses are completed and reviewed by asset management and finance personnel, who utilize various data sources, including (i) periodic financial data such as debt service coverage ratio, property occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, the capitalization and discount rates;

(ii) site inspections;

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and (iv) loan to value.

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

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

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

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

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

(2) Amounts for the years ended December 31, 2022 and 2021, excluded $0.2 million and $0.3 million, respectively, of origination fees paid to our Manager in connection with our equity investment in an unconsolidated investment.

These origination fees were 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 with Terra LLC, 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.

These fees are eliminated in consolidation and therefore have no impact on our consolidated financial statements.

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.

In March 2020, we settled an aggregate of $49.8 million of participation interests in loans held by us with affiliates.

In connection with the Merger and Issuance of Common Stock to Terra Offshore REIT, the related participation obligations were settled.

As of December 31, 2021, the principal balance of our participation obligations totaled $42.0 million, all of which were participation obligations to Terra Fund 6.

Additionally, as of December 31, 2021, the principal balance of our secured borrowing was $34.5 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.

In connection with the BDC Merger, the obligations under participation agreements with Terra BDC totaling $37.0 million were effectively extinguished.

As of December 31, 2022, the principal balance of our participation obligation was $12.6 million, which was a participation obligation to a third party.

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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As such, the investments remain on our combined consolidated balance sheets and the proceeds are recorded as obligations under participation agreements.

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 year ended December 31, 2021, the weighted average outstanding principal balance on obligations under participation agreements was approximately $114.4 million and the weighted average interest rate was approximately 11.0%, compared to weighted average outstanding principal balance of approximately $83.2 million and weighted average interest rate of approximately 10.9% for the year ended December 31, 2020.

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 year ended December 31, 2022, the weighted average outstanding principal balance on obligations under participation agreements and secured borrowing was approximately $59.9 million, and the weighted average interest rate was approximately 12.1%, compared to weighted average outstanding principal balance of approximately $114.4 million, and weighted average interest rate of approximately 11.0% for the year ended December 31, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity