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Item 9A. Controls and Procedures

2023-03-13 compared with 2022-03-11 · 635 added, 871 removed, 1101 unchanged (58% of the section changed)

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As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2022.

Based on that evaluation, our chief

executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we would meet our disclosure obligations.

Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we would meet our disclosure obligations.

Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports.

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Other Information.

On February 18, 2022, Terra Mortgage Capital I, LLC (the “Seller”), a special-purpose indirect wholly-owned subsidiary of our company, entered into an Uncommitted Master Repurchase and Securities Contract Agreement (the “Repurchase Agreement”) with Goldman Sachs Bank USA ( the “Buyer”).

The Repurchase Agreement provides for advances of up to $ 200.0 million in the aggregate, which we expect to use to finance the originations of certain secured performing commercial real estate loans and the acquisitions of certain secured non-performing commercial real estate loans.

The Repurchase Agreement replaced the term loan, at which time all mortgage assets under the term loan were assigned as purchased assets under the Repurchase Agreement.

Advances under the Repurchase Agreement accrue interest at a per annum pricing rate equal to the sum of (i) Term SOFR (subject to underlying loan floors on a case-by-case basis) and (ii) the applicable spread, which ranges from 1.75 % to 3.00 %, and have a maturity date of February 18, 2024 .

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

Subject to satisfaction of certain conditions, the Seller may extend the maturity date of the Repurchase Agreement for another 12-month term.

The Repurchase Agreement contains margin call provisions that provide the Buyer with certain rights in the event of a decline in debt yield, loan-to-value ratio, and value of the underlying loans purchased under the Repurchase Agreement.

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

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

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

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

In addition, the Guarantee Agreement contains financial covenants, which require us to maintain:

(i) cash liquidity of at least the greater of $ 5 million or 5 % of the then-current outstanding amount under the Repurchase Agreement;

(ii) total liquidity in an amount equal to or greater than the lesser of $ 15 million of the then-current outstanding amount under the Repurchase Agreement (iii) tangible net worth at an amount no less than 75 % of that at closing;

(iv) an EBITDA to adjusted interest expense ratio of not less than 1.50 to 1.00;

and (v) a total indebtedness to tangible net worth ratio of not more than 3.00 to 1.00.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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Directors, Executive Officers and Corporate Governance.

Set forth below is the information concerning our directors and executive officers.

Board of Directors

Our board of directors consists of three members.

Our board of directors has determined that each of our directors satisfies the listing standards for independence of the New York Stock Exchange (“NYSE”), except for Vikram S.

Uppal, our Chairman and our Chief Executive Officer.

Our bylaws provide that a majority of the entire board of directors may at any time increase or decrease the number of directors.

However, the number of directors may never be less than the minimum number required by the Maryland General Corporation Law (which is currently one) nor, unless our bylaws are amended, more than 15.

The following sets forth certain information with respect to our directors:

Name Age Position held

Uppal* 38 Chairman of the Board of Directors, Chief Executive Officer, Chief Investment Officer

Beless 60 Director

Evans 69 Director

*On November 10, 2021, Andrew M.

Axelrod, the then Chairman of the Board of Directors, resigned as our director effectively immediately.

Following Mr.

Axelrod’s resignation, our board of directors designated Vikram S.

Uppal as our Chairman of the Board of Director and the size of our board of directors was reduced from four directors to three directors.

Uppal has served as the Chairman of the Board of Directors since November 2021, one of our directors February 2018 to November 2021 and served as Chief Executive Officer for our company, our Manager, Terra Fund Advisors and Terra Capital Partners since December 2018 and as a director of RESOF since October 2020.

Uppal has also served as Chief Investment Officer for our company, Terra Capital Partners and our Manager since February 2018.

Uppal is also the Chief Executive Officer of Terra Income Advisors and Terra Fund 6 since April 2019.

Prior to joining Terra Capital Partners, Mr.

Uppal was a Partner and Head of Real Estate at Axar Capital Management since 2016.

Prior to Axar Capital Management, Mr.

Uppal was a Managing Director on the Investment Team at Fortress Investment Group's Credit and Real Estate Funds from 2015 to 2016.

From 2012 to 2015, Mr.

Uppal worked at Mount Kellett Capital Management, a private investment organization, and served as Co-Head of North American Real Estate Investments.

Uppal holds a B.S.

from the University of St.

Thomas and a M.S.

from Columbia University.

Beless has served as one of our independent directors since February 2018.

Since May 2016, Mr.

Beless has served as Chief Operating Officer at StreetLights Residential, where he oversees capital markets, asset and portfolio

management and acquisitions/dispositions, and company operations.

From June 2012 until March 2016, Mr.

Beless served as Managing Director for Mount Kellett Capital Management, where he oversaw global real estate asset management.

Prior to joining Mount Kellett, Mr.

Beless spent nearly 20 years with Goldman Sachs/Archon Group where he held a number of positions, including co-head of US Real Estate and Chief Operating Officer for Archon Residential, where he oversaw acquisitions, asset management, property management and dispositions.

Beless also spent four years in Tokyo, Japan where he led the startup of Goldman Sachs Realty Japan, Ltd.

He currently serves on the board of Waymaker Value and Real Estate and the advisory board of Apartment Life.

Beless holds a Bachelor’s of B.A.

in Economics and Finance from Baylor University and a M.B.A from Southern Methodist University.

Evans has served as one of our independent directors since October 2017.

Evans has served as a member of the board of directors of Terra Fund 6 from March 2015 to April 2019.

Since December 2012, Mr.

Evans has been the Managing Director and Chief Financial Officer of Newport LLC (formerly known as Newport Board Group), a CEO and board advisory firm.

From June 2010 to September 2011, Mr.

Evans served as the Interim Country Manager and Advisory Board Member for Concern Worldwide U.S.

Inc., a non-profit humanitarian organization.

From January 1977 until June 2010, Mr.

Evans was with Ernst & Young, LLP (“Ernst & Young”), and served as a partner since 1984.

During his nearly 34 years with Ernst & Young, he served as a tax, audit and consulting services partner, specializing in real estate companies and publicly-traded entities.

Evans currently serves on the Advisory Board of Marcus & Millichap, Inc., the Independent Counsel Board of Prologis Targeted U.S.

Logistics Fund and the board of directors of Newport LLC and Sen Plex, Inc.

Evans is a licensed attorney and a C.P.A.

(inactive) in California.

He is currently a contributing business writer for Forbes.com and Allbusiness.com.

Evans received a B.S.B.

in accounting from the University of Minnesota, a J.D.

from William Mitchell College of Law and an M.B.A.

from Golden Gate University.

Executive Officers

The names, ages, positions and biographies of our officers are as follows:

Name Age Position(s) Held with the Company

Uppal 38 Chairman of the Board of Directors, Chief Executive Officer, Chief Investment

Pinkus 57 Chief Operating Officer and Chief Financial Officer

Cooperman 47 Chief Originations Officer

For biographical information regarding Mr.

Uppal, see “Item 10.

— Board of Directors” above.

Pinkus has served as the Chief Financial Officer, Treasurer and Secretary of our company and the Chief Financial Officer and Chief Operating Officer of our Manager, Terra Fund Advisors, and Terra Income Advisors since January 2016, October 2017, October 2017, and May 2013, respectively.

He has served as (i) the Chief Financial Officer of Terra Capital Advisors, Terra Capital Advisors 2 and Terra Income Advisors 2 since May 2012, September 2012 and October 2016;

(ii) the Chief Operating Officer of Terra Capital Advisors, Terra Capital Advisors 2 and Terra Capital Partners since July 2014;

(iii) the Chief Operating Officer of Terra Income Advisors 2 since October 2016;

(iv) the Chief Financial Officer, Treasurer and Secretary of Terra Fund 6 since May 2013 and Chief Operating Officer of Terra Fund 6 since July 2014;

(v) the Chief Financial Officer and Chief Operating Officer of Fund 5 International, Terra International and Terra Fund 7 since June 2014, October 2016 and October 2016, respectively;

and (vi) a director of RESOF since October 2020.

Prior to joining Terra Capital Partners in May 2012, he served as Assistant Controller for W.P.

from 2006 to August 2010 and as Controller from August 2010 to May 2012.

Pinkus also served as Controller and Vice President of Finance for several early-stage technology companies during the period of 1999 to 2005.

Additionally, he managed large-scale information technology budgets at New York Life Insurance Company from 2003 to 2004 and oversaw an international reporting group at Bank of America from 1992 to 1996.

Pinkus is a Certified Public Accountant and member of the American Institute of Certified Public Accountants.

He holds a B.S.

in Accounting from the Leonard N.

Stern School of Business at New York University.

Cooperman has served as Chief Originations Officer of our company, our Manager, Terra Fund Advisors and Terra Income Advisors since January 2016, September 2017, September 2017 and February 2015, respectively.

Cooperman has served as Chief Originations Officer of (i) each of Terra Capital Advisors and Terra Capital Advisors 2 since January 2015, having previously served as Managing Director of Originations until January 2015 of Terra Capital Advisors and Terra Capital Advisors 2 since April 2009 and September 2012, respectively;

(ii) Fund 5 International since January 2015, having previously served as Managing Director of Originations from June 2014 to June 2014;

(iii) Terra Fund 6 since February 2015, having previously served as Managing Director of Originations from May 2013 until February 2015;

and (iv) each of Terra Income Advisors 2, Terra International, and Terra Fund 7 since October 2016.

Cooperman has 18 years’ experience in the

acquisition, financing, leasing and asset management of commercial real estate with an aggregate value of over $5 billion.

Prior to the formation of Terra Capital Partners in 2001 and its commencement of operations in 2002, Mr.

Cooperman handled mortgage and mezzanine placement activities for The Greenwich Group International, LLC.

Prior to joining The Greenwich Group, Mr.

Cooperman worked in Chase Manhattan Bank’s Global Properties Group, where he was responsible for financial analysis and due diligence for the bank’s strategic real estate acquisitions and divestitures.

Prior to that time, he was responsible for acquisitions and asset management for JGS, a Japanese conglomerate with global real estate holdings.

Cooperman holds a B.S.

in Finance from the University of Colorado at Boulder.

Code of Ethics

Our Manager has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) pursuant to Rule 17j‑1 of the Advisers Act, which applies to, among others, the senior officers of our Manager, including the chief executive officer and the chief financial officer, as well as every officer, director, employee and “access person” (as defined within the Code of Ethics).

We will also provide the Code of Ethics, free of charge, to stockholders who request it.

Requests should be directed to Bernadette Murphy, at Terra Property Trust, Inc., 550 Fifth Avenue, 6th Floor, New York, New York 10036.

Audit Committee

We have established an audit committee of the board of directors (the “Audit Committee”) that operates pursuant to a charter and consists of two members.

The Audit Committee is responsible for selecting, engaging and supervising our independent accountants, reviewing the plans, scope and results of the audit engagement with our independent accountants, approving professional services provided by our independent accountants (including compensation therefor), reviewing the independence of our independent accountants and reviewing the adequacy of our internal controls over financial reporting.

The members of the Audit Committee are Messrs.

Beless and Evans.

Evans serves as the chairman of the Audit Committee.

Our board of directors has determined that Mr.

Evans is an “audit committee financial expert” as defined under Item 407 of Regulation S-K promulgated under the Exchange Act.

Our board of directors has determined that each of Messrs.

Beless and Evans meets the current independence and experience requirements of Rule 10A-3 of the Exchange Act.

Delinquent Section 16(a) Reports

Pursuant to Section 16(a) of the Exchange Act, our directors and executive officers, and any persons holding more than 10% of its common stock, are required to report their beneficial ownership and any changes therein to us and the SEC.

Specific due dates for those reports have been established, and we are required to report herein any failure to file such reports by those due dates.

Based solely on a review of the copies of such reports and written representations delivered to us by such persons, we believe that there were no violations of Section 16(a) by such persons during the year ended December 31, 2021.

The information regarding our executive officers required by Item 401 of Regulation S-K is located under Part I, Item 1 within the caption “Information About our Executive Officers” of this annual report on Form 10-K.

The information regarding our directors and certain other matters required by Item 401 of Regulation S-K is incorporated herein by reference to our definitive proxy statement relating to our 2022 annual meeting of stockholders (the “Proxy Statement”), to be filed with the SEC within 120 days after December 31, 2022.

The information regarding compliance with Section 16(a) of the Exchange Act required by Item 405 of Regulation S-K is incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2022.

The information regarding our Code of Business Conduct and Ethics required by Item 406 of Regulation S-K is incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2022.

The information regarding certain matters pertaining to our corporate governance required by Items 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is incorporated by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2022.

Executive Compensation.

We are externally managed and currently have no employees.

Pursuant to the Management Agreement, our Manager provides certain services to our company, and we pay fees associated with such services.

The officers of our Manager do not receive any compensation from us.

Each of our officers is an employee of our Manager.

Because our Management Agreement provides that our Manager is responsible for managing our affairs, our officers do not receive cash compensation from us for serving as our officers.

Our Manager is responsible for managing our day-to-day operations and all matters affecting our business and affairs, including responsibility for determining when to buy and sell real estate-related assets.

Our Manager is not obligated under the Management Agreement to dedicate any of its personnel exclusively to us, nor is it or its personnel obligated to dedicate any specific portion of its or their time to the business.

Our officers, in their capacities as officers or personnel of our Manager or its affiliates, will devote such portion of their time to our affairs as is necessary to enable us to operate our business.

Compensation of the Directors

In 2021, our independent directors earned $60,000 annual base director’s fee.

In addition, in 2021, the chairperson of the Audit Committee earned an annual cash retainer of $15,000 and the other members of the Audit Committee earned an annual cash retainer of $10,000.

We also reimburse all members of our board of directors for their travel related expenses incurred in connection with their attendance at board and committee meetings.

We pay directors’ fees only to those directors who are independent under the NYSE listing standards.

The following table sets forth compensation of our directors for the year ended December 31, 2021:

Name Fees Earned or Paid in Cash All Other Compensation Total

Beless $ 70,000 $ — $ 70,000

Evans $ 75,000 $ — $ 75,000

Compensation Committee Interlocks and Insider Participation

We currently do not have a compensation committee of our board of directors because we do not plan to pay any compensation to our officers.

There are no interlocks or insider participation as to compensation decisions required to be disclosed pursuant to SEC regulations.

The information regarding executive compensation and other compensation related matters required by Items 402 and 407(e)(4) and(e)(5) of Regulation S-K is incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2022.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth, as of March 11, 2022, certain information regarding the ownership of shares of our common stock by:

(1) each of our directors;

(2) each of our executive officers;

(3) holders of more than 5% of our capital stock;

(4) all of our directors and executive officers as a group.

Each listed person’s beneficial ownership includes:

(1) all shares the investor actually owns beneficially or of record;

(2) all shares over which the investor has or shares voting or dispositive control (such as in the capacity as a general partner of an investment fund);

(3) all shares the investor has the right to acquire within 60 days;

Unless otherwise indicated, we believe that each beneficial owner set forth in the table below has sole voting and investment power.

Unless otherwise indicated, all shares are owned directly, and the indicated person has sole voting and investment power.

Except as indicated in the footnotes to the table below, the business address of the stockholders listed below is the address of our principal executive office, 550 Fifth Avenue, 6th Floor, New York, NY 10036.

Shares Beneficially Owned as of

March 11, 2022

Name Number of Shares Percentage (3)

Cooperman — —

All directors and executive officers as a group (5 persons) — —

5% or Greater Beneficial Owners

17,029,775.95 87.4%

Terra Offshore REIT (2)

2,457,684.59 12.6%

_______________

* Represents beneficial ownership of less than 1%.

(1) On April 6, 2020, Mr.

Uppal purchased 22 units of limited liability company interest (the “Units”) of Terra Fund 5 in a secondary market transaction.

The Units are held through Lakshmi 15 LLC, a family limited liability company over which Mr.

Uppal exercises voting and investment control.

The shares of our common stock indicated on this report as being held

indirectly by Mr.

Uppal are held indirectly by Terra Fund 5 through a controlled subsidiary.

Uppal is the Chief Executive Officer and Chief Investment Officer of Terra Fund Advisors, the manager of Terra Fund 5.

Accordingly, Mr.

Uppal disclaims beneficial ownership of the shares of our common stock reported herein except to the extent of his pecuniary interest therein, and this report shall not be deemed an admission that he is the beneficial owner of such shares for purposes of Section 16 or for any other purpose.

(2) Terra Fund 5 is managed by Terra Fund Advisors, its managing member.

The shares of common stock held by Terra Fund 5 are subject to the provisions of the Voting Agreement and certain related agreements described in greater detail under “Item 13.

Certain Relationships and Related Transactions.” The inclusion of these shares of our common stock shall not be deemed an admission of beneficial ownership of the reported securities for purposes of Section 16 or for any other purposes.

(3) Based on a total of 19,487,460 shares of common stock issued and outstanding as of March 11, 2022.

Securities Authorized for Issuance under Equity Compensation Plans

The tables on our equity compensation plan information and beneficial ownership required by Items 201(d) and 403 of Regulation S-K are incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2022.

Certain Relationships and Related Transactions, and Director Independence.

Director Independence

For information relating to our independent directors, see Item 10, “Directors, Executive Officers and Corporate Governance” of this Annual Report on Form 10-K.

Certain Relations and Related Transactions

Terra International Fund 3, L.P.

On September 30, 2019, we entered into a Contribution and Repurchase Agreement with Terra International Fund 3, L.P.

(“Terra International 3”) and Terra Offshore REIT, a then wholly-owned subsidiary of Terra International 3, which we amended and restated on November 13, 2019.

Pursuant to this agreement, Terra International 3, through Terra Offshore REIT, contributed cash in the amount of $3,620,000 to us in exchange for 212,690.95 shares of common stock, at a price of $17.02 per share.

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

On April 29, 2020, we repurchased, at a price of $17.02 per share, the 212,690.95 shares of common stock that we had previously sold to Terra Offshore REIT on September 30, 2019.

At the same time, Terra International 3 redeemed all of its limited partnership interest and ceased operations.

Our Manager also serves as adviser to Terra Offshore REIT.

Merger and Issuance of Common Stock to Terra Offshore REIT

On February 28, 2020, we entered into a merger agreement pursuant to which Terra Property Trust 2 was merged with and into us, with us continuing as the surviving corporation, effective March 1, 2020.

In connection with the Merger, each share of common stock, par value $0.01 per share, of Terra Property Trust 2 issued and outstanding immediately prior to the effective time of the Merger was converted into the right to receive from us a number of shares of our common stock, par value $0.01 per share, equal to an exchange ratio, which was 1.2031.

As a result, Terra Fund 7, the sole stockholder of Terra Property Trust 2, received 2,116,785.76 shares of our common stock as consideration in the Merger.

The shares of common stock were issued in a private placement in reliance on Section 4(a)(2) under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

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

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

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

Voting Agreement

On March 2, 2020, we, Terra Fund 5, Terra JV and Terra REIT Advisors also entered into the Amended and Restated Voting Agreement (the “Voting Agreement”), pursuant to which Terra Fund 5 assigned its rights and obligations under the Voting Agreement to Terra JV.

Consistent with the original voting agreement dated February 8, 2018, for the period that Terra REIT Advisors remains our external manager, Terra REIT Advisors will have the right to nominate two individuals to serve as our directors and, until Terra JV no longer holds at least 10% of our outstanding shares of common stock, Terra JV will have the right to nominate one individual to serve as one of our directors.

Except as otherwise required by law or the provisions of other agreements to which the parties are or may in the future become bound, the parties have agreed to vote all shares of our common stock directly or indirectly owned in favor (or against removal) of the directors properly nominated in accordance with the Voting Agreement.

Other than with respect to the election of directors, the Voting Agreement requires that Terra Fund 5 vote all shares of our common stock directly or indirectly owned by Terra Fund 5 in accordance with the recommendations made by our board of directors.

Receipt of Fees and Other Compensation by Our Manager and its Affiliates

We pay substantial fees to our Manager.

Further, we must reimburse our Manager for costs incurred by it in managing us and our portfolio of real estate-related loans.

Pursuant to the Management Agreement, our Manager provides certain management services to us, subject to oversight by our board of directors.

Our Manager’s responsibilities to us include, among others, investing in, and disposing of, assets, borrowing money, entering into contracts and agreements in connection with our business and purpose, providing administrative support and performing such other services as are delegated to our Manager by our board of directors.

In performing its duties, our Manager is subject to a fiduciary responsibility for the safekeeping and use of all of our funds and assets.

In consideration for providing such services, our Manager is entitled to certain fees from as described below.

The Management Agreement runs co-terminus with Terra Fund 5's amended and restated operating agreement, which terminates on December 31, 2023, unless sooner dissolved in accordance with its terms of our amended and restated operating agreement.

During the years ended December 31, 2021 and 2020, we paid our Manager in the aggregate the following fees under the Management Agreement:

$5.1 million and $4.5 million in asset management fee, respectively, $1.2 million and $1.0 million in asset servicing fees, respectively, $2.7 million and $1.4 million in origination and extension fees, respectively;

$1.0 million and $0.5 million in disposition, respectively, and $6.9 million and $6.0 million of operating expense reimbursements, respectively.

It is anticipated that our Manager will exercise its discretion through our Management Agreement.

The agreements and arrangements, including those relating to compensation, between us and our Manager and its affiliates are not the result of arm’s-length negotiations and may create conflicts between our Manager and its affiliates, on the one hand, and us on the other.

Our Manager and its Affiliates May Compete With Us

Our Manager and its affiliates may engage in real estate-related transactions on their own behalf or on behalf of other entities.

Our Manager and its affiliates have, and in the future will have, legal and financial obligations with respect to its other programs that are similar to our Manager’s obligations to us.

For example, our Manager and affiliates of our Manager are the external managers to Terra Fund 6 and RESOF, all of which follow investment strategies that are similar to our strategy.

Competition for investments among the real estate-related investment programs sponsored by our Manager and its affiliates will create a conflict of interest.

In determining which program should receive an investment opportunity, our Manager will first evaluate the objectives of each program to determine if the opportunity is suitable for each program.

If the proposed investment is appropriate for more than one program, our Manager will then evaluate the portfolio of each program, in terms of diversity of geography, underlying property type, tenant concentration and borrower, to determine if the investment is most suitable for one program in order to create portfolio diversification.

If such analysis is not determinative, our Manager will allocate the investment to the program with uncommitted funds available for the longest period or, to the extent feasible, prorate the investment between the programs in accordance with uninvested funds.

Related Party Transactions

Related party transactions are those where we or our Manager on our behalf, transact with affiliated companies, including companies managed by our Manager or its affiliates.

Our Manager and its affiliates are permitted to enter into certain transactions and perform certain services for us.

Such transactions, or the potential for such transactions, could cause conflicts for our Manager with respect to performing its duties.

Related party transactions will not be the result of an arm’s-length negotiation.

Participation Agreements and Secured Borrowing

We have diversified our exposure to loans and borrowers by entering into participation agreements in respect of certain of our loans whereby we transferred a portion of the loans on a pari passu basis to related parties, and to a lesser extent, unrelated parties, with the principal balance of participation obligations totaling $42.0 million as of December 31, 2021.

Additionally, we sold a portion of a loan with a principal balance of $34.5 million to a third-party that didn’t qualify for sale accounting treatment.

However, we do not have direct liability to a participant under our participation agreements with respect to the underlying loan and the participants’ share of the investments is repayable only from the proceeds received from the related borrower/issuer of the investments and, therefore, the participants also are subject to credit risk (i.e., risk of default by the underlying borrower/issuer).

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

For additional information concerning our participation agreements, see “Item 7— Management’s Discussion and Analysis of Financial Condition and Results of Operations — Participation Agreements and Secured Borrowing.”

Allocation of Our Manager’s Time

We rely on our Manager to manage our day-to-day activities and to implement our investment strategy.

Our Manager is presently, and plans to continue to be, involved with activities that are unrelated to us.

As a result of these activities, our Manager, its employees and certain of its affiliates will have conflicts of interest in allocating their time between us and the other activities in which they are or may become involved, including the management of Terra Fund 6 and RESOF.

The employees of our Manager will devote only as much of its or their time to our business as it and its employees, in their judgment, determine is reasonably required, which may be substantially less than their full time.

Therefore, our Manager, its personnel and certain affiliates may experience conflicts of interest in allocating management time, services and functions among us and any other business ventures in which they or any of their key personnel, as applicable, are or may become involved.

This could result in actions that are more favorable to other affiliated entities than to us.

However, we believe that the members of our Manager’s senior management and the other key debt finance professionals performing services for us on behalf of our Manager have sufficient time to fully discharge their responsibilities to us and to the other businesses in which they are involved.

We believe that our Manager’s executive officers will devote the time required to manage our business and expect that the amount of time a particular executive officer or affiliate devotes to us will vary during the course of the year and depend on business activities at the given time.

We expect that these executive officers and affiliates will generally devote more time to programs raising and investing capital than to programs that have completed their offering stages, though from time to time each program will have its unique demands.

Because many of the operational aspects of Terra Capital Partners-sponsored programs are very similar, there are significant efficiencies created by the same team of individuals at our Manager providing services to multiple programs.

For example, our Manager has streamlined the structure for financial reporting, internal controls and investment approval processes for the programs.

Competition and Allocation of Investment Opportunities

Employees of our Manager or its affiliates are simultaneously providing investment advisory or management services to other affiliated entities, including Terra Fund 6 and RESOF.

Our Manager may determine it appropriate for us and one or more other investment programs managed by our Manager or any of its affiliates to participate in an investment opportunity.

To the extent we are able to make co-investments with investment programs managed by our Manager or its affiliates, these co-investment opportunities may give rise to conflicts of interest or perceived conflicts of interest among us and the other participating programs.

In addition, conflicts of interest or perceived conflicts of interest may also arise in determining which investment opportunities should be presented to us and other participating programs.

To mitigate these conflicts, our Manager will seek to execute such transactions on a fair and equitable basis and in accordance with its allocation policies, taking into account various factors, which may include:

the source of origination of the

investment opportunity;

objectives and strategies;

tax considerations;

risk, diversification or investment concentration parameters;

characteristics of the security;

size of available investment;

available liquidity and liquidity requirements;

regulatory restrictions;

and/or such other factors as may be relevant to a particular transaction.

Receipt of Compensation by Affiliates

The payments to our Manager and certain of its affiliates have not been determined through arm’s-length negotiations, and are payable regardless of our profitability.

Our Manager receives fees for their services, including an origination fee, asset management fee, asset servicing fee, disposition fee and transaction break-up fee.

To the extent the Management Agreement is amended in the future, including if we enter into a new management agreement with our Manager or its affiliates, the terms of any such arrangement will not have been determined through arm’s-length negotiations and may be payable, in whole or in part, regardless of profitability.

Other Conflicts of Interest

We will be subject to conflicts of interest arising out of our relationship with our Manager and its affiliates.

In the future, we may enter into additional transactions with our Manager, Terra Capital Partners or its affiliates.

In particular, we may invest in, or acquire, certain of our investments through joint ventures with our Manager, Terra Capital Partners or its affiliates or purchase assets from, sell assets to or arrange financing from or provide financing to its other vehicles.

Any such transactions will require approval of our Manager.

Any such transactions will require approval of a majority of our independent directors.

There can be no assurance that any procedural protections will be sufficient to assure that these transactions will be made on terms that will be at least as favorable to us as those that would have been obtained in an arm’s-length transaction.

The information regarding transactions with related persons, promoters and certain control persons and director independence required by Items 404 and 407(a) of Regulation S-K is incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2022.

Principal Accounting Fees and Services.

During the years ended December 31, 2021 and 2020, KPMG LLP (“KPMG”) served as our independent auditor and provided certain tax and other services.

Our board of directors currently anticipates that it will engage KPMG as our independent auditor to audit our financial statements for the year ending December 31, 2022, subject to agreeing on fee estimates for the audit work.

Our board of directors reserves the right, however, to select a new auditor at any time in the future in its discretion if it deems such decision to be in the best interests of us and our stockholders.

Any such decision would be disclosed to the stockholders in accordance with applicable securities laws.

The following table displays fees for professional services by KPMG for the years ended December 31, 2021 and 2020:

Years Ended December 31,

Audit Fees $ 732,700 $ 463,000

Audit-Related Fees — —

Tax Fees 81,580 68,380

All Other Fees — —

Total $ 814,280 $ 531,380

Audit fees include fees for services that normally would be provided by KPMG in connection with statutory and regulatory filings or engagements and that generally only an independent accountant can provide.

In addition to fees for the audit of our annual financial statements and the review of our quarterly financial statements in accordance with standards of the Public Company Accounting Oversight Board, this category contains fees for comfort letters, statutory audits, consents, and assistance with and review of documents filed with the SEC.

Audit-Related Fees .

Audit-related services consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards.

Tax Services Fees .

Tax services fees consist of fees billed for professional tax services.

These services also include assistance regarding federal, state, and local tax compliance.

All Other Fees .

Other fees would include fees for products and services other than the services reported above.

The Audit Committee’s charter provides that the Audit Committee shall review and pre-approve the engagement fees and the terms of all auditing and non-auditing services to be provided by our external auditors and evaluate the effect thereof on the independence of the external auditors.

All audit and tax services provided to us were reviewed and pre-approved by the Audit Committee, which concluded that the provision of such services by KPMG was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions.

The information concerning principal accounting fees and services and the Audit Committee's pre-approval policies and procedures required by Item 14 is incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2022.

Exhibits and Financial Statement Schedules.

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000-56117) filed with the SEC on March 5, 2020).

2.4 Agreement and Plan of Merger, dated as of May 2, 2022, by and among Terra Property Trust, Inc., Terra Income Fund 6, Inc., Terra Merger Sub, LLC, Terra Income Advisors, LLC and Terra REIT Advisors, LLC (incorporated by reference to Exhibit 2.1 to the C urrent Report on Form 8-K filed by Terra Income Fund 6, Inc.

with the SEC on May 5, 2022).

3.1 Amended and Restated Bylaws of Terra Property Trust, Inc.

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4.4 Form of Global Note representing the notes (included in Exhibit 4.2).

4.5 Indenture, dated February 10, 2021, by and between Terra Income Fund 6, Inc.

Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on February 10, 2021.)

4.6 First Supplemental Indenture, dated February 10, 2021, by and between Terra Income Fund 6, Inc.

Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 of Terra Income Fund 6, Inc.’s Current Report on Form 8-K filed with the SEC on February 10, 2021).

4.7 Second Supplemental Indenture, dated October 1, 2022, by and among Terra Income Fund 6, Inc., Terra Merger Sub, LLC and U.S.

Bank National Association, as trustee (incorporated by reference to exhibit 4.4 of Terra Income Fund 6, LLC’s Current Report on Form 8-K filed with the SEC on October 3, 2022).

10.1 Amended and Restated Management Agreement between Terra Property Trust, Inc., and Terra REIT Advisors, LLC, dated February 8, 2018 (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form 10 (File No.

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10.9 Limited Guaranty, dated as of March 12, 2021, by and among Terra Property Trust, Inc., as Guarantor, for the benefit of Western Alliance Bank (incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K filed with the SEC on March 18, 2021).

10.10* First Amendment to Loan Documents dated as of June 9, 2021, by and amount Terra Mortgage Portfolio II, LLC, as Borrower, Terra Property Trust, Inc., as Guarantor, and Western Alliance Bank, as Lender .

10.11* Uncommitted Master Repurchase Agreement dated as of November 8, 2021, by and amount Terra Mortgage Capital III, LLC, as Seller, UBS AG, as Buyer.

10.12* Guarantee Agreement dated as of November 8, 2021, by and amount Terra Property Trust, Inc., as Guarantor, in favor of UBS AG, as Buyer.

10.13* Second Amendment to Loan Documents dated as of January 4, 2022, by and amount Terra Mortgage Portfolio II, LLC, as Borrower, Terra Property Trust, Inc., as Guarantor, and Western Alliance Bank, as Lender.

10.14* Uncommitted Master Repurchase and Securities Contract Agreement dated as of February 18, 2022, by and amount Terra Mortgage Capital I, LLC, as Seller, Goldman Saches Bank USA, as Buyer.

10.15* Guarantee Agreement dated as of February 18, 2022, by and amount Terra Property Trust, Inc., as Guarantor, in favor of Goldman Saches Bank USA, as Buyer.

10.10 First Amendment to Loan Documents dated as of June 9, 2021, by and amount Terra Mortgage Portfolio II, LLC, as Borrower, Terra Property Trust, Inc., as Guarantor, and Western Alliance Bank, as Lender (incorporated by reference to Exhibit 10.1 0 to the Annual Report on Form 10-K filed with the SEC on March 11, 2022) .

10.11 Uncommitted Master Repurchase Agreement dated as of November 8, 2021, by and amount Terra Mortgage Capital III, LLC, as Seller, UBS AG, as Buyer (incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K filed with the SEC on March 11, 2022).

10.12 Guarantee Agreement dated as of November 8, 2021, by and amount Terra Property Trust, Inc., as Guarantor, in favor of UBS AG, as Buyer (incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K filed with the SEC on March 11, 2022).

Description and Method of Filing

10.13 Second Amendment to Loan Documents dated as of January 4, 2022, by and amount Terra Mortgage Portfolio II, LLC, as Borrower, Terra Property Trust, Inc., as Guarantor, and Western Alliance Bank, as Lender (incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K filed with the SEC on March 11, 2022).

10.14 Uncommitted Master Repurchase and Securities Contract Agreement dated as of February 18, 2022, by and amount Terra Mortgage Capital I, LLC, as Seller, Goldman Sach s Bank USA, as Buyer (incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K filed with the SEC on March 11, 2022).

10.15 Guarantee Agreement dated as of February 18, 2022, by and amount Terra Property Trust, Inc., as Guarantor, in favor of Goldman Sach s Bank USA, as Buyer (incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K filed with the SEC on March 11, 2022).

10.16 Voting Support Agreement, dated October 1 , 2022, by and among Terra Property Trust, Inc., Terra JV, LLC and Terra Offshore Funds REIT, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No.

001-40496) filed with the SEC on October 3, 2022).

10.17 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No.

001-40496) filed with the SEC on October 3, 2022).

10.18 Consent and Amendment Letter, dated as of September 27, 2022, by and among Terra Income Fund 6, Inc., Terra Merger Sub, LLC, Eagle Point Credit Management LLC, and certain lenders on the signature pages thereto (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed with the SEC on November 14, 2022).

21.1 * Subsidiaries

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Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Description and Method of Filing

101.INS** Inline XBRL Instance Document - t he instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

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Consolidated Statements of Operations for the years ended December 31, 2022 and 2021

Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2021 and 2020

Consolidated Statements of Changes in Equity for the years ended December 31, 2021 and 2020

Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021

Consolidated Statements of Changes in Equity for the years ended December 31, 2022 and 2021

Notes to Consolidated Financial Statements

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We have audited the accompanying consolidated balance sheets of Terra Property Trust, Inc.

and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive (loss) income, changes in equity, and cash flows for the years then ended, and the related notes and financial statement schedules III and IV (collectively, the consolidated financial statements).

and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in equity, and cash flows for the years then ended, and the related notes and financial statement schedules III and IV (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with U.S.

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Operating lease right-of-use asset 27,378,786 27,394,936

Deal deposit 4,241,892 —

Interest receivable 4,100,501 2,463,037

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Liabilities and Equity

Term loan payable, net of deferred financing fees $ 91,940,062 $ 105,245,801

Term loan payable $ 25,000,000 $ 91,940,062

Unsecured notes payable, net of debt issuance cost 116,530,673 81,856,799

Repurchase agreement payable, net of deferred financing fees 43,974,608 —

Repurchase agreements payable, net of deferred financing fees 169,304,710 43,974,608

Obligations under participation agreements ( Note 8 )

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

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

125 shares authorized and 125 shares issued and outstanding at December 31,

2022 and 2021

Common stock, $0.01 par value, 450,000,000 shares authorized and 19,487,460

shares issued and outstanding at both December 31, 2021 and 2020, respectively 194,875 194,875

125,000 125,000

Common stock, $ 0.01 par value, no and 450,000,000 shares authorized and no

and 19,487,460 shares issued and outstanding, at December 31, 2022 and 2021,

Class A common stock, $ 0.01 par value, 450,000,000 and no shares authorized and no shares issued, at both December 31, 2022 and 2021, respectively

Class B Common stock, $ 0.01 par value, 450,000,000 and no shares authorized

and 24,335,370 and no shares issued and outstanding at December 31, 2022

and 2021, respectively

Additional paid-in capital 444,449,813 373,443,672

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

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

Net unrealized gains on marketable securities 22,500 111,494

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

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

Income from equity investment in unconsolidated investments 2,731,477 5,925,802

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

Realized loss on loan repayments — ( 517,989 )

Gain on extinguishment of obligations under participation agreements 3,435,902 —

Realized gains on marketable securities 83,411 129,248

( 17,780,914 ) ( 20,126,581 )

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

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

Series A preferred stock dividend declared $ ( 15,624 ) $ ( 15,624 )

Net (loss) income allocable to common stock $ ( 12,371,351 ) $ 5,240,106

(Loss) earnings per share — basic and diluted

Net loss allocable to common stock $ ( 6,967,317 ) $ ( 12,371,351 )

Loss per share — basic and diluted

$ ( 0.34 ) $ ( 0.63 )

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Terra Property Trust, Inc.

Consolidated Statements of Comprehensive (Loss) Income

Years Ended December 31,

Comprehensive (loss) income, net of tax

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

Other comprehensive loss

Net unrealized gains on marketable securities — 192,919

Reclassification of net realized gains on marketable securities into earnings — ( 192,919 )

Total comprehensive (loss) income $ ( 12,355,727 ) $ 5,255,730

Series A preferred stock dividend declared ( 15,624 ) ( 15,624 )

Comprehensive (loss) income attributable to common shares $ ( 12,371,351 ) $ 5,240,106

See notes to consolidated financial statements.

Terra Property Trust, Inc.

Consolidated Statements of Changes in Equity

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

Capital Accumulated Deficit Accumulated Other Comprehensive Income

$0.01 Par Value

Shares Amount Shares Amount Total equity

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

Capital Accumulated Deficit

$0.01 Par Value $0.01 Par Value $0.01 Par Value

Shares Amount Shares Amount Shares Amount Shares Amount Total equity

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

Distributions declared on common shares ($0.88 per share) — — — — — — ( 17,110,136 ) — ( 17,110,136 )

Distributions declared on preferred shares — — — — — — ( 15,624 ) — ( 15,624 )

Comprehensive loss:

Common stock converted into newly

authorized Class B Common Stock

prior to the BDC Merger ( Note 11 )

— — — ( 19,487,460 ) ( 194,875 ) — — 19,487,460 194,875 — — —

Shares issued in connection with the

BDC Merger ( Note 3 )

— — — — — — — 4,847,910 48,479 71,006,141 — 71,054,620

Distributions declared on common

shares ($ 0.78 per share)

— — — — — — — — — — ( 16,048,707 ) ( 16,048,707 )

Distributions declared on preferred

shares — — — — — — — — — — ( 15,624 ) ( 15,624 )

Net loss — — — — — — — — — — ( 6,951,693 ) ( 6,951,693 )

1 unchanged sentence

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

Capital Accumulated Deficit Accumulated Other Comprehensive Income

Capital Accumulated Deficit

$0.01 Par Value

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

Issuance of common stock ( Note 3 )

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

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

Distributions declared on common shares ($ 0.88 per share)

— — — — — — ( 17,110,136 ) ( 17,110,136 )

Distributions declared on preferred shares — — — — — — ( 15,624 ) ( 15,624 )

Comprehensive income:

Net income — — — — — — 5,255,730 — 5,255,730

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

Reclassification of net realized gains on marketable securities

into earnings — — — — — — — ( 192,919 ) ( 192,919 )

Net loss — — — — — — ( 12,355,727 ) ( 12,355,727 )

Balance at December 31, 2021 $ — 125 $ 125,000 19,487,460 $ 194,875 $ 373,443,672 $ ( 99,919,969 ) $ 273,843,578

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Cash flows from operating activities:

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

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

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

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

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

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Impairment charge 1,604,989 3,395,430

Lease termination fee income — ( 236,000 )

Amortization of net purchase premiums on loans 557,012 61,390

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Amortization of discount on unsecured notes payable 738,583 248,108

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

Amortization of above- and below-market rent intangibles ( 914,965 ) ( 392,161 )

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Amortization of above-market rent ground lease ( 130,348 ) ( 130,349 )

Realized gain on marketable securities ( 83,411 ) ( 129,248 )

Unrealized losses (gains) on marketable securities 122,299 ( 22,500 )

Loss on sale of real estate 51,984 —

Realized loss on loan repayments — 517,989

Realized gains on marketable securities ( 129,248 ) ( 1,160,162 )

Net unrealized gains on marketable securities ( 22,500 ) ( 111,494 )

Gain on extinguishment of obligations under participation agreements ( 3,435,902 ) —

Income from equity investment in excess of distributions received ( 1,091,372 ) ( 1,276,726 )

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

Changes in operating assets and liabilities:

Deal deposits ( 4,241,892 ) —

Interest receivable ( 323,606 ) 46,552

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Purchase of equity interests in unconsolidated investments ( 25,504,979 ) ( 32,177,108 )

Purchase of marketable securities ( 6,479,148 ) ( 6,039,567 )

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

Cash and restricted cash acquired in connection with the BDC Merger 24,582,565 —

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

Proceeds from sale of marketable securities 1,259,417 6,608,396

Distributions in excess of net income 923,200 —

Repayments of promissory note receivable ( 386,395 ) —

Proceeds from promissory note receivable 386,395 —

Purchase of marketable securities ( 136,265 ) ( 6,479,148 )

Cash paid to stockholders of Terra BDC in connection with the BDC Merger ( 12,920 ) —

Net cash used in investing activities ( 49,136,489 ) ( 87,705,137 )

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Cash flows from financing activities:

Repayments of obligations under participation agreements ( 101,722,161 ) ( 5,855,759 )

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

Proceeds from obligations under participation agreements 71,682,634 22,498,765

Proceeds from borrowings under repurchase agreement 44,569,600 22,860,134

Proceeds from borrowings under repurchase agreements 151,906,606 44,569,600

Proceeds from borrowings under revolving line of credit 130,519,295 38,575,895

Distributions paid ( 17,125,760 ) ( 21,234,391 )

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

Repayments of borrowings under revolving line of credit ( 78,959,325 ) —

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

Proceeds from obligations under participation agreements 29,607,969 71,682,634

Repayments of borrowings under repurchase agreements ( 25,599,600 ) —

Repayments of obligations under participation agreements ( 22,239,670 ) ( 101,722,161 )

Distributions paid ( 16,064,331 ) ( 17,125,760 )

Proceeds from secured borrowing 4,151,186 16,239,256

Repayment of mortgage principal ( 12,057,533 ) ( 594,255 )

Proceeds from borrowings under the term loan 2,764,020 107,584,451

Change in interest reserve and other deposits held on investments ( 3,039,221 ) ( 4,733,805 )

Repayment of mortgage principal ( 2,710,384 ) ( 12,057,533 )

Payment of financing costs ( 1,033,097 ) ( 2,295,347 )

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

Repayment of borrowings under revolving line of credit — ( 35,000,000 )

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

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

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

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

Proceeds from borrowings under the term loan — 2,764,020

Net cash provided by financing activities 34,103,666 101,776,642

Net increase in cash, cash equivalents and restricted cash 18,178,324 (17,629,377)

Net (decrease) increase in cash, cash equivalents and restricted cash ( 14,629,055 ) 18,178,324

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

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Cash paid for interest $ 22,569,976 $ 22,219,386

See notes to consolidated financial statements .

Terra Property Trust, Inc.

Consolidated Statements of Cash Flows (Continued)

Supplemental Non-Cash Financing Activities:

On February 28, 2020, Terra Property Trust, Inc.

( the “Company”) entered into certain Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Terra Property Trust 2, Inc.

(“TPT2”) and Terra Secured Income Fund 7, LLC (“Terra Fund 7”), the sole stockholder of TPT2, pursuant to which, effective March 1, 2020, TPT2 was merged with and into the Company, with the Company continuing as the surviving corporation (the “Merger”).

In connection with the Merger, the Company issued 2,116,785.76 shares of common stock, par value $ 0.01 per share, to Terra Fund 7 ( Note 3 ).

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

Supplemental Non-Cash Investing Activities:

On October 1, 2022, pursuant to that 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 Terra Property Trust, Inc.

(the “Company” or Terra Property Trust”), with Terra LLC continuing as the surviving entity of the merger (the “BDC Merger”) and as a wholly owned subsidiary of the Company ( Note 3 ).

The following table presents a summary of the consideration exchanged and assets acquired and liabilities assumed as a result of the BDC Merger:

Total Consideration

Equity issued in the Merger $ 34,630,615

Proceeds from equity issued in the Merger 16,897,074

Net assets exchanged

Settlement of obligations under participation agreements $ 17,688,741

Fair value of Terra Property Trust shares of common stock issued $ 71,054,620

Cash paid for fractional shares 12,920

Transaction costs 2,283,785

Assets Acquired and Liabilities Assumed at Fair Value

Loans held for investment 77,562,528

Loans held for investment acquired through participation 36,793,313

Interest receivable 1,367,044

Other assets 55,465

Accounts payable and accrued expenses ( 57,433 )

Due to Manager ( 50,694 )

Non-cash Proceeds from Issuance of Common Stock to Terra Offshore REIT

In addition, on March 2, 2020, the Company entered into two separate contribution agreements, (i) by and among the Company, Terra Offshore Funds REIT, LLC (the “Terra Offshore REIT”) and Terra Income Fund International (“TIFI”), and (ii) by and among the Company, Terra Offshore REIT and Terra Secured Income Fund 5 International (“Fund 5 International”), pursuant to which the Company issued an aggregate of 2,457,684.59 shares of common stock in exchange for the settlement of $ 32.1 million of participation interests in loans held by the Company, $ 8.6 million in cash, and other net working capital (“Issuance of Common Stock to Terra Offshore REIT”) ( Note 3 ).

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

Total Consideration

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

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

Net Assets exchanged

Settlement of obligations under participation agreements $ 32,112,257

Interest receivable 270,947

Term loan payable ( 25,000,000 )

Unsecured notes payable ( 33,770,000 )

Obligations under participation agreements ( 6,114,979 )

Interest reserve and other deposits held on investments ( 260,614 )

Due to manager ( 682,541 )

Net assets acquired excluding cash and cash equivalents $ 32,149,378

Terra Property Trust, Inc.

Consolidated Statements of Cash Flows (Continued)

Supplemental Non-Cash Investing Activities:

Lease Termination

In June 2020, the Company received a notice from a tenant occupying a portion of the office building that the Company acquired in July 2018 via foreclosure of their intention to terminate the lease ( Note 6 ).

The following table presents a summary of assets received and written off in connection with the lease termination effective September 4, 2020:

Lease Termination Fees:

Furniture & Fixture

Assets and Liabilities Write-offs:

In-place lease intangible assets

Below-market rent liabilities

Rent receivable

Interest payable ( 53,186 )

Accounts payable and accrued expenses ( 740,824 )

Other liabilities ( 387,446 )

Net assets acquired excluding cash and restricted cash 48,768,760

Cash and restricted cash acquired $ 24,582,565

See notes to consolidated financial statements .

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Terra Property Trust, Inc.

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

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

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

4 unchanged sentences

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

As of December 31, 2021, Terra JV, LLC (“Terra JV”) held 87.4 % of the issued and outstanding shares of the Company's common stock with the remainder held by Terra Offshore REIT ( Note 3 ).

The Company has elected to be taxed, and to qualify annually thereafter, as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), commencing with the taxable year ended December 31, 2016.

1 unchanged sentence

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

The Company’s investment activities are externally managed by Terra REIT Advisors, LLC (“Terra REIT Advisors” or the “Manager”), a subsidiary of the Company’s sponsor, Terra Capital Partners, LLC (“Terra Capital Partners”), pursuant to a management agreement (the “Management Agreement”), under the oversight of the Company’s board of directors ( Note 8 ).

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

3 unchanged sentences

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

On October 1, 2022, pursuant to the Merger Agreement, Terra BDC, merged with and into Terra LLC, a wholly owned subsidiary of the Company, with Terra LLC continuing as the surviving entity of the BDC Merger and as a wholly owned subsidiary of the Company ( Note 3 ).

As of December 31, 2022, Terra JV, LLC (“Terra JV”), former shareholders of Terra BDC and Terra Offshore Funds REIT, LLC (“Terra Offshore REIT”) held 70.0 %, 19.9 % and 10.1 % of the issued and outstanding shares of the Company’s common stock, respectively.

Summary of Significant Accounting Policies

3 unchanged sentences

Certain prior period amounts have been reclassified to conform to the current period presentation.

Notes to Consolidated Financial Statements

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

3 unchanged sentences

The Company accounts for investments in which it has significant influence but not a controlling financial interest using the equity method of accounting (see Note 5 ).

Notes to Consolidated Financial Statements

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

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

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.

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.

1 unchanged sentence

Loans Held for Investment

The Company originates, acquires, and structures real estate-related loans generally to be held to maturity.

The Company originates, acquires, and structures, or acquired through participations, real estate-related loans generally to be held to maturity (collectively the “loans”).

Loans held for investment are carried at the principal amount outstanding, adjusted for the accretion of discounts on investments and exit fees, and the amortization of premiums on investments and origination fees.

22 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 Consolidated Financial Statements

Risk Rating Description

3 unchanged sentences

5 Highest risk

Notes to Consolidated Financial Statements

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

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

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

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 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.

1 unchanged sentence

Operating leases in which the Company is the lessee are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance sheets.

Notes to Consolidated Financial Statements

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease.

4 unchanged sentences

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

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Lease expense is recognized on a straight-line basis over the lease term.

Revenue Recognition

28 unchanged sentences

Notes to Consolidated Financial Statements

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

Cash and cash equivalents $ 28,567,825 $ 35,783,956

8 unchanged sentences

See “ Obligations under Participation Agreements ” in Note 9 for additional information.

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

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

Repurchase Agreement

The Company financed certain of its senior loans through repurchase transactions under a master repurchase agreement.

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

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

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

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

See “Term Loan” in Note 9 for additional information.

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

The Company classified this delayed draw term loan as term loan payable on the consolidated balance sheets.

Repurchase Agreements

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

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

See “Repurchase Agreements” in Note 9 for additional information.

Fair Value Measurements

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

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

In order to qualify as a REIT, the Company is required, among other things, to distribute dividends equal

Notes to Consolidated Financial Statements

to at least 90% of its REIT net taxable income to the stockholders and meet certain tests regarding the nature of its income and assets.

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

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

federal and state income taxes at regular corporate rates (including any

Notes to Consolidated Financial Statements

applicable alternative minimum tax for taxable years before 2018) beginning with the year in which it fails to qualify and may be precluded from being able to elect to be treated as a REIT for the Company’s four subsequent taxable years.

federal and state income taxes at regular corporate rates (including any applicable alternative minimum tax) beginning with the year in which it fails to qualify and may be precluded from being able to elect to be treated as a REIT for the Company’s four subsequent taxable years.

Any gains from the sale of foreclosed properties within two years are subject to U.S.

14 unchanged sentences

Actual results may ultimately differ from those estimates, and those differences could be material.

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

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

A strong pace of vaccination along with aggressive fiscal stimulus, has improved the outlook for the real estate market.

The Company continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its investments and operations.

The Company believes the estimates and assumptions underlying its financial statements are reasonable and supportable based on the information available as of December 31, 2021;

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

These developments include the duration of the outbreak, the impact of the global vaccination effort, any new strains of the virus that are resistant to available vaccines, the impact of government stimulus, new information that may emerge concerning the severity of the COVID-19 pandemic, and actions taken by federal, state and local agencies as well as the general public to contain the COVID-19 pandemic or treat its impact, among others.

Accordingly, any estimates and assumptions as of December 31, 2021 are inherently less certain than they would be absent the current and potential impacts of the COVID-19 pandemic.

Segment Information

9 unchanged sentences

In May 2019, the FASB issued ASU 2019-05 — Targeted Transition Relief, which provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis.

In October 2019, the FASB decided that for smaller reporting companies, ASU 2016-13 and related amendments will be effective for fiscal years beginning

Notes to Consolidated Financial Statements

after December 15, 2022, including interim periods within those fiscal years.

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

The Company meets the definition of a smaller reporting company under the regulation of the Securities and Exchange Commission.

As such, the Company will adopt this ASU and related amendments on January 1, 2023.

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

The Company adopted this ASU and related amendments on January 1, 2023.

The adoption of ASU 2016-13 resulted in an incremental reserve of approximately $ 4.6 million, which included reserve on future loan funding commitments.

The Company will record the cumulative effect of initially applying this guidance as an adjustment to Accumulated deficit using the modified retrospective method of adoption.

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.

Notes to Consolidated Financial Statements

a benchmark by the end of 2021, which has subsequently been delayed 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”).

4 unchanged sentences

2021-01, Reference Rate Reform (Topic 848), which expanded the scope of Topic 848 to include derivative instruments impacted by discounting transition (“ASU 2021-01”).

ASU 2020-04 and ASU 2021-01 are effective for all entities through December 31, 2022.

The expedients and exceptions provided by the amendments do not apply to contract modifications and hedging relationships entered into or evaluated after December 31, 2022, except for hedging transactions as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848) — Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”).

ASU 2022-06 deferred the sunset date of ASU 2020-04 to December 31, 2024.

In the event LIBOR is unavailable, the Company’s investment documents provide for a substitute index, on a basis generally consistent with market practice, intended to put the Company in substantially the same economic position as LIBOR.

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

Merger and Issuance of Common Stock to Terra Offshore REIT

On February 28, 2020, the Company entered into the Merger Agreement pursuant to which TPT2 was merged with and into the Company, with the Company continuing as the surviving corporation, effective March 1, 2020.

In connection with the Merger, each share of common stock, par value $ 0.01 per share, of TPT2 issued and outstanding immediately prior to the effective time of the Merger was converted into the right to receive from the Company a number of shares of common stock, par value $ 0.01 per share, of the Company equal to an exchange ratio, which was 1.2031 .

The exchange ratio was based on the relative net asset values of the Company and TPT2 as of December 31, 2019 as adjusted to reflect changes in the net working capital of each of the Company and TPT2 during the period from January 1, 2020 through March 1, 2020, the effective time for the Merger.

For purposes of determining the respective fair values of the Company and TPT2, the value of the loans (or participation interests therein) held by each of the Company and TPT2 was the value of such loans (or participation interests) as set forth in the audited financial statements of the Company as of and for the year ended December 31, 2019.

As a result, Terra Fund 7, the sole stockholder of TPT2, received 2,116,785.76 shares of common stock of the Company as consideration in the Merger.

The shares of common stock were issued in a private placement in reliance on Section 4(a)(2) under the Securities Act of 1933, as amended (the “Securities Act”), and the rules and regulations promulgated thereunder.

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

Total Consideration

Equity issued in the Merger $ 34,630,615

Net Assets of TPT2 Received in the Merger

Loans held for investment acquired through participation $ 17,688,741

Cash and cash equivalents 16,897,074

Interest receivable 134,543

Other assets 18,384

Accounts payable and accrued expenses ( 57,433 )

Due to Manager ( 50,694 )

Total identifiable net assets $ 34,630,615

The fair value of the 2,116,785.76 shares of the Company’s stock issued in the Merger as consideration paid for TPT2 was derived from the fair value per share of the Company as of December 31, 2019 as adjusted to reflect the change in the net

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 BDC 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”).

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 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 the common equity of the Company.

The Company and Terra BDC prepared their respective financial statements in accordance with generally accepted accounting principles in the United States.

The BDC Merger is accounted for using the acquisition method of accounting, with the Company being treated as the accounting acquirer.

In identifying the Company as the acquiring entity for accounting purposes, the Company and Terra BDC took into account a number of factors, including the relative size of the merging companies, which entity issues additional shares in conjunction with the BDC Merger, the relative voting interests of the respective stockholders after consummation of the BDC Merger, and the composition of the Board and senior management of the combined company after consummation of the BDC Merger.

The Company, as the acquirer, accounted for the BDC Merger as an asset acquisition and all direct acquisition-related costs are capitalized to the total cost of the assets acquired and liabilities assumed.

Pursuant to Accounting Standard Codification Topic 805, Business Combination , total cost is allocated to the assets acquired and liabilities assumed on a relative fair value basis.

Notes to Consolidated Financial Statements

working capital of the Company during the period from January 1, 2020 through March 1, 2020, the effective time of the Merger.

In connection with the Merger, the size of the board of directors of the Company was reduced from eight directors to four directors, with Andrew M.

Axelrod, Vikram S.

Uppal, Roger H.

Beless and Michael L.

Evans continuing as directors of the Company.

On November 10, 2021, Andrew M.

Axelrod, resigned as the Company’s director effectively immediately.

Following Mr.

Axelrod’s resignation, the size of the board of directors of the Company was reduced from four directors to three directors.

Issuance of Common Stock to Terra Offshore REIT

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

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

The fair value of the 2,457,684.59 shares of the Company’s stock issued in the transaction as consideration paid for Terra Offshore REIT was derived from the fair value per share of the Company as of December 31, 2019, which was the most recently determined fair value per share of the Company.

The following table summarizes the total consideration and the fair values of assets acquired and liabilities assumed in the BDC Merger:

Total Consideration

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

Net Assets of Terra Offshore REIT Received

Investments through participation interest, at fair value $ 32,112,257

Fair value of Terra Property Trust shares of common stock issued

Cash paid for fractional shares 12,920

Transaction costs 2,283,785

Assets Acquired and Liabilities Assumed at Fair Value

Cash and cash equivalents $ 24,321,951

Restricted cash 260,614

Loans held for investment 77,562,528

Loans held for investment acquired through participation 36,793,313

Interest receivable 1,367,044

Other assets 55,465

Term loan payable ( 25,000,000 )

Unsecured notes payable ( 33,770,000 )

Obligations under participation agreements ( 6,114,979 )

Interest reserve and other deposits held on investments ( 260,614 )

Due to manager ( 682,541 )

Total identifiable net assets $ 40,749,378

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

Terra JV, LLC

Prior to the completion of the Merger and the Issuance of Common Stock to Terra Offshore REIT transactions described above, Terra Fund 5 owned approximately 98.6 % of the issued and outstanding shares of the Company’s common stock indirectly through its wholly owned subsidiary, Terra JV, of which Terra Fund 5 was the sole managing member, and the remaining issued and outstanding shares of the Company’s common stock were owned by Terra Offshore REIT.

As described above, the Company acquired TPT2 in the Merger and, in connection with such transaction, Terra Fund 7 contributed the shares of the Company’s common stock received as consideration in the Merger to Terra JV and became a co-managing member of Terra JV pursuant to the amended and restated operating agreement of Terra JV, dated March 2, 2020 (the “JV Agreement”).

The JV Agreement and related stockholders agreement between Terra JV and the Company, dated March 2, 2020, provide for the joint approval of Terra Fund 5 and Terra Fund 7 with respect to certain major decisions that are taken by Terra JV and the Company.

On March 2, 2020, the Company, Terra Fund 5, Terra JV and Terra REIT Advisors also entered into the Amended and Restated Voting Agreement (the “Voting Agreement”), pursuant to which Terra Fund 5 assigned its rights and obligations under the Voting Agreement to Terra JV.

Consistent with the original voting agreement dated February 8, 2018, for the period that Terra REIT Advisors remains the external manager of the Company, Terra REIT Advisors will have the right to nominate

Notes to Consolidated Financial Statements

two individuals to serve as directors of the Company and, until Terra JV no longer holds at least 10 % of the outstanding shares of the Company’s common stock, Terra JV will have the right to nominate one individual to serve as a director of the Company.

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

Net Loss on Extinguishment of Obligations Under Participation Agreements

Interest payable ( 53,186 )

Accounts payable and accrued expenses ( 740,824 )

Other liabilities ( 387,446 )

Net assets acquired $ 73,351,325

The fair value of the 4,847,910 shares of the Class B Common Stock was determined based on the Company’s net asset value per share of $ 14.66 as of October 1, 2022.

Net Gain on Extinguishment of Obligations Under Participation Agreements

As discussed in Note 8 , in the normal course of business, the Company may enter into participation agreements with related parties, primarily other affiliated funds managed by the Manager, and to a lesser extent, unrelated parties.

The obligations under participation agreements were released as a result of the Merger and the Issuance of Common Stock to Terra Offshore REIT.

In connection with these transactions, the Company recognized a net loss of $ 0.3 million for the three months ended March 31, 2020, which was primarily related to transaction costs incurred in connection with both transactions.

As a result of the BDC Merger, the obligations under participation agreements with Terra BDC totaling $ 37.0 million were effectively extinguished and the Company recognized a net gain of $ 3.4 million, 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.

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 continued 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 “2022 Voting Agreement”).

Pursuant to the 2022 Voting 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

Notes to Consolidated Financial Statements

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 2022 Voting 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.

Loans Held for Investment

Portfolio Summary

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

The following table provides a summary of the Company’s loan portfolio as of:

December 31, 2022 December 31, 2021

11 unchanged sentences

_______________

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

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

(2) As of December 31, 2021 and 2020, amounts included $ 163.1 million and $ 184.2 million of senior mortgages used as collateral for $ 93.8 million and $ 107.6 million of borrowings under a term loan, respectively ( Note 9 ).

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

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

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

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

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

Notes to Consolidated Financial Statements

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

Coupon rate shown was determined using LIBOR of 4.39 %, average SOFR of 4.06 % and forward-looking term rate based on SOFR (“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 ( Note 9 ).

(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.

Lending Activities

The following table presents the activities of the Company’s loan portfolio for the years ended December 31, 2021 and 2020:

The following tables present the activities of the Company’s loan portfolio:

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

2 unchanged sentences

Principal repayments received ( 197,484,239 ) — ( 197,484,239 )

PIK interest (1)

1,955,109 — 1,955,109

Loans acquired and contributed in connection with the BDC Merger 77,562,529 ( 2,744,091 ) 74,818,438

Net amortization of premiums on loans ( 469,563 ) ( 87,449 ) ( 557,012 )

1 unchanged sentence

net 1,512,638 335,361 1,847,999

Realized loss on loan repayments (2)(3)

( 651,553 ) — ( 651,553 )

Provision for loan losses ( 11,813,409 ) — ( 11,813,409 )

Balance, December 31, 2022 $ 584,417,939 $ 42,072,828 $ 626,490,767

Notes to Consolidated Financial Statements

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

5 unchanged sentences

Net amortization of premiums on loans ( 61,390 ) — ( 61,390 )

Accrual, payment and accretion of investment-related fees, net 667,060 14,395 681,455

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

net 1,405,206 ( 7,687 ) 1,397,519

Realized loss on loan repayments (2)(3)

( 651,553 ) — ( 651,553 )

Provision for loan losses ( 10,904,163 ) — ( 10,904,163 )

3 unchanged sentences

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

PIK interest related to obligations under participation agreements amounted to $ 1.0 million and $ 1.5 million for the years ended December 31, 2021 and 2020, respectively.

PIK interest related to obligations under participation agreements amounted $ 1.0 million for the year ended December 31, 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.

4 unchanged sentences

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

Notes to Consolidated Financial Statements

Portfolio Information

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

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

December 31, 2022 December 31, 2021

6 unchanged sentences

Total $ 645,795,459 $ 626,490,767 100.0 % $ 480,151,151 $ 469,673,314 100.0 %

Notes to Consolidated Financial Statements

December 31, 2022 December 31, 2021

1 unchanged sentence

Office $ 184,196,708 $ 184,722,657 29.4 % $ 221,596,870 $ 222,426,872 47.3 %

Industrial 147,796,164 148,891,742 23.8 % 32,000,000 32,206,964 6.9 %

Multifamily 104,589,464 105,570,432 16.9 % 80,805,787 81,835,756 17.4 %

Mixed-use 64,880,450 65,838,965 10.5 % 28,940,658 28,977,024 6.2 %

Infill land 48,860,291 49,565,437 7.9 % 28,960,455 28,923,827 6.2 %

Hotel - full/select service 43,222,382 43,758,804 7.0 % 56,847,381 57,395,682 12.2 %

Industrial 32,000,000 32,206,964 6.9 % 7,000,000 7,000,000 1.7 %

Student housing 31,000,000 31,774,261 5.1 % 31,000,000 31,565,670 6.7 %

Infill land 28,960,455 28,923,827 6.2 % 10,442,567 10,537,512 2.5 %

Mixed use 28,940,658 28,977,024 6.2 % 16,767,984 16,767,984 4.0 %

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

Infrastructure 21,250,000 21,840,359 3.5 % — — — %

Allowance for loan losses — ( 25,471,890 ) ( 4.1 ) % — ( 13,658,481 ) ( 2.9 ) %

Total $ 645,795,459 $ 626,490,767 100.0 % $ 480,151,151 $ 469,673,314 100.0 %

During the first quarter of 2021, the Company reclassified the property types of collateral on certain loans to multifamily to better reflect the tenant mix of each property.

Additionally, the Company categorized hotel properties further to hotel - full/selected service and hotel - extended stay.

The prior period amounts have been reclassified to conform to the current period presentation.

December 31, 2022 December 31, 2021

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Georgia 72,401,718 73,101,964 11.7 % 53,289,288 53,536,884 11.4 %

North Carolina 44,492,971 44,704,699 9.5 % 33,242,567 33,438,806 7.9 %

Utah 28,000,000 28,420,056 6.1 % — — — %

Texas 67,625,000 68,142,046 10.9 % 13,625,000 13,725,690 2.9 %

Massachusetts 7,000,000 7,000,000 1.5 % 7,000,000 7,000,000 1.7 %

New Jersey 62,228,622 62,958,482 10.0 % — — — %

Washington 56,671,267 57,027,639 9.1 % 3,523,401 3,382,683 0.7 %

Utah 49,250,000 50,698,251 8.1 % 28,000,000 28,420,056 6.1 %

North Carolina 43,520,028 44,041,162 7.0 % 44,492,971 44,704,699 9.5 %

Arizona 31,000,000 31,276,468 5.0 % — — — %

Massachusetts 7,000,000 7,000,000 1.1 % 7,000,000 7,000,000 1.5 %

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

1 unchanged sentence

Total $ 645,795,459 $ 626,490,767 100.0 % $ 480,151,151 $ 469,673,314 100.0 %

Notes to Consolidated Financial Statements

Loan Risk Rating

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

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

Notes to 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:

December 31, 2022 December 31, 2021

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 collectibility individually.

(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 December 31, 2022 and 2021, the specific allowance for loan losses on these loans were $ 25.5 million and $ 12.8 million, respectively, as a result of a decline in the fair value of the respective collateral.

As of December 31, 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 year ended December 31, 2022.

As of December 31, 2022, the Company 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, the Company had one loan with a loan risk rating of “4” and no loans with a loan risk rating of “5”, and recorded general allowance for loan losses of $ 0.6 million for the year ended December 31, 2021.

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

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

The following table presents the activity in the Company’s allowance for loan losses for the years ended December 31, 2021 and 2020:

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

The following table presents the activity in the Company’s allowance for loan losses:

Years Ended December 31,

Allowance for loan losses, beginning of period $ 3,738,758 $ —

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

Provision for loan losses 11,813,409 10,904,163

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— ( 984,440 )

Recoveries — —

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

Allowance for loan losses, end of year $ 25,471,890 $ 13,658,481

_______________

(1) Amount related to the TDR described below.

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

Additionally, for the year ended December 31, 2021, the Company suspended interest income accrual of $ 3.6 million on three loans, because recovery of such income was doubtful.

There was no suspension of such interest income for the year ended December 31, 2020.

Notes to Consolidated Financial Statements

(1) Amount related to the TDR below.

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

Additionally, for the years ended December 31, 2022 and 2021, the Company suspended interest income accrual of $ 8.5 million and $ 3.6 million, respectively, on three loans because recovery of such income was doubtful.

Troubled Debt Restructuring

As of December 31, 2022, there was one investment that qualified as troubled debt restructuring.

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

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

2022 — In December 2022, the borrower of a $ 40.1 million senior loan experienced financial difficulty and offered to repay the loan for $ 38.7 million.

The remaining $ 1.4 million was converted to subordinated equity that accrues dividends at 8.0 % and the Company is entitled to receive waterfall profit upon a sale.

The Company does not anticipate a full recovery of the equity position and does not expect to receive any additional income.

As a result, the remaining $ 1.4 million is reflected as a loan

Notes to Consolidated Financial Statements

receivable and it is fully reserved for as of December 31, 2022.

The Company classified this loan modification as a TDR as it met all the conditions to be considered a TDR pursuant to ASC 310-40.

The following table summarizes the recorded investment of TDR as of the date of restructuring:

Number of loans modified 1

Pre-modified recorded carrying value $ 40,837,901

Post-modified recorded carrying value (1)

_______________

(1) As of December 31, 2022, the principal balance of this loan was the same as the carrying value.

The Company recorded an allowance for loan losses of $ 1.4 million to fully reserve for the unpaid principal balance.

There was no income from this investment from the date of modification on December 28, 2022 through December 31, 2022.

2021 — Due to financial difficulty resulting from the COVID-19 pandemic, a borrower defaulted on interest payments in May 2020 on a $ 3.5 million mezzanine loan, and the Company subsequently suspended the interest accrual.

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

This investment was repaid in full in April 2022.

The following table summarizes the recorded investment of TDR as of the date of restructuring:

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

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

Since the fair value of the collateral is greater than the carrying value of the new senior loan, no specific allowance was recorded as of December 31, 2021.

For the period ended December 31, 2021, interest income from the new senior loan was $ 0.3 million.

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

Since the fair value of the collateral was greater than the carrying value of the new senior loan, no specific allowance was recorded as of December 31, 2021.

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 year ended December 31, 2021, interest income from the new senior loan was $ 0.3 million.

Equity Investment in Unconsolidated Investments

The Company owns interests in a limited partnership and two joint ventures.

The Company owns interests in a limited partnership and three joint ventures.

The Company accounts for its interests in these investments under the equity method of accounting ( Note 2 ).

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Equity Investment in a Limited Partnership

On August 3, 2020, the Company entered into a subscription agreement with Mavik Real Estate Special Opportunities Fund, LP (“RESOF”) (formerly known as Terra Real Estate Credit Opportunities Fund, LP) whereby the Company committed to fund up to $ 50.0 million to purchase a limited partnership interest in RESOF.

On August 3, 2020, the Company entered into a subscription agreement with Mavik Real Estate Special Opportunities Fund, LP (“RESOF”) whereby the Company committed to fund up to $ 50.0 million to purchase a limited partnership interest in RESOF.

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

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

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

RESOF may also opportunistically originate high-yield mortgages or loans in real estate special situations including

Notes to Consolidated Financial Statements

rescue financings, bridge loans, restructurings and bankruptcies (including debtor-in-possession loans).

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

As of December 31, 2022 and 2021, the unfunded commitment was $ 22.4 million and $ 15.1 million, respectively.

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

As of December 31, 2021 and 2020, the Company owned 50.0 % and 90.3 % of equity interest in RESOF, respectively.

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

As of December 31, 2022 and 2021, the carrying value of the Company ’ s investment in RESOF was $ 36.8 million and $ 40.5 million, respectively.

For the year ended December 31, 2021, the Company recorded equity income from RESOF of $ 6.2 million and

Notes to Consolidated Financial Statements

received distributions of $ 3.5 million from RESOF.

For the year ended December 31, 2020, the Company recorded equity income from RESOF of $ 0.04 million and did not received any distributions.

For the year ended December 31, 2022, the Company recorded equity income from RESOF of $ 5.2 million, and did not receive any distributions from RESOF.

For the year ended December 31, 2021, the Company recorded equity income from RESOF of $ 6.2 million and received distributions from RESOF of $ 3.5 million.

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.

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

As of December 31,

Investments at fair value (cost of $ 176,035,290 and $ 107,261,022 , respectively)

$ 178,283,703 $ 108,359,898

Other assets 23,918,841 5,484,087

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$ 14,252,357 , respectively)

41,962,861 14,351,617

Other liabilities 17,120,804 5,296,603

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Total expenses 9,042,066 2,381,145

Net investment income (loss) 9,387,938 ( 374,525 )

Unrealized appreciation on investments 524,113 417,300

Net investment income 22,394,820 9,387,938

Unrealized (depreciation) appreciation on investments ( 2,180,632 ) 524,113

Net increase in partners’ capital resulting from operations $ 20,214,188 $ 9,912,051

Equity Investment in Joint Ventures

In the fourth quarter of 2021, the Company purchased equity interests in two joint ventures that invest in real estate properties.

As of December 31, 2022, the Company beneficially 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 December 31, 2021 Carrying Value at December 31,

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:

In December 2022, the Company originated a $ 10.0 million mezzanine loan to a borrower to finance the acquisition of a real estate portfolio.

In connection with this mezzanine loan, the Company entered into a residual profit sharing agreement with the borrower where the borrower will pay the Company an additional amount of 35.0 % of remaining net cash flow from the sale of the real estate portfolio.

The Company accounts for this arrangement using the equity method of accounting.

Notes to Consolidated Financial Statements

The following table presents a summary of the Company’s equity investment in unconsolidated investments as of:

December 31, 2022 December 31, 2021

Entity Co-owner (1)

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

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

Beneficial Ownership Interest Carrying Value Beneficial Ownership Interest Carrying Value

LEL Arlington JV LLC (1)

Affiliate/Third party 27.2 % $ 7,271,603 80 % $ 23,949,044

LEL NW 49th JV LLC (1)

Affiliate/Third party 27.2 % 1,521,556 80 % 5,306,467

TCG Corinthian FL Portfolio

JV LLV (1)(2)

Affiliate/Third Party 30.6 % 6,896,816 — % —

SF-Dallas Industrial, LLC (3)

N/A N/A 10,013,691 — % —

$ 25,703,666 $ 29,255,511

Notes to Consolidated Financial Statements

_______________

(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.

(3) This investment that meets the definition of an equity investment was entered into in December 2022.

The following tables present estimated combined summarized financial information of the Company’s equity investment in the joint ventures.

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

As of December 31,

Net investments in real estate $ 192,616,298 $ 115,636,424

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Revenues $ 15,071,626 $ 1,448,431

Expenses 1,752,076 —

Operating expenses ( 6,710,172 ) ( 518,904 )

Depreciation and amortization expense ( 9,914,314 ) ( 541,119 )

Interest expense ( 7,572,790 ) ( 692,500 )

Unrealized gains 3,244,813 447

Net loss $ ( 5,880,837 ) $ ( 303,645 )

For the year ended December 31, 2021, the Company recorded equity loss from the joint ventures of $ 0.2 million and did not receive any distributions.

There was no such equity income or loss recorded or distributions received for the year ended December 31, 2020.

In connection with these investments, the Company paid origination fee to the Manager totaling $ 0.3 million, to be amortize to equity income over the life of the respective joint venture.

For the year ended December 31, 2022, the Company recorded equity loss from the joint ventures of $ 2.5 million, and received distributions from the joint ventures of $ 0.9 million.

For the year ended December 31, 2021, the Company recorded equity loss from the joint ventures of $ 0.2 million and received no distributions.

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.

Notes to Consolidated Financial Statements

Real Estate Owned, Net

Real Estate Activities

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

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

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 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.

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

For the year ended December 31, 2021, the Company recorded an impairment charge on $ 3.4 million on the 4.9 acres of adjacent land in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost of sale.

2020 — In June 2020, the Company received a notice from a tenant occupying a portion of the office building that the Company acquired in July 2018 pursuant to a foreclosure of their intention to terminate the lease.

In connection with the lease termination effective September 4, 2020, the Company received from the tenant lease termination fee of $ 0.4 million, which included approximately $ 0.2 million of cash and $ 0.2 million of the furniture and fixtures in the office space.

The furniture and fixtures have a remaining useful life of 2.5 years and are being depreciated on a straight-line basis over the remaining useful life.

Additionally, the Company wrote off the related unamortized in-place lease intangible assets of $ 0.9 million, unamortized below-market rent intangible liabilities of $ 0.6 million and rent receivable of $ 0.1 million.

There was no gain or loss recognized on the lease termination.

Notes to Consolidated Financial Statements

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.

Real Estate Owned, Net

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

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

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 as of:

December 31, 2022 December 31, 2021

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

Land $ 10,000,000 $ — $ 10,000,000 $ 13,395,430 $ — $ 13,395,430

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

Building and building

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Total real estate $ 57,304,497 $ ( 16,722,650 ) $ 40,581,847 $ 67,304,497 $ ( 11,237,368 ) $ 56,067,129

_______________

(1) The 4.9 acres of land in Pennsylvania was sold by the Company in the second quarter of 2022.

Notes to Consolidated Financial Statements

Real Estate Operating Revenues and Expenses

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Lease expense, including amortization of above-market ground lease 1,948,652 2,084,402

2,084,402 1,134,152

Other operating expenses 424,845 393,495

Total $ 5,005,551 $ 5,003,893

_______________

(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

Notes to Consolidated Financial Statements

to accrue and pay rent at the then-existing rate.

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

The increase in base rent was retroactive back to November 1, 2020.

The Company accounted for the change in base rent as a change in accounting estimate;

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

Had the new base rent been recorded on November 1, 2020, lease expense including amortization of above-market ground lease would have been $ 1.7 million for the year ended December 31, 2021 and total real estate operating expenses would have been $ 4.7 million for the year ended December 31, 2021 .

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

In connection with the foreclosure, the Company assumed four leases whereby the Company is the lessor to the leases.

These four tenant leases had remaining lease terms ranging from 6.3 years to 8.8 years as of July 30, 2018 and provide for annual fixed rent increases.

Each of the three tenant leases provides two options to renew the lease for five years and the remaining tenant lease provides one option to renew the lease for five years.

In addition, the Company assumed a ground lease whereby the Company is the lessee (or a tenant) to the ground lease.

The ground lease had a remaining lease term of 68.3 years and provides for a new base rent every 5 years based on the greater of the annual base rent for the prior lease year or 9 % of the fair market value of the land.

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

In addition, the office building is subject to a ground lease whereby the Company is the lessee (or a tenant) to the ground lease.

The ground lease had a remaining lease term of 64.6 years as of December 31, 2022, and provides for a new base rent every 5 years based on the greater of the annual base rent for the prior lease year or 9 % of the fair market value of the land.

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

The Company is currently litigating with the landlord with respect to the appropriate determination of the fair value of the land, on which the ground rent is based.

Since future rent increases on the ground lease are unknown, the Company did not include any potential future rent increases in calculating the present value of future rent payments.

The ground lease does not provide for renewal options.

On the date of foreclosure, the Company performed lease classification test on the tenant leases as well as the ground lease in accordance with ASC 840.

The result of the lease classification test indicated that the tenant leases and the ground lease shall be classified as operating leases on the date of foreclosure.

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

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

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

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

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

The Company intends vigorously to pursue the litigation.

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

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

Scheduled Future Minimum Rent Income

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2024 4,380,043

Thereafter 1,815,497

Total $ 12,639,670

Notes to Consolidated Financial Statements

Scheduled Annual Net Amortization of Intangibles

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Total $ ( 247,273 ) $ 2,489,459 $ ( 8,320,565 ) $ ( 6,078,379 )

Notes to Consolidated Financial Statements

_______________

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Supplemental Ground Lease Disclosures

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

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

Operating lease

Operating lease right-of-use asset $ 27,378,786 $ 27,394,936

$ 27,394,936 $ 16,105,888

Operating lease liability $ 27,378,786 $ 27,394,936

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Weighted average discount rate — operating lease 7.6 % 7.6 %

_______________

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

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

1 unchanged sentence

Operating lease cost $ 2,079,000 $ 2,214,750

$ 2,214,750 $ 1,264,500

_______________

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

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

Years Ended December 31,

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

Amounts included in the measurement of lease liability:

Operating cash flows from an operating lease $ 2,079,000 $ 2,214,750

1 unchanged sentence

Operating lease $ 2,079,000 $ 2,214,750

Maturities of operating lease liability are as follows:

Notes to Consolidated Financial Statements

Maturities of operating lease liability as of December 31, 2022 was as follows:

Years Ending December 31, Operating Lease

8 unchanged sentences

Total $ 27,378,786

Notes to Consolidated Financial Statements

Fair Value Measurements

The Company adopted the provisions of ASC 820, Fair Value Measurement (“ASC 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

The Company follows the provisions of ASC 820, Fair Value Measurement (“ASC 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.

ASC 820 established a fair value hierarchy that prioritizes and ranks the level of market price observability used in measuring investments at fair value.

14 unchanged sentences

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

Notes to Consolidated Financial Statements

Financial Instruments Carried at Fair Value on a Recurring Basis

2 unchanged sentences

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

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

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

December 31, 2022

2 unchanged sentences

Marketable Securities:

Equity securities $ 1,310,000 $ — $ — $ 1,310,000

Debt securities $ 147,960 $ — $ — $ 147,960

Total $ 147,960 $ — $ — $ 147,960

Notes to Consolidated Financial Statements

December 31, 2021

4 unchanged sentences

Total $ 1,310,000 $ — $ — $ 1,310,000

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

The following table presents the activities of the marketable securities:

Years Ended December 31,

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Reclassification of net realized gains on marketable securities into earnings 83,411 129,248

Unrealized gains on marketable securities 22,500 111,494

Unrealized (losses) gains on marketable securities ( 122,299 ) 22,500

Ending balance $ 147,960 $ 1,310,000

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:

Notes to Consolidated Financial Statements

fees, and estimated fair value of the Company’s financial instruments that are not carried at fair value on the consolidated balance sheets as of:

December 31, 2022 December 31, 2021

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The fair value of the Company’s investment in equity securities and its unsecured notes payable is determined based on quoted prices in an active market and is classified as Level 1 of the fair value hierarchy.

Notes to Consolidated Financial Statements

Market quotations are not readily available for the Company’s real estate-related loan investments, all of which are included in Level 3 of the fair value hierarchy, and therefore these investments are valued utilizing a yield approach, i.e.

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

The following table summarizes the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 loans as of December 31, 2021 and 2020.

Notes to Consolidated Financial Statements

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

The tables are not intended to be all-inclusive, but instead identify the significant unobservable inputs relevant to the determination of fair values.

5 unchanged sentences

Total Level 3 Assets $ 623,145,754

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

Repurchase agreement payable 170,876,606 Discounted cash flow Discount rate 5.22 % 6.17 % 6.82 %

1 unchanged sentence

Mortgage loan payable 29,394,870 Discounted cash flow Discount rate 8.24 % 8.24 % 8.24 %

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

Term loan payable 25,000,000 Discounted cash flow Discount rate 5.63 % 5.63 % 5.63 %

Revolving line of credit 90,135,865 Discounted cash flow Discount rate 7.64 % 7.64 % 7.64 %

Total Level 3 Liabilities $ 328,087,936

Notes to Consolidated Financial Statements

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

5 unchanged sentences

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

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

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

1 unchanged sentence

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

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

Total Level 3 Liabilities $ 285,582,964

1 unchanged sentence

Management Agreement

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

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

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

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Total $ 20,050,342 $ 16,968,344

Notes to Consolidated Financial Statements

_______________

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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 the Company’s equity investment in unconsolidated investments.

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

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

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

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

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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 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

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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, pursuant to which Terra LLC is responsible for its allocable share of the Company’s expenses, including fees paid by the

Notes to Consolidated Financial Statements

Company to the Manager based on relative assets under management.

These fees are eliminated in consolidation and therefore have no impact on the Company’s consolidated financial statements.

Distributions Paid

For the years ended December 31, 2021 and 2020, the Company made distributions to Terra 5, Terra JV and Terra Offshore REIT totaling $ 17.1 million and $ 21.2 million, respectively, of which $ 14.6 million and $ 16.0 million were returns of capital, respectively ( Note 11 ).

For the years ended December 31, 2022 and 2021, the Company made distributions to investors totaling $ 16.0 million and $ 17.1 million, respectively, of which $ 6.5 million and $ 14.6 million were returns of capital, respectively ( Note 11 ).

Due to Manager

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Due from Related Party

As of December 31, 2022, there was no amount due from related party.

As of December 31, 2021, amount due from a related party was $ 2.6 million, primarily related to the reserve funding on a loan that was held by an affiliate.

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

There was no due from related party as of December 31, 2020.

Merger and Issuance of Common Stock to Terra Offshore REIT

As discussed in Note 3 , on March 1, 2020, TPT2 merged with and into the Company with the Company continuing as the surviving company.

In connection with the Merger, the Company issued 2,116,785.76 shares of common stock of the Company to Terra Fund 7, the sole stockholder of TPT2, as consideration in the Merger.

In addition, on March 2, 2020, Terra Offshore REIT contributed cash and released obligations under the participation agreements to the Company ( Note 3 ) in exchange for the issuance of 2,457,684.59 shares of common stock of the Company.

As described in Note 3 , Terra Fund 7 contributed the shares of the Company’s common stock received as consideration in the Merger to Terra JV and became a co-managing member of

Terra JV pursuant to the JV Agreement.

Mavik Real Estate Special Opportunities Fund, LP

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For more information on this investment, please see Note 5 .

Terra International Fund 3, L.P.

On September 30, 2019, Terra International Fund 3, L.P.

(“Terra International 3”), through Terra Offshore REIT, a wholly-owned subsidiary of Terra International 3, contributed cash in the amount of $ 3.6 million to the Company in exchange for 212,691 shares of common stock, at a price of $ 17.02 per share.

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

Participation Agreements

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ASC 860-10 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings.

The Company has determined that the participation agreements it enters into are accounted for as secured borrowings under ASC 860 (See “ Participation interests ” in Note 2 and “ Obligations under Participation Agreements ” in ( Note 9 ).

Participation Interests Purchased by the Company

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

The table below lists the participation interests purchased by the Company pursuant to participation agreements as of December 31, 2021 and 2020.

The table below lists the participation interests purchased by the Company pursuant to participation agreements as of:

December 31, 2022

Participating Interests Principal Balance Carrying Value

Hillsborough Owners LLC (1)

Havemeyer TSM LLC (1)(2)

23.00 % $ 3,282,208 $ 3,313,813

Mesa AZ Industrial Owner, LLC (1)(3)

38.27 % 31,000,000 31,276,468

UNJ Sole Member, LLC (1)

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$ 41,726,565 $ 42,072,828

Notes to Consolidated Financial Statements

December 31, 2021

Participating Interests Principal Balance Carrying Value

LD Milpitas Mezz, LP (3)

Hillsborough Owners LLC (4)

30.00 % $ 4,863,009 $ 4,866,542

UNJ Sole Member, LLC (1)

40.80 % 7,444,357 7,477,190

(1) The loan is held in the name of Terra Income Fund 6, Inc.

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

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

(3) On June 27, 2018, the Company entered into a participation agreement with Terra Fund 6 to purchase a 25 % participation interest, or $ 4.3 million, in a $ 17.0 million mezzanine loan.

This loan was repaid in full in May 2021.

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

________________

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

(2) The Company acquired its interest in this investment in connection with the BDC Merger

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

(4) The loan was 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.

In connection with the BDC Merger, the Company contributed the loan to Terra BDC and the related obligation under participation agreement was released.

Transfers of Participation Interest by the Company

The following tables summarize the loans that were subject to participation agreements with affiliated entities and third-parties as of December 31, 2021 and 2020:

The following tables summarize the loans that were subject to participation agreements with affiliated entities and third-parties as of:

Transfers Treated as Obligations Under Participation Agreements as of

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Principal Balance Carrying Value % Transferred Principal Balance Carrying Value

370 Lex Part Deux, LLC (1)

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

RS JZ Driggs, LLC (1)

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

Shopoff & Cindy I.

610 Walnut Investors LLC (1)

$ 18,625,738 $ 18,738,386 67.57 % $ 12,584,958 $ 12,680,594

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Principal Balance Carrying Value % Transferred Principal Balance Carrying Value

14th & Alice Street Owner, LLC (2)(3)(4)

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

370 Lex Part Deux, LLC (2)(3)

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

City Gardens 333 LLC (1)(4)

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

Orange Grove Property Investors, LLC (1)(4)

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

RS JZ Driggs, LLC (2)(3)

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

Stonewall Station Mezz LLC (1)(4)

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

The Bristol at Southport, LLC (2)(4)

Shopoff & Cindy I.

Shopoff (2)(3)

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

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________________

(1) Participant is Terra Fund 6.

(2) Participant is a third-party.

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

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

(1) Participant was a third party.

(2) Participant was Terra BDC and now Terra LLC.

(3) In connection with the BDC Merger, the obligations under participation agreements were effectively extinguished and the Company recognized a gain on extinguishment of obligations under participation agreements of $ 3.4 million ( Note 3 ).

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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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.

Notes to Consolidated Financial Statements

Secured Borrowing

In March 2020, the Company entered into a financing transaction where a third-party purchased an A-note position.

However, the sale of the A-note position did not qualify for sale accounting under ASC 860 and therefore, the gross amount of the loan remains in the consolidated balance sheets and the proceeds from the sale on the portion transferred are recorded as

secured borrowing.

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

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

Transfers Treated as Secured Borrowing as of December 31, 2021

Principal Balance Carrying Value % Transferred Principal Balance Carrying Value

Windy Hill PV Five CM, LLC $ 49,954,068 $ 50,264,568 69.11 % $ 34,521,104 $ 34,586,129

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

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:

Transfers Treated as Secured Borrowing as of December 31, 2021

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Unsecured Notes Payable

The 6.00 % Senior Notes Due 2026

On June 10, 2021, the Company issued $ 78.5 million in aggregate principal amount of its 6.00 % notes due 2026 (the “initial note”), for net proceeds of $ 76.0 million after deducting underwriting commissions of $ 2.5 million, but before offering expenses payable by the Company.

On June 25, 2021, the underwriters partially exercised their option to purchase an additional $ 6.6 million of the notes for net proceeds of $ 6.4 million (the “additional notes” and, together with the initial notes, the “notes”), after deducting underwriting commissions of $ 0.2 million, but before offering expenses payable by us, which closed on June 29, 2021.

Interest on the notes is paid quarterly in arrears every March 30, June 30, September 30 and December 30, at a fixed rate of 6.00 % per year, beginning September 30, 2021.

The notes mature on June 30, 2026 , unless redeemed earlier by the Company.

The notes may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after June 10, 2023.

In connection with the issuance of the notes, the Company entered into (i) an Indenture, dated June 10, 2021 (the “Base Indenture”), by and between the Company and U.S.

On June 25, 2021, the underwriters partially exercised their option to purchase an additional $ 6.6 million of the notes for net proceeds of $ 6.4 million (the “additional notes” and, together with the initial notes, the “ 6.00 % Senior Notes Due 2026”), after deducting underwriting commissions of $ 0.2 million, but before offering expenses payable by us, which closed on June 29, 2021.

Interest on the 6.00 % Senior Notes Due 2026 is paid quarterly in arrears every March 30, June 30, September 30 and December 30, at a fixed rate of 6.00 % per year, beginning September 30, 2021.

The 6.00 % Senior Notes Due 2026 mature on June 30, 2026, unless redeemed earlier by the Company, and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after June 10, 2023.

In connection with the issuance of the 6.00 % Senior Notes Due 2026, the Company entered into (i) an Indenture, dated June 10, 2021 (the “Base Indenture”), by and between the Company and U.S.

Bank National Association, as trustee (the “Trustee”), and (ii) the First Supplemental Indenture thereto, dated June 10, 2021 (the “Supplemental Indenture” and, collectively with the Base Indenture, the “Indenture”), by and between the Company and the Trustee.

1 unchanged sentence

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

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

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

December 31, 2021

Principal Balance Carrying Value (1)

Unsecured notes payable $ 85,125,000 $ 81,856,799 $ 85,210,125

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

The 7.00 % Senior Notes Due 2026

As previously reported by Terra BDC, on February 10, 2021, Terra BDC issued $ 34.8 million in aggregate principal amount of 7.00 % fixed-rate notes due 2026, for net proceeds of $ 33.7 million after deducting underwriting commissions of $ 1.1 million and on February 26, 2021, the underwriters exercised the option to purchase an additional $ 3.6 million of the notes for net proceeds of $ 3.5 million, after deducting underwriting commissions of $ 0.1 million (collectively the “ 7.00 % Senior Notes Due 2026”).

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 7.00 % Senior Notes Due 2026 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

Notes to Consolidated Financial Statements

“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 7.00 % Senior Notes Due 2026 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 7.00 % Senior Notes Due 2026 will mature on March 31, 2026, unless earlier repurchased or redeemed.

The 7.00 % Senior Notes Due 2026 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 7.00 % Senior Notes Due 2026 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 7.00 % Senior Notes Due 2026 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 7.00 % Senior Notes Due 2026 to become or to be declared due and payable.

Summarized Information

The table below presents detailed information regarding the unsecured notes payable as of:

December 31, 2022 December 31, 2021

Principal Balance Carrying Value Fair Value Principal Balance Carrying Value Fair Value

6.00 % Senior Notes Due 2026 (1)

$ 85,125,000 $ 82,487,769 $ 68,100,000 $ 85,125,000 $ 81,856,799 $ 85,210,125

(1) Amount is net of unamortized issue discount of $ 2.4 million and unamortized deferred financing costs of $ 0.9 million.

7.00 % Senior Notes Due 2026 (2)

38,375,000 34,042,904 35,381,748 — — —

$ 123,500,000 $ 116,530,673 $ 103,481,748 $ 85,125,000 $ 81,856,799 $ 85,210,125

_______________

(1) Carrying value is net of unamortized issue discount of $ 1.9 million and $ 2.4 million, and unamortized deferred financing costs of $ 0.7 million and $ 0.9 million as of December 31, 2022 and 2021, respectively.

(2) Carrying value is net of unamortized purchase discount of $ 4.3 million as of December 31, 2022.

Revolving Line of Credit

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The Revolving Line of Credit was scheduled to mature on March 12, 2023.

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

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

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

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.

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 December 31, 2021, the Company is in compliance with these covenants.

and (iii) a ratio of

Notes to Consolidated Financial Statements

total debt to total net worth of no more than 2.50 to 1.00.

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

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

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

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

December 31, 2021

Borrowing Base Borrowings Under the Revolving Line of Credit

Principal Amount Carrying Value Fair

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

606 Fayetteville LLC and 401 E.

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

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

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

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

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

For the year ended December 31, 2021, the Company received proceeds from the Revolving Line of Credit of $ 38.6 million and did not make any repayments.

On September 3, 2020, Terra Mortgage Capital I, LLC (the “Issuer” or the “Seller”), a special-purpose indirect wholly-owned subsidiary of the Company, entered into an Indenture and Credit Agreement (the “Indenture and Credit Agreement”) with Goldman Sachs Bank USA, as initial lender (“Goldman”) and Wells Fargo Bank, National Association, as the trustee, custodian, collateral agent, loan agent and note administrator (“Wells Fargo”).

The Indenture and Credit Agreement provides for (A) the borrowing by the Issuer from Goldman of approximately $ 103.0 million under a floating rate loan (the “Term Loan”) and (B) the issuance by the Issuer to Terra Mortgage Portfolio I, LLC (the “Class B Holder”) of an aggregate of approximately $ 76.7 million principal amount of Class B Income Notes due 2025 (the “Class B Notes” and, together with the Term Loan, the “Debt”).

The Class B Holder is the parent of the Issuer and a wholly-owned subsidiary of the Company, and the sole holder of the Class B Notes.

The Class B Holder is consolidated by the Company and the Term Loan represents amount

due to Goldman under the Indenture and Credit Agreement.

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

As of December 31, 2022 and 2021, borrowings under the Revolving Line of Credit were $ 90.1 million and $ 38.6 million, respectively, collateralized by $ 177.4 million and $ 60.1 million of eligible assets, respectively.

For the years ended December 31, 2022 and 2021, the Company received proceeds from the Revolving Line of Credit of $ 130.5 million and $ 38.6 million, respectively, and made repayments of $ 79.0 million and none , 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”).

The Indenture and Credit Agreement provided for (A) the borrowing by the Issuer from Goldman of approximately $ 103.0 million under a floating rate loan (the “Term Loan”) and (B) the issuance by the Issuer to Terra Mortgage Portfolio I, LLC (the “Class B Holder”) of an aggregate of approximately $ 76.7 million principal amount of Class B Income Notes due 2025 (the “Class B Notes” and, together with the Term Loan, the “Debt”).

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

On February 18, 2022, the Company refinanced the Term Loan with a new repurchase agreement (see Note 12 ).

On February 18, 2022, the Company refinanced the Term Loan with a new repurchase agreement (see “ Goldman Master Repurchase Agreement ” below).

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

The Indenture and Credit Agreement is a term loan and does not contain any mark-to-market or margin provisions.

Within a specified period following a monetary or material non-monetary default under a Mortgage Asset, the Class B Holder is required to prepay the portion of the Term Loan that is allocable to such Mortgage Asset (such prepayment is without premium, yield maintenance or other penalty).

In connection with entering into the Indenture and Credit Agreement, the Company incurred $ 2.4 million of deferred financing costs, including a $ 1.3 million upfront fee paid to Goldman, which are being amortized to interest expense over the term of the facility.

The Issuer also pays, with respect to the Committed Advances, an annual fee, payable monthly, equal to the Benchmark Rate or Alternate Benchmark Rate, as applicable, subject to a floor of 1.0 % per annum, plus 4.25 %.

In connection with the Indenture and Credit Agreement, the Company entered into a non-recourse carveout Guaranty (the “Guaranty”) in favor of Goldman, pursuant to which the Company guarantees the payment of certain losses, damages, costs, expenses, and other obligations incurred by Goldman in connection with the occurrence of fraud, intentional misrepresentation, or willful misconduct by the Issuer, Class B Holder or the Company, and certain other occurrences including breaches of certain provisions under the Indenture and Credit Agreement.

The Company also guarantees the payment of the aggregate outstanding amount of the Term Loan upon the occurrence of certain bankruptcy events.

Under the Guaranty, the Company is required to maintain (a) a minimum tangible net worth in an amount not less than seventy-five percent ( 75 %) of its tangible net worth as of September 3, 2020, (b) a minimum liquidity of $ 10 million, and (c) an EBITDA to interest expense ratio of not less than 1.5 to 1.0.

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

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

In connection with the Indenture and Credit Agreement, the Company entered into a non-recourse carveout Guaranty (the “Guaranty”) in favor of Goldman, pursuant to which the Company guaranteed the payment of certain losses, damages, costs, expenses, and other obligations incurred by Goldman in connection with the occurrence of fraud, intentional misrepresentation, or willful misconduct by the Issuer, Class B Holder or the Company, and certain other occurrences including breaches of certain provisions under the Indenture and Credit Agreement.

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

Under the Guaranty, the Company was required to maintain (a) a minimum tangible net worth in an amount not less than seventy-five percent ( 75 %) of its tangible net worth as of September 3, 2020, (b) a minimum liquidity of $ 10 million, and (c) an EBITDA to interest expense ratio of not less than 1.5 to 1.0.

Failure to satisfy such maintenance covenants would constitute an event of default under the Indenture and Credit Agreement.

On February 18, 2022, the Company refinanced the Term Loan with a new repurchase agreement (see Note 12 ) and expects continued covenant compliance under the terms of the new repurchase agreement.

As of December 31, 2020, the Company was in compliance with these covenants.

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

The Mortgage Assets are serviced and administered by an independent third-party servicer.

The principal and interest on the Term Loan are repaid before repayment of the principal on the Class B Notes on each payment date of each month in accordance with the priority of payments as set forth in the Indenture and Credit Agreement, beginning in September 2020.

Such payments are subject to certain fees for taxes, filings and administrative expenses.

Upon the occurrence of a Term Loan Principal Trigger Event (as defined below), 100% of the payment of the principal proceeds are applied to the Term Loan principal after payment of certain fees and other amounts as described in the Indenture and Credit Agreement.

A “Term Loan Principal Trigger Event” means as of any date of determination, an event that will be deemed to have occurred on the first date on which the aggregate principal balance of the Mortgage Assets is less than or equal to the product of (x) 75% multiplied by (y) the aggregate principal balance of the Mortgage Assets as of the closing date, plus any future advances made on such Mortgage Assets prior to such date of determination.

As of December 31, 2021 and 2020, there was no Term Loan Principal Trigger Event.

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

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

December 31, 2021

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

Principal Amount Carrying Value Fair

330 Tryon DE LLC $ 22,800,000 $ 22,902,354 $ 22,594,654 $ 13,680,000

1389 Peachtree St, LP;

1401 Peachtree St, LP;

1409 Peachtree St, LP 53,289,288 53,536,884 52,031,363 31,283,661

AGRE DCP Palm Springs, LLC 43,222,381 43,669,992 43,829,842 23,146,265

Patrick Henry Recovery Acquisition, LLC 18,000,000 18,041,124 18,055,377 10,800,000

University Park Berkeley, LLC 25,815,378 25,991,962 26,015,500 14,853,544

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

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 Consolidated Financial Statements

The following table presents detailed information with respect to each borrowing under the Term Loan as of:

December 31, 2021

6 unchanged sentences

AGRE DCP Palm Springs, LLC 43,222,381 43,669,992 43,829,842 23,146,265

MSC Fields Peachtree Retreat, LLC 23,308,334 23,437,198 23,428,860 13,985,001

Patrick Henry Recovery Acquisition, LLC 18,000,000 18,041,124 18,055,377 10,800,000

1 unchanged sentence

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

_______________

(1) Borrowings under the Term Loan bear interest at LIBOR plus 4.25 % with a LIBOR floor of 1.00 %, or 5.25 % as of both December 31, 2021 and 2020, using LIBOR of 0.10 % and 0.14 %, respectively.

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

For the year ended December 31, 2021, the Company received proceeds from borrowings under the Term Loan of $ 2.8 million and made repayment of $ 16.6 million.

As of December 31, 2021, the remaining amount for Committed Advances and discretionary advances was $ 0.4 million and $ 6.6 million, respectively.

For the years ended December 31, 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 none and $ 2.8 million, respectively.

Repurchase Agreements

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The UBS Master Repurchase Agreement provides for advances of up to $ 195 million in the aggregate, which the Company expects to use to finance certain secured performing commercial real estate loans, including senior mortgage loans, where the underlying mortgaged properties consist of value-added assets with loan-to-value ratio between 65 % and 80 % that are typically yielding between 2.5 % and 5.0 %.

Advances under the UBS Master Repurchase Agreement accrue interest at a per annum pricing rate equal to the sum of (i) the 30-day LIBOR and (ii) the applicable spread, which ranges from 1.60 % to 1.85 %, and have a maturity date of November 7, 2024 .

Advances under the UBS Master Repurchase Agreement accrue interest at a per annum pricing rate equal to the sum of (i) the 30-day LIBOR or Term SOFR if LIBOR is not available and (ii) the applicable spread, which ranges from 1.60 % to 2.25 %, and have a maturity date of November 7, 2024.

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

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

In connection with the UBS Master Repurchase Agreement, the Company entered into a Guarantee Agreement in favor of the Buyer (the “UBS Guarantee Agreement”).

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

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

In addition, the UBS Guarantee Agreement contains financial covenants, which require the Company to maintain:

(i) cash liquidity of at least the greater of $ 5 million or 5 % of the then-current outstanding amount under the Master Repurchase Agreement;

(ii) total liquidity of at least the greater of $ 15 million or 10 % of the then-current outstanding amount under the Master Repurchase Agreement (iii) tangible net worth at an amount equal to or greater than $ 215.7 million plus 75 % of new capital contributions thereafter;

(i) cash liquidity of at least the greater of $ 5 million or 5 % of the then-current outstanding amount under the UBS Master Repurchase Agreement;

(ii) total liquidity of at least the greater of $ 15 million or 10 % of the then-current outstanding amount under the UBS Master Repurchase Agreement (iii) tangible net worth at an amount equal to or greater than $ 215.7 million plus 75 % of new capital contributions thereafter;

(iv) an EBITDA to interest expense ratio of not less than 1.50 to 1.00;

and (v) a total indebtedness to tangible net worth ratio of not more than 3.50 to 1.00.

In March 2022, the Company amended the UBS Guarantee Agreement to reduce the EBITDA to interest expense ratio of not less than 1.25 to 1.00, and a s of December 31, 2021, the Company was in compliance with these covenants.

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

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

Notes to Consolidated Financial Statements

The following tables present detailed information with respect to each borrowing under the UBS Master Repurchase Agreement as of:

December 31, 2022

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Value Borrowing Date Principal Amount Interest

NB Factory TIC 1, LLC $ 28,000,000 $ 28,857,892 $ 28,902,234 11/8/2021 $ 18,970,000 LIBOR+ 1.74 % (LIBOR floor of 0.1 %)

Grandview’s Madison Place, LLC 17,000,000 17,105,928 17,105,928 3/7/2022 13,600,000 Term SOFR + 1.965 %

Grandview’s Remington Place,

LLC 23,100,000 23,199,620 23,203,343 5/6/2022 18,480,000 Term SOFR + 1.965 %

$ 68,100,000 $ 69,163,440 $ 69,211,505 $ 51,050,000

December 31, 2021

Collateral Borrowings Under Master Repurchase Agreement

Principal Amount Carrying Value Fair

Value Borrowing Date Principal Amount Interest

14th & Alice Street Owner, LLC $ 39,384,000 $ 40,089,153 $ 40,130,448 11/8/2021 $ 25,599,600 LIBOR+ 1.45 % (LIBOR floor of 0.1 %)

1 unchanged sentence

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

For the year ended December 31, 2021, the Company borrowed $ 44.6 million under the UBS Master Repurchase Agreement for the financing of new and follow-on investments, and did not make any repayments.

For the years ended December 31, 2022 and 2021, the Company borrowed $ 32.1 million and $ 44.6 million, respectively, under the UBS Master Repurchase Agreement for the financing of new investments, and made repayments of $ 25.6 million and $ 0.0 million , respectively.

Goldman Master Repurchase Agreement

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

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

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

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

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

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

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

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

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

In addition, Goldman unconditionally released the

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

For the year ended December 31, 2020, the Company received proceeds from borrowings under the Goldman Master Repurchase Agreement of $ 22.9 million and made repayments of $ 104.0 million.

Revolving Credit Facility

On June 20, 2019, Terra LOC Portfolio I, LLC, a special-purpose indirect wholly-owned subsidiary of the Company, entered into a credit agreement with Israel Discount Bank of New York to provide for revolving credit loans of up to $ 35.0 million in the aggregate (“Revolving Credit Facility”), which the Company expects to use for short term financing needed to bridge the timing of anticipated loans repayments and funding obligations.

Borrowings under the Revolving Credit Facility can be either prime rate loans or LIBOR rate loans and accrue interest at an annual rate of prime rate plus 1 % or LIBOR plus 4 % with a floor of 6 %.

The Revolving Credit Facility was scheduled to mature on June 20, 2020.

The Revolving Credit Facility was amended to extend the maturity to October 2, 2020.

On October 2, 2020, the Company amended the Revolving Credit Facility and reduced the commitment amount to $ 15.0 million.

In connection with this amendment, the interest rate was changed to prime rate plus 1 % or LIBOR plus 4 % with a floor of 4.5 % and the maturity was extended to September 2, 2021 .

On March 16, 2021, the Revolving Credit Facility was terminated.

There were no amounts outstanding under the Revolving Credit Facility at December 31, 2020.

For the year ended December 31, 2020, the Company received proceeds $ 35.0 million from borrowings under the Revolving Credit Facility, all of which were repaid in the same period.

On February 18, 2022, Terra Mortgage Capital I, LLC (the “GS Seller”), a special-purpose indirect wholly-owned subsidiary of the Company, entered into an Uncommitted Master Repurchase and Securities Contract Agreement (the “Repurchase Agreement”) with Goldman Sachs Bank USA ( the “GS Buyer”).

The Repurchase Agreement provides for advances of up to $ 200.0 million in the aggregate, which the Company expects to use to finance the originations of certain secured performing commercial real estate loans and the acquisitions of certain secured non-performing commercial real estate loans.

The Repurchase Agreement replaced the Term Loan, at which time all Mortgage Assets under the Term Loan were assigned as purchased assets under the Repurchase Agreement.

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

Subject to satisfaction of certain conditions, the GS Seller may extend the maturity date of the Repurchase Agreement for another 12-month term.

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

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

The Repurchase Agreement contains margin call provisions that provide the GS Buyer with certain rights in the event of a decline in debt yield, loan-to-value ratio, and value of the underlying loans purchased under the Repurchase Agreement.

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

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

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

Notes to 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.

In addition, the Guarantee Agreement contains financial covenants, which require the Company to maintain:

(i) cash liquidity of at least the greater of $ 5 million or 5 % of the then-current outstanding amount under the Repurchase Agreement;

(ii) total liquidity in an amount equal to or greater than the lesser of $ 15 million or 10 % of the then-current outstanding amount under the Repurchase Agreement (iii) tangible net worth at an amount no less than 75 % of that at closing;

(iv) an EBITDA to adjusted interest expense ratio of not less than 1.50 to 1.00;

and (v) a total indebtedness to tangible net worth ratio of not more than 3.00 to 1.00.

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

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

December 31, 2022

Collateral Borrowings Under Repurchase Agreement

Principal Amount Carrying Value Fair

Value Borrowing Date Principal Amount Interest

330 Tryon DE LLC $ 22,800,000 $ 22,902,215 $ 22,687,235 2/18/2022 $ 18,240,000 Term SOFR + 2.015 % ( 0.01 % floor)

1389 Peachtree St, LP;

1401 Peachtree St, LP;

1409 Peachtree St, LP 57,184,178 57,453,482 56,844,322 2/18/2022 41,587,275 Term SOFR + 2.465 %

AGRE DCP Palm Springs, LLC 43,222,382 43,758,804 43,062,933 2/18/2022 28,094,548 Term SOFR + 1.315 % ( 1.8 % floor)

Patrick Henry Recovery Acquisition, LLC 18,000,000 18,041,782 17,824,300 2/18/2022 14,400,000 Term SOFR + 0.865 % ( 1.5 % floor)

University Park Berkeley, LLC 26,342,468 26,536,122 26,472,938 2/18/2022 17,504,783 Term SOFR + 1.365 % ( 1.5 % floor)

$ 167,549,028 $ 168,692,405 $ 166,891,728 $ 119,826,606

For the year ended December 31, 2022, the Company borrowed $ 119.8 million under the Repurchase Agreement and did not make any repayments.

Delayed Draw Term Loan

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 $ 25.0 million and (ii) additional incremental loans in a minimum amount of $ 1.0 million and multiples of $ 0.5 million in excess thereof, which may be approved by a Lender in its sole discretion (the “Delayed Draw Tern Loan”).

The scheduled maturity date of the Delayed Draw Tern Loan was April 9, 2025.

The Delayed Draw Tern Loan bears interest on the outstanding principal amount thereof at a rate equal to 5.625 % per annum;

provided that if at any time Terra BDC was rated below investment grade, the interest rate would increase to 6.625 % until the rating is no longer below investment grade.

In connection with the entry into the Credit Agreement, Terra BDC also agreed to pay Eagle Point an upfront fee in an amount equal to 2.50 % of the loan commitment amount on the initial borrowing date as described in the Credit Agreement.

Terra BDC also paid, with respect to any unused portion of the Term Loan, a commitment fee of 0.75 % per annum.

Terra BDC could prepay any Loan, in whole or in part, together with all accrued but unpaid interest thereon, upon at least

30 but not more than 60 days’ prior notice to the Agent.

If Terra BDC elected to make such prepayments prior to October 9, 2023, Terra BDC would also be required to pay a make whole premium, being the present value at such date of (1) the principal

amount being prepaid of such Loan, plus (2) all remaining required interest payments due on the principal amount being prepaid of such Loan through the maturity date (excluding accrued but unpaid interest to the date on which the make whole premium becomes owed), computed using a discount rate equal to the applicable U.S.

Treasury rate (as set forth in the Credit

Notes to Consolidated Financial Statements

Agreement) plus 50 basis points, over (B) the principal amount being prepaid of such Loan;

provided that the make whole premium may in no event be less than zero.

In connection with its entry into the Credit Agreement, Terra BDC also entered into a security agreement (the “Security Agreement”), by and among Terra BDC, as grantor, and Eagle Point, as administrative agent, for the benefit of the Lenders, their affiliates and Eagle Point as the secured parties thereunder.

Pursuant to the Security Agreement, Terra BDC pledged substantially all of its then owned and thereafter acquired property as security for the obligations of Terra BDC under the Credit Agreement, subject to certain limitations and restrictions set forth in the Security Agreements.

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 Point and the Lenders consented to the consummation of the BDC 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.

The Credit Agreement contains customary representations, warranties, reporting requirements, borrowing conditions and affirmative, negative and financial covenants.

As of December 31, 2022, Terra LLC was in compliance with these covenants.

Mortgage Loan Payable

As of December 31, 2022, the Company had a $ 29.3 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 December 31, 2021 and 2020:

The following table presents certain information about the mortgage loan payable as of:

December 31, 2022 December 31, 2021

4 unchanged sentences

Centennial Bank LIBOR + 3.85 %

(LIBOR Floor of 2.23%) September 27, 2022 $ 31,962,692 $ 32,134,295 $ 46,067,129 $ 44,020,225 $ 44,117,293 $ 49,533,733

(LIBOR Floor of 2.23 %)

May 31, 2023 $ 29,252,308 $ 29,488,326 $ 40,581,847 $ 31,962,692 $ 32,134,295 $ 46,067,129

Scheduled Debt Principal Payments

4 unchanged sentences

2026 123,500,000

2025 37,999,809

2026 85,125,000

Unamortized deferred financing costs ( 8,633,623 )

4 unchanged sentences

Such guidance requires the transferred interests meet certain criteria in order for the transaction to be recorded as a sale.

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

Notes to Consolidated Financial Statements

as applicable.

As of December 31, 2022 and 2021, obligations under participation agreements had a carrying value of approximately $ 12.7 million and $ 42.2 million, respectively, and the carrying value of the loans that are associated with these obligations under participation agreements was approximately $ 18.7 million and $ 101.0 million, respectively, (see “ Participation Agreements ” in Note 8 ).

Additionally, as of December 31, 2021 and 2020, secured borrowing had a carrying value of approximately $ 34.6 million and $ 18.2 million, and the carrying value of the loan that is associated with the secured borrowing was $ 50.3 million and $ 26.4 million, respectively.

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 16.4 % and 10.4 % as of December 31, 2022 and 2021, respectively.

The secured borrowing was repaid in August 2022.

Commitments and Contingencies

Impact of COVID-19

The full extent of the impact of the COVID-19 pandemic on the global economy generally, and the Company’s business in particular, will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

As of December 31, 2021, no contingencies have been recorded on the Company’s consolidated balance sheet as a result of the COVID-19 pandemic, however as the pandemic continues, it may have long-term impacts on the Company’s financial condition, results of operations, and cash flows.

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

Unfunded Commitments on Loans Held for Investment

1 unchanged sentence

These fundings amounted to approximately $ 47.3 million and $ 71.8 million as of December 31, 2022 and 2021, respectively.

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

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

Unfunded Investment Commitment

5 unchanged sentences

The Manager has reviewed the Company’s existing contracts and expects the risk of loss to the Company to be remote.

The Company is not currently subject to any material legal proceedings and, to the Company’s knowledge, no material legal proceedings are threatened against the Company.

From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company’s rights under contracts with its portfolio companies.

While the outcome of any legal proceedings cannot be predicted with certainty, the Company does not expect that any such proceedings will have a material adverse effect upon its financial condition or results of operations.

From time to time, the Company and the Manager may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company’s rights under contracts with its portfolio companies.

Additionally, as described above under “ Note 6 .

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

The ground lease provides for a new base rent every 5 years based on the greater of the annual base rent for the prior lease year or 9 % of the fair market value of the land.

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

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

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

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

The Company intends vigorously to pursue the litigation.

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

See Note 8 for a discussion of the Company’s commitments to the Manager.

Notes to Consolidated Financial Statements

Earnings Per Share

The following table presents earnings per share for the years ended December 31, 2021 and 2020:

The following table presents earnings per share:

Years Ended December 31,

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

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

Series A preferred stock dividend declared ( 15,624 ) ( 15,624 )

Net (loss) income allocable to common stock $ ( 12,371,351 ) $ 5,240,106

Net loss allocable to common stock $ ( 6,967,317 ) $ ( 12,371,351 )

Weighted-average shares outstanding - basic and diluted 20,709,400 19,487,460

(Loss) earnings per share - basic and diluted $ ( 0.63 ) $ 0.28

Loss per share - basic and diluted $ ( 0.34 ) $ ( 0.63 )

Preferred Stock Classes

1 unchanged sentence

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

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

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

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

Series A Preferred Stock

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

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

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

5 unchanged sentences

The Series A Preferred Stock generally has no voting rights.

However, the Series A Preferred Stock holders’ voting is required if (i) authorization or issuance of any securities senior to the Series A Preferred Stock;

However, the Series A Preferred Stockholders’ voting is required if (i) authorization or issuance of any securities senior to the Series A Preferred Stock;

(ii) an amendment to the Company’s charter that has a material adverse effect on the rights and preference of the Series A Preferred Stock;

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

As discussed in Note 3 , on March 1, 2020, TPT2 merged with and into the Company with the Company continuing as the surviving corporation.

In connection with the Merger, the Company issued 2,116,785.76 shares of common stock of the Company to Terra Fund 7, the sole stockholder of TPT2, as consideration in the Merger.

In addition, on March 2, 2020, the Company issued 2,457,684.59 shares of common stock of the Company in exchange for the settlement of certain participation interests in loans held by the Company and cash.

As described in Note 3 , Terra Fund 7 contributed the shares of the Company’s common stock received as consideration in the Merger to Terra JV and became a co-managing member of Terra JV pursuant to the JV Agreement.

On September 30, 2019, the Company issued 212,691 shares of its common stock to Terra Offshore REIT at a price of $ 17.02 per share for total proceeds of $ 3.6 million.

On April 29, 2020, the Company repurchased, at a price of $ 17.02 per share, the 212,691 shares it previously sold to Terra Offshore REIT ( Note 8 ).

On October 1, 2022, in connection with the BDC 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 BDC Merger was automatically changed into one issued and outstanding share of Class B Common Stock.

As of December 31, 2022, Terra JV, LLC, former shareholders of Terra BDC and Terra Offshore Funds REIT, LLC held 70.0 %, 19.9 % and 10.1 % of the issued and outstanding shares of the Class B Common Stock, respectively.

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

Notes to Consolidated Financial Statements

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.

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.

Distributions

1 unchanged sentence

GAAP, to its stockholders each year to comply with the REIT provisions of the Internal Revenue Code.

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

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 years ended December 31, 2022 and 2021, the Company made distributions to preferred stockholders of $ 15,624 .

8 unchanged sentences

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

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

On February 18, 2022, Terra Mortgage Capital I, LLC (the “Seller”), a special-purpose indirect wholly-owned subsidiary of the Company, entered into an Uncommitted Master Repurchase and Securities Contract Agreement (the “Repurchase Agreement”) with Goldman Sachs Bank USA ( the “Buyer”).

The Repurchase Agreement replaced the Term Loan, at which time all Mortgage Assets under the Term Loan were assigned as purchased assets under the Repurchase Agreement.

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

Subject to satisfaction of certain conditions, the Seller may extend the maturity date of the Repurchase Agreement for another 12-month term.

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

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

the Guarantee Agreement contains financial covenants, which require the Company to maintain:

(i) cash liquidity of at least the greater of $ 5 million or 5 % of the then-current outstanding amount under the Repurchase Agreement;

(iv) an EBITDA to adjusted interest expense ratio of not less than 1.50 to 1.00;

and (v) a total indebtedness to tangible net worth ratio of not more than 3.00 to 1.00.

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

Terra Property Trust, Inc.

11 unchanged sentences

For the year ended December 31, 2021, the Company recorded another impairment charge of $ 3.4 million to reflect the current estimated selling price less the cost of sale.

For the period from January 1, 2022 through the date the land was sold in June 2022, the Company recorded another impairment charge of $ 1.6 million to reflect the current estimated selling price less the cost of sale.

In June 2022, the Company sold land for net proceeds of $ 8.6 million, and recognized a net loss on sale of $ 0.1 million.

At December 31, 2022, the aggregate cost of real estate for federal income tax purposes was $ 57.6 million.

The changes in total real estate assets and accumulated depreciation for the year ended December 31, 2021 are as follows:

The changes in total real estate assets and accumulated depreciation are as follows:

Real Estate Asset Accumulated Depreciation

2 unchanged sentences

Balance, beginning of year $ 63,816,609 Balance, beginning of year $ 5,491,541

Acquisition through foreclosure — Depreciation for the year 1,664,841

Improvements — Balance, end of year $ 5,491,541

Impairment charge ( 3,395,430 )

Sale of land ( 8,395,011 ) Depreciation for the year 1,664,842

Impairment charge ( 1,604,989 ) Balance, end of year $ 7,156,383

Balance, end of year $ 53,816,609

7 unchanged sentences

150 Blackstone River Road, LLC US - MA Industrial 8.5 % 9/6/2027 Interest Only $ — $ 7,000,000 $ 7,000,000

High Pointe Mezzanine Investments, LLC US - SC Student

610 Walnut Investors LLC (3)(4)

US - CA Office Term SOFR + 12.0 % ( 2.0 % Floor)

9/7/2025 Interest Only — 18,625,738 18,738,386

Dwight Mezz II, LLC US - CA Student

housing 11.0 % 5/6/2027 Interest Only — 3,000,000 2,916,369

UNIJ Sole Member, LLC (3)

Havemeyer TSM LLC (5)

US - NY Mixed-use 15.0 % 6/1/2023 Interest Only — 3,282,208 3,313,813

UNJ Sole Member, LLC (5)

US - CA Mixed-use 15.0 % 6/1/2027 Interest Only — 7,444,357 7,482,547

1 unchanged sentence

First Mortgages:

14th & Alice Street Owner, LLC US - CA Multifamily LIBOR + 4.0% (0.25% Floor) 4/15/2024 Interest Only — 39,384,000 40,089,153

14th & Alice Street Owner, LLC (6)

US - CA Multifamily LIBOR + 4.0 % ( 0.25 % Floor)

4/15/2024 Interest Only — 1,364,944 1,364,944

1389 Peachtree St, LP;

1401 Peachtree St, LP;

1409 Peachtree St, LP US - GA Office LIBOR + 4.5% 8/10/2024 Interest Only — 53,289,288 53,536,884

330 Tryon DE LLC US - NC Office LIBOR + 4.25% (0.1% Floor) 3/1/2024 Interest Only — 22,800,000 22,902,354

606 Fayetteville LLC and 401 E.

Lakewood LLC US - NC Land 9.0 % 8/1/2024 Interest Only — 16,829,962 16,935,803

870 Santa Cruz, LLC US - CA Office LIBOR + 6.75% (0.5% Floor) 12/15/2025 Interest Only — 17,540,875 17,669,303

AGRE DCP Palm Springs, LLC US - CA Hotel - full/select service LIBOR +5.0% (1.8% Floor) 1/1/2025 Interest Only — 43,222,381 43,669,992

Borrower LLC (4)

US - TX Hotel - full/select service LIBOR +7.5% (0.25% Floor) 10/1/2026 Interest Only — 13,625,000 13,725,690

D-G Acquistion #6, LLC and D-G Quimisa, LLC US - CA Land LIBOR +7.0% (0.25% Floor) 7/21/2025 Interest Only — 8,607,092 8,605,341

Hillsborough Owners LLC (5)

US - NC Mixed-use LIBOR +8.0% (0.25% Floor) 11/1/2024 Interest Only — 4,863,009 4,866,542

NB Factory TIC 1, LLC US - UT Student

housing LIBOR +5.0% (0.25% Floor) 3/5/2024 Interest Only — 28,000,000 28,420,056

Patrick Henry Recovery Acquisition, LLC US - CA Office LIBOR + 2.95% (1.5% Floor) 12/1/2024 Interest Only — 18,000,000 18,041,124

The Lux Washington, LLC US - WA Land LIBOR + 7.0% (0.75% Floor) 1/22/2026 Interest Only — 3,523,401 3,382,683

University Park Berkeley, LLC US - CA Multifamily LIBOR + 4.2% (1.5% Floor) 3/1/2025 Interest Only — 25,815,378 25,991,962

Windy Hill PV Five CM, LLC US - CA Office LIBOR + 6.0% (2.05% Floor) 9/20/2023 Interest Only — 49,954,068 50,264,568

345,454,454 348,101,455

1409 Peachtree St, LP US - GA Office LIBOR + 4.5 %

8/10/2024 Interest Only — 57,184,178 57,453,482

330 Tryon DE LLC US - NC Office Term SOFR + 4.25 % ( 0.1 % Floor)

3/1/2024 Interest Only — 22,800,000 22,902,215

AGRE DCP Palm Springs, LLC US - CA Hotel - full/select service LIBOR + 5.0 % ( 1.8 % Floor)

1/1/2025 Interest Only — 43,222,382 43,758,804

AARSHW Property LLC (7)

US - NJ Industrial SOFR + 7.5 % ( 0.15 % Floor)

8/17/2025 Interest Only — 44,368,331 44,669,513

AAESUF Property LLC US - NJ Land SOFR + 11.95 % ( 0.05 % Floor)

3/1/2025 Interest Only — 17,860,291 18,288,969

American Gilsonite Company US - UT Infrastructure 14.0 % 8/31/2024 Interest Only — 21,250,000 21,840,359

Dallas - Big Town Owner, LLC US - TX Industrial Term SOFR + 4.5 % ( 2.5 % Floor)

12/27/2027 Interest Only — 26,635,183 26,838,830

Dallas - Oakland Owner, LLC US - TX Industrial Term SOFR + 4.5 % ( 2.5 % Floor)

12/27/2027 Interest Only — 9,673,597 9,747,559

Dallas - US HWY 80 Owner, LLC US - TX Industrial Term SOFR + 4.5 % ( 2.5 % Floor)

12/27/2027 Interest Only — 11,395,169 11,482,294

Dallas - 11333 Pagemill Owner, LLC US - TX Industrial Term SOFR + 4.5 % ( 2.5 % Floor)

12/27/2027 Interest Only — 12,296,945 12,390,965

Dallas - 11221 Pagemill Owner, LLC US - TX Industrial Term SOFR + 4.5 % ( 2.5 % Floor)

12/27/2027 Interest Only — 7,624,106 7,682,398

Terra Property Trust, Inc.

4 unchanged sentences

Periodic Payment Terms Prior Liens Face Amount Carrying Amount

First Mortgages (Continued):

Grandview's Madison Place, LLC US - WA Multifamily Term SOFR + 4.45 % ( 0.05 % Floor)

2/10/2027 Interest Only $ — $ 17,000,000 $ 17,105,928

Grandview's Remington Place, LLC US - WA Multifamily Term SOFR + 4.45 % ( 0.05 % Floor)

4/22/2026 Interest Only — 23,100,000 23,199,620

Hillsborough Owners LLC US - NC Mixed-use LIBOR + 8.0 % ( 0.25 %% Floor)

11/1/2024 Interest Only — 20,720,028 21,138,947

Mesa AZ Industrial Owner, LLC US - AZ Land Term SOFR + 12.7 % ( 2.3 % Floor)

9/14/2024 Interest Only — 31,000,000 31,276,468

NB Factory TIC 1, LLC US - UT Student

housing LIBOR + 5.0 % ( 0.25 % Floor)

3/5/2024 Interest Only — 28,000,000 28,857,892

Patrick Henry Recovery Acquisition, LLC US - CA Office LIBOR + 2.95 % ( 1.5 % Floor)

12/1/2024 Interest Only — 18,000,000 18,041,782

The Lux Washington, LLC US - WA Multifamily LIBOR + 7.0 % ( 0.75 % Floor)

1/22/2026 Interest Only — 16,571,267 16,722,091

University Park Berkeley, LLC US - CA Multifamily LIBOR + 4.2 % ( 1.5 % Floor)

3/1/2025 Interest Only — 26,342,468 26,536,122

456,408,889 461,299,182

Preferred equity investments:

370 Lex Part Deux, LLC (8)

US - NY Office LIBOR + 8.25% (2.44% Floor) 1/9/2025 Interest Only $ — $ 60,012,639 $ 60,012,639

US - NY Office LIBOR + 8.25 % ( 2.44 % Floor)

7/9/2022 Interest Only — 67,586,792 67,586,792

Ann Street JV LLC US - GA Multifamily 14.0 % 6/27/2026 Interest Only — 15,217,540 15,648,482

Asano Bankers Hill, LLC US - CA Mixed-use SOFR + 15.0 % ( 0.25 % Floor)

7/31/2025 Interest Only — 17,450,623 17,920,424

REEC Harlem Holdings Company LLC (9)

US - NY Mixed-use LIBOR + 12.5% 3/9/2025 Interest Only — 16,633,292 16,633,292

US - NY Mixed-use LIBOR + 12.5 %

3/9/2025 Interest Only — 15,983,234 15,983,234

RS JZ Driggs, LLC (10)

3 unchanged sentences

Shopoff & Cindy I.

Shopoff (6)(7)

US-CA Industrial 15.0 % 4/4/2023 Interest Only — 28,802,833 29,080,183

5 unchanged sentences

(2) Maximum maturity date assumes all extension options are exercised.

(3) Participation interest is with Mavik Real Estate Special Opportunities Fund REIT, LLC, a related-party real estate investment trust managed by the Manager ( Note 8 ).

(4) In September 2021, the Company refinanced a previously-defaulted mezzanine loan with a new first mortgage.

This refinancing was accounted for as a troubled debt restructuring and the Company recognized a loss of $ 0.3 million on the restructuring.

(5) Participation interest is with Terra Fund 6, an affiliated fund advised by the Terra Income Advisors, an affiliate of the Company’s sponsor and Manager ( Note 8 ).

(3) The Company sold a portion of its interest in this loan through a participation agreement to a third party ( Note 8 ).

(4) The loan participations from the Company do not qualify for sale accounting under ASC 860 and therefore, the gross amount of these loans remain in Schedule IV.

See “ Obligations under Participation Agreements ” in Note 9 and “ Transfers of Participation Interest by the Company ” in Note 8 in the accompanying notes to the consolidated financial statements.

(7) The Company sold a portion of its interest in this loan through a participation agreement to Terra Fund 6 ( Note 8 ).

(8) The Company recorded a specific allowance for loan loss of $ 12.8 million on this loan as a result of a decline in the value of the collateral ( Note 4 ).

See “ Obligations under Participation Agreement and Secured Borrowing ” in Note 9 and “ Transfers of Participation Interest by the Company ” in Note 8 in the accompanying notes to the consolidated financial statements.

(5) The Company purchased a portion of its interest in this loan through a participation agreement.

Participation interest is with RESOF REIT, a related-party real estate investment trust managed by the Manager ( Note 8 ).

(6) This loan is classified as a TDR.

The Company does not anticipate a full recovery of the remaining principal balance, as such, the loan is fully reserved.

(7) Amount included $ 4.0 million of incremental borrowing that bears interest at an annual rate of 20.0 % until certain conditions are met, at which time the interest rate will be the same as the original loan.

(8) This loan is currently in maturity default.

For the year ended December 31, 2022, the Company suspended interest income accrual of $ 3.7 million on this loan, because recovery of such income was doubtful.

As of December 31, 2022, the Company recorded a specific allowance for loan losses of $ 11.2 million on the loan as a result of a decline in the fair value of the collateral.

(9) For the year ended December 31, 2022, the Company suspended interest income accrual of $ 2.9 million on this loan, because recovery of such income was doubtful.

As of December 31, 2022, the Company recorded a specific allowance for loan losses of $ 12.9 million on the loan as a result of a decline in the fair value of the collateral.

(10) This loan is in maturity default.

The Company has exercised its rights and is facilitating the completion of construction of the asset in anticipation of lease up and disposition of the asset.

the Company initiated a litigation to seek full repayment of the loan from the sponsor.

For the year ended December 31, 2022, the Company suspended interest income accrual of $ 2.0 million on this loan, because recovery of such income was doubtful.

(11) Amount included $ 3.0 million of incremental borrowing that bears interest at an annual rate of Term SOFR plus 7.0 % with a SOFR floor of 4.30 %.

Terra Property Trust, Inc.

7 unchanged sentences

New mortgage loans 290,005,676

PIK interest 1,955,109

Loans acquired and contributed in the BDC Merger 74,818,438

Accrual, payment and accretion of investment-related fees and other, net 1,847,999

3 unchanged sentences

Amortization of premium ( 557,012 )

Realized loss on loan repayments ( 651,553 )

Balance, end of year $ 626,490,767

11 unchanged sentences

/s/ Vikram S.

Uppal Chairman of the Board and Chief Executive Officer March 11, 2022

Uppal Chairman of the Board, Chief Executive Officer and Chief

Investment Officer March 10, 2023

Uppal (Principal Executive Officer)

/s/ Gregory M.

Pinkus Chief Financial Officer, Chief Operating Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)

March 11, 2022

Pinkus Chief Financial Officer, Chief Operating Officer, Treasurer

and Secretary March 10, 2023

Pinkus (Principal Financial and Accounting Officer)

Beless Director March 10, 2023

1 unchanged sentence

Evans Director March 10, 2023

/s/ Adrienne M.

Everett Director March 10, 2023

/s/ Spencer E.

Goldenberg Director March 10, 2023

/s/ Gaurav Misra Director March 10, 2023

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 9A. Controls and Procedures