Terra Property Trust, Inc. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures 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. 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. Evaluation of Internal Controls over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our Manager, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements in our consolidated financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of our management, including the chief executive officer and chief financial officer of our Manager (performing functions equivalent to those a principal executive officer and principal financial officer of our company would perform if we had any officers), we conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on its evaluation, our management concluded that our internal control over financial reporting was effective as of the end of the fiscal year covered by this Annual Report on Form 10-K. 54 This Annual Report on Form 10-K does not include an attestation report of our independent registered accounting firm due to a transition period established by the rules of the SEC for “emerging growth companies.” Changes in Internal Control Over Financial Reporting During the most recent fiscal quarter, there was no change in our internal controls over financial reporting, as defined under Rule 13a-15(f) under the Exchange Act, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. Item 9B. Other Information. None Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. PART III Item 10. Directors, Executive Officers and Corporate Governance. 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. Item 11. Executive Compensation. 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. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 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. Item 13. Certain Relationships and Related Transactions, and Director Independence. 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. 55 Item 14. Principal Accounting Fees and Services. 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. PART IV Item 15. Exhibits and Financial Statement Schedules. The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K: (1) Financial Statements The index to our financial statements is on page F-1 of this Annual Report on Form 10-K. (2) Financial Statement Schedule The index to our financial schedules is on page F-1 of this Annual Report on Form 10-K. (3) Exhibits The following exhibits are filed with this report. Documents other than those designated as being filed herewith are incorporated herein by reference. Exhibit No. Description and Method of Filing 2.1 Contribution Agreement by and among Terra Secured Income Fund, LLC, Terra Secured Income Fund 2, LLC, Terra Secured Income Fund 3, LLC, Terra Secured Income Fund 4, LLC, the registrant, and Terra Property Trust, Inc., dated January 1, 2016 (incorporated by reference to Exhibit 2.1 to the Registration Statement on Form 10 (File No. 000-56117) filed with the SEC on November 6, 2019). 2.2 Amendment No. 1 to the Contribution Agreement by and among Terra Secured Income Fund, LLC, Terra Secured Income Fund 2, LLC, Terra Secured Income Fund 3, LLC, Terra Secured Income Fund 4, LLC, the registrant, and Terra Property Trust, Inc., dated December 31, 2016 (incorporated by reference to Exhibit 2.2 to the Registration Statement on Form 10 (File No. 000-56117) filed with the SEC on November 6, 2019). 2.3 Agreement and Plan of Merger, dated February 28, 2020, by and among Terra Property Trust, Inc., Terra Property Trust 2, Inc. and Terra Secured Income Fund 7, LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 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. (incorporated by reference to Exhibit 3.1 to the Registration Statement on Amendment No.1 to Form 10 (File No. 000-56117) filed with the SEC on December 16, 2019). 3.2 Articles of Amendment and Restatement of Terra Property Trust, Inc. (incorporated by reference to Exhibit 3.2 to the Registration Statement on Amendment No.1 to Form 10 (File No. 000-56117) filed with the SEC on December 16, 2019). 3.3 Articles of Supplementary of Terra Property Trust, Inc. Designating 12.5% Services A Redeemable Cumulative Preferred Stock (incorporated by reference to Exhibit 3.3 to the Registration Statement on Amendment No.1 to Form 10 (File No. 000-56117) filed with the SEC on December 16, 2019). 4.1* Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934. 4.2 Indenture, dated June 10, 2021, by and between Terra Property Trust, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A (File No. 001-40496) filed with the SEC on June 14, 2021). 56 Exhibit No. Description and Method of Filing 4.3 First Supplemental Indenture, dated June 10, 2021, by and between Terra Property Trust, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form 8-A (File No. 001-40496) filed with the SEC on June 14, 2021). 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. and U.S. 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. and U.S. 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. 000-56117) filed with the SEC on November 6, 2019). 10.2 Amended and Restated Voting Agreement by and among Terra Property Trust, Inc., Terra Secured Income Fund 5, LLC, Terra JV, LLC and Terra REIT Advisors, LLC, dated March 2, 2020 (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed with the SEC on May 15, 2020). 10.3 Stockholder Rights Agreement among Terra JV, LLC and Terra Property Trust, Inc., dated March 2, 2020 (incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q (File No. 000-56117) filed with the SEC on May 15, 2020). 10.4 Contribution Agreement by and among Terra Property Trust, Terra International Fund 3 REIT, LLC and Terra Income Fund International, dated March 2, 2020 (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q (File No. 000-56117) filed with the SEC on May 15, 2020). 10.5 Contribution Agreement by and among Terra Property Trust, Terra International Fund 3 REIT, LLC and Terra Secured Income Fund 5 International, dated March 2, 2020 (incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q (File No. 000-56117) filed with the SEC on May 15, 2020). 10.6 Indenture and Credit Agreement, dated as of September 3, 2020, by and among Terra Mortgage Capital I, LLC, as Issuer, Goldman Sachs Bank USA, as initial Class A lender, and Wells Fargo Bank, National Association, as trustee, custodian, collateral agent, loan agent and note administrator (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K (File No. 000-56117) filed with the SEC on September 17, 2020). 10.7 Guaranty, dated as of September 3, 2020, by and among Terra Property Trust, Inc., as guarantor, for the benefit of Goldman Sachs Bank USA (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K (File No. 000-56117) filed with the SEC on September 17, 2020). 10.8 Business Loan and Security Agreement, dated as of March 12, 2021, by and among Terra Mortgage Portfolio II, LLC, as the Borrower, and Western Alliance Bank, as the Lender (incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K filed with the SEC on March 18, 2021). 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 (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). 57 Exhibit No. 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 31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Chief Financial Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32** Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 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 101.SCH** Inline XBRL Taxonomy Extension Schema Document 101.CAL** Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.LAB** Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE** Inline XBRL Taxonomy Extension Presentation Linkbase Document 101.DEF** Inline XBRL Taxonomy Extension Definition Linkbase Document 104 Cover Page Interactive Data File Included as Exhibit 101 (embedded within the Inline XBRL document) ______________ * Filed herewith. ** Furnished herewith. Item 16. Form 10-K Summary. None. 58 Terra Property Trust, Inc. Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm KPMG LLP New York, NY PCAOB ID: 185 F- 2 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2022 and 2021 F- 3 Consolidated Statements of Operations for the years ended December 31, 2022 and 2021 F- 4 Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 F- 5 Consolidated Statements of Changes in Equity for the years ended December 31, 2022 and 2021 F- 6 Notes to Consolidated Financial Statements F- 9 Schedule III — Real Estate and Accumulated Depreciation as of December 31, 2022 F- 44 Schedule IV — Mortgage Loans on Real Estate as of December 31, 2022 F- 45 Schedules other than those listed are omitted as they are not applicable for the required or equivalent information has been included in the consolidated financial statements or notes thereto. F-1 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Terra Property Trust, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Terra Property Trust, Inc. 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. generally accepted accounting principles. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP We have served as the Company’s auditor since 2016. New York, New York March 10, 2023 F-2 Terra Property Trust, Inc. Consolidated Balance Sheets December 31, 2022 2021 Assets Cash and cash equivalents $ 28,567,825 $ 35,783,956 Restricted cash 4,633,204 7,411,811 Cash held in escrow by lender 3,268,563 7,902,880 Marketable securities 147,960 1,310,000 Loans held for investment, net 584,417,939 457,329,582 Loans held for investment acquired through participation, net 42,072,828 12,343,732 Equity investment in unconsolidated investments 62,498,340 69,713,793 Real estate owned, net ( Note 6 ) Land, building and building improvements, net 46,660,226 58,325,068 Lease intangible assets, net 2,568,461 7,451,771 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 Due from related party — 2,605,639 Other assets 2,780,367 3,505,953 Total assets $ 813,336,892 $ 693,542,158 Liabilities and Equity Liabilities: Term loan payable $ 25,000,000 $ 91,940,062 Unsecured notes payable, net of debt issuance cost 116,530,673 81,856,799 Repurchase agreements payable, net of deferred financing fees 169,304,710 43,974,608 Obligations under participation agreements ( Note 8 ) 12,680,594 42,232,027 Mortgage loan payable, net of deferred financing fees and other 29,488,326 32,134,295 Revolving line of credit payable, net of deferred financing fees 89,807,448 38,186,472 Secured borrowing — 34,586,129 Interest reserve and other deposits held on investments 4,633,204 7,411,811 Operating lease liability 27,378,786 27,394,936 Lease intangible liabilities, net ( Note 6 ) 8,646,840 9,709,710 Due to Manager ( Note 8 ) 3,935,997 2,388,317 Interest payable 1,058,001 1,879,626 Accounts payable and accrued expenses 1,452,236 1,264,131 Unearned income 378,018 449,690 Other liabilities 1,159,885 4,289,967 Total liabilities 491,454,718 419,698,580 Commitments and contingencies ( Note 10 ) Equity: Preferred stock, $ 0.01 par value, 50,000,000 shares authorized and none issued — — 12.5 % Series A Cumulative Non-Voting Preferred Stock at liquidation preference, 125 shares authorized and 125 shares issued and outstanding at December 31, 2022 and 2021 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, respectively — 194,875 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 243,354 — Additional paid-in capital 444,449,813 373,443,672 Accumulated deficit ( 122,935,993 ) ( 99,919,969 ) Total equity 321,882,174 273,843,578 Total liabilities and equity $ 813,336,892 $ 693,542,158 See notes to consolidated financial statements . F-3 Terra Property Trust, Inc. Consolidated Statements of Operations Years Ended December 31, 2022 2021 Revenues Interest income $ 42,591,972 $ 36,743,470 Real estate operating revenue 11,451,914 8,894,991 Prepayment fee income 1,984,061 190,997 Other operating income 586,499 855,799 56,614,446 46,685,257 Operating expenses Operating expenses reimbursed to Manager 8,076,321 6,916,371 Asset management fee 6,556,492 5,134,149 Asset servicing fee 1,560,044 1,181,924 Provision for loan losses 11,813,409 10,904,163 Real estate operating expenses 5,005,551 5,003,893 Depreciation and amortization 6,530,595 3,989,114 Impairment charge 1,604,989 3,395,430 Professional fees 3,697,792 1,795,856 Directors fees 192,497 145,000 Other 747,535 448,503 45,785,225 38,914,403 Operating income 10,829,221 7,770,854 Other income and expenses Interest expense from obligations under participation agreements ( 3,180,771 ) ( 10,596,545 ) Interest expense on repurchase agreement payable ( 7,913,942 ) ( 142,495 ) Interest expense on mortgage loan payable ( 2,173,114 ) ( 2,449,239 ) Interest expense on revolving line of credit ( 2,674,568 ) ( 911,811 ) Interest expense on term loan payable ( 524,344 ) ( 6,835,877 ) Interest expense on unsecured notes payable ( 6,682,937 ) ( 3,173,673 ) Interest expense on secured borrowing ( 1,507,572 ) ( 1,576,502 ) 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 $ ( 6,951,693 ) $ ( 12,355,727 ) Series A preferred stock dividend declared $ ( 15,624 ) $ ( 15,624 ) Net loss allocable to common stock $ ( 6,967,317 ) $ ( 12,371,351 ) Loss per share — basic and diluted $ ( 0.34 ) $ ( 0.63 ) Weighted-average shares — basic and diluted 20,709,400 19,487,460 Distributions declared per common share $ 0.78 $ 0.88 See notes to consolidated financial statements. F-4 Terra Property Trust, Inc. Consolidated Statements of Changes in Equity Preferred Stock 12.5% Series A Cumulative Non-Voting Preferred Stock Common Stock Class A Common Stock Class B Common Stock Additional Paid-in 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 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 ) Balance at December 31, 2022 $ — 125 $ 125,000 — $ — — $ — 24,335,370 $ 243,354 $ 444,449,813 $ ( 122,935,993 ) $ 321,882,174 Preferred Stock 12.5% Series A Cumulative Non-Voting Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit $0.01 Par Value Shares Amount Shares Amount Total equity Balance at January 1, 2021 $ — 125 $ 125,000 19,487,460 $ 194,875 $ 373,443,672 $ ( 70,438,482 ) $ 303,325,065 Distributions declared on common shares ($ 0.88 per share) — — — — — — ( 17,110,136 ) ( 17,110,136 ) Distributions declared on preferred shares — — — — — — ( 15,624 ) ( 15,624 ) 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 See notes to consolidated financial statements . F-5 Terra Property Trust, Inc. Consolidated Statements of Cash Flows Years Ended December 31, 2022 2021 Cash flows from 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 ) Depreciation and amortization 6,530,595 3,989,114 Provision for loan losses 11,813,409 10,904,163 Impairment charge 1,604,989 3,395,430 Amortization of net purchase premiums on loans 557,012 61,390 Straight-line rent adjustments 1,357,247 ( 146,317 ) Amortization of deferred financing costs 2,271,556 963,986 Amortization of discount on unsecured notes payable 738,583 248,108 Amortization of above- and below-market rent intangibles ( 914,965 ) ( 392,161 ) Amortization and accretion of investment-related fees, net ( 1,210,524 ) ( 264,697 ) 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 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 Due from related party 2,421,388 ( 2,605,639 ) Other assets ( 2,918,189 ) 574,832 Due to Manager — 93,226 Unearned income ( 71,672 ) ( 215,075 ) Interest payable ( 821,625 ) 694,124 Accounts payable and accrued expenses ( 552,728 ) ( 2,704,472 ) Other liabilities ( 3,517,540 ) 3,860,844 Net cash provided by operating activities 403,768 4,106,819 Cash flows from investing activities: Origination and purchase of loans ( 290,005,676 ) ( 252,437,733 ) Proceeds from repayments of loans 197,484,239 196,780,456 Purchase of equity interests in unconsolidated investments ( 25,504,979 ) ( 32,177,108 ) 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 ) F-6 Terra Property Trust, Inc. Consolidated Statements of Cash Flows (Continued) Years Ended December 31, 2022 2021 Cash flows from financing activities: 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 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 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 ) 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 (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 Cash, cash equivalents and restricted cash at end of year ( Note 2 ) $ 36,469,592 $ 51,098,647 Years Ended December 31, 2022 2021 Supplemental Disclosure of Cash Flows Information: Cash paid for interest $ 22,569,976 $ 22,219,386 F-7 Terra Property Trust, Inc. Consolidated Statements of Cash Flows (Continued) Supplemental Non-Cash Investing Activities: BDC Merger 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 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 73,351,325 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 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 ) 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 . F-8 Terra Property Trust, Inc. Notes to Consolidated Financial Statements December 31, 2022 Note 1. Business Terra Property Trust, Inc. (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. The Company’s loans finance the acquisition, construction, development or redevelopment of quality commercial real estate in the United States. The Company focuses on the origination of middle market loans in the approximately $ 10 million to $ 50 million range, to finance properties in primary and secondary markets. On January 1, 2016, Terra Secured Income Fund 5, LLC (“Terra Fund 5”), the Company’s then parent, contributed its consolidated portfolio of net assets to the Company pursuant to a contribution agreement in exchange for shares of the Company’s common stock. Upon receipt of the contribution of the consolidated portfolio of net assets from Terra Fund 5, the Company commenced its operations on January 1, 2016. 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. 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. 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. 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 (the “Board”) ( Note 8 ). The Company does not currently have any employees and does not expect to have any employees. Services necessary for the Company’s business are provided by individuals who are employees of the Manager or by individuals who were contracted by the Company or by the Manager to work on behalf of the Company pursuant to the terms of the Management Agreement. On April 1, 2021, Mavik Capital Management, LP (“Mavik”), an entity controlled by Vikram S. Uppal, the Chief Executive Officer of the Company, completed a series of related transactions that resulted in all of the outstanding interests in Terra Capital Partners, being acquired by Mavik for a combination of cash and interests in Mavik (the “Recapitalization”). 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. Note 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include all of the Company’s accounts and those of its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current period presentation. F-9 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. The Company is required to first apply the VIE model to determine whether it holds a variable interest in an entity, and if so, whether the entity is a VIE. If the Company determines it does not hold a variable interest in a VIE, it then applies the voting interest model. Under the voting interest model, the Company consolidates an entity when it holds a majority voting interest in an entity. 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 ). VIE Model 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 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. Generally, the primary beneficiary of a VIE is a reporting entity that has (a) the power to direct the activities that most significantly affect the VIE’s economic performance, and (b) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. Loans Held for Investment 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. The Company’s preferred equity investments, which are economically similar to mezzanine loans and subordinate to any loans but senior to common equity, are accounted for as loans held for investment. Loans are carried at cost less allowance for loan losses. Allowance for Loan Losses The Company’s loans are typically collateralized by either the sponsors’ equity interest in the real estate properties or the underlying real estate properties. As a result, the Company regularly evaluates the extent and impact of any credit migration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower/sponsor on a loan-by-loan basis. Specifically, a property’s operating results and any cash reserves are analyzed and used to assess (i) whether cash from operations and/or reserve balances are sufficient to cover the debt service requirements currently and into the future; (ii) the ability of the borrower to refinance the loan; and/or (iii) the property’s liquidation value. The Company also evaluates the financial wherewithal of the sponsor as well as its competency in managing and operating the real estate property. In addition, the Company considers the overall economic environment, real estate sector, and geographic sub-market in which the borrower operates. Such analyses are completed and reviewed by asset management and finance personnel, who utilize various data sources, including (i) periodic financial data such as debt service coverage ratio, property occupancy, tenant profile, rental rates, operating expenses, the borrower’s exit plan, the capitalization and discount rates; (ii) site inspections; and (iii) current credit spreads and discussions with market participants. The Manager performs a quarterly evaluation for possible impairment of the Company’s portfolio of loans. A loan is impaired if it is deemed probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan. Impairment is measured based on the present value of expected future cash flows or the fair value of the collateral if the loan is collateral dependent. Upon measurement of impairment, the Company records an allowance to reduce the carrying value of the loan with a corresponding charge to net income. In conjunction with the quarterly evaluation of loans not considered impaired, the Manager assesses the risk factors of each loan and assigns each loan a risk rating between 1 and 5, which is an average of the numerical ratings in the following categories: (i) sponsor capability and financial condition; (ii) loan and collateral performance relative to underwriting; (iii) quality and stability of collateral cash flows and/or reserve balances; and (iv) loan to value. Based on a 5-point scale, the Company’s loans are rated “1” through “5”, from less risk to greater risk, as follows: F-10 Notes to Consolidated Financial Statements Risk Rating Description 1 Very low risk 2 Low risk 3 Moderate/average risk 4 Higher risk 5 Highest risk 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 (“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. Equity Investment in Unconsolidated Investments The Company accounts for its equity interests in unconsolidated investments under the equity method of accounting, i.e., at cost, increased or decreased by its share of earnings or losses, less distributions, plus contributions and other adjustments required by equity method accounting. The Company evaluates its equity investment unconsolidated investments on a periodic basis to determine if there are any indicators that the value of its equity investments may be impaired and whether or not that impairment is other-than-temporary. To the extent an impairment has occurred and is determined to be other-than-temporary, the Company measures the charge as the excess of the carrying value of its investment over its estimated fair value, which is determined by calculating its share of the estimated fair market value of the underlying net assets based on the terms of the applicable partnership or joint venture agreements. Marketable Securities The Company from time to time invests in short term debt and equity securities. These securities are classified as available-for-sale and are carried at fair value. Changes in the fair value of equity securities are recognized in earnings. Changes in the fair value of debt securities are reported in other comprehensive income until a gain or loss on the securities is realized. Real Estate Owned, Net Real estate acquired is recorded at its estimated fair value at acquisition and is shown net of accumulated depreciation and impairment charges. Acquisition of properties generally are accounted for as asset acquisitions. Under asset acquisition accounting, the costs to acquire real estate, including transaction costs, are accumulated and then allocated to individual assets and liabilities acquired based upon their relative fair value. The Company allocates the purchase price of its real estate acquisitions to land, building, tenant improvements, acquired in-place leases, intangibles for the value of any above or below market leases at fair value and to any other identified intangible assets or liabilities. The Company amortizes the value allocated to in-place leases over the remaining lease term, which is reported in depreciation and amortization expense on its consolidated statements of operations. The value allocated to above or below market leases are amortized over the remaining lease term as an adjustment to rental income. Real estate assets are depreciated using the straight-line method over their estimated useful lives: buildings and improvements - not to exceed 40 years, and tenant improvements - shorter of the lease term or life of the asset. Ordinary repairs and maintenance which are not reimbursed by the tenants are expensed as incurred. Major replacements and betterments which improve or extend the life of the asset are capitalized and depreciated over their estimated useful life. 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 F-11 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. Leases The Company determines if an arrangement is a lease at inception. 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. 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. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s lease typically does not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made in advance and excludes lease incentives if there were any. The 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 is recognized on a straight-line basis over the lease term. Revenue Recognition Revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Interest Income: Interest income is accrued based upon the outstanding principal amount and contractual terms of the loans and preferred equity investments that the Company expects to collect, and it is accrued and recorded on a daily basis. Discounts and premiums on investments purchased are accreted or amortized over the expected life of the respective loan using the effective yield method, and are included in interest income in the consolidated statements of operations. Loan origination fees and exit fees, net of portions attributable to obligations under participation agreements, are capitalized and amortized or accreted to interest income over the life of the investment using the effective yield method. Income accrual is generally suspended for loans at the earlier of the date at which payments become 90 days past due or when, in the opinion of the Manager, recovery of income and principal becomes doubtful. Outstanding interest receivable is assessed for recoverability. Interest is then recorded on the basis of cash received until accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. The Company holds loans in its portfolio that contain paid-in-kind (“PIK”) interest provisions. The PIK interest, which represents contractually deferred interest that is added to the principal balance that is due at maturity, is recorded on the accrual basis. Real Estate Operating Revenues: Real estate operating revenue is derived from leasing of space to various types of tenants. The leases are for fixed terms of varying length and generally provide for annual rent increases and expense reimbursements to be paid in monthly installments. Lease revenue, or rental income from leases, is recognized on a straight-line basis over the term of the respective leases. Additionally, the Company recorded above- and below-market lease intangibles, which are included in real estate owned, net, in connection with the acquisition of the real estate properties. These intangible assets and liabilities are amortized to lease revenue over the remaining contractual lease term. Other Revenues: Prepayment fee income is recognized as prepayments occur. All other income is recognized when earned. Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid investments, with original maturities of ninety days or less when purchased, as cash equivalents. Cash and cash equivalents are exposed to concentrations of credit risk. The Company maintains all of its cash at financial institutions which, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation. Restricted cash represents cash held as additional collateral by the Company on behalf of the borrowers related to the investments in loans or preferred equity instruments for the purpose of such borrowers making interest and property-related operating payments. Restricted cash is not available for general corporate purposes. The related liability is recorded in “ Interest reserve and other deposits held on investments ” on the consolidated balance sheets. Cash held in escrow by lender represents amounts funded to an escrow account for debt services and tenant improvements. F-12 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 as of: December 31, 2022 2021 Cash and cash equivalents $ 28,567,825 $ 35,783,956 Restricted cash 4,633,204 7,411,811 Cash held in escrow by lender 3,268,563 7,902,880 Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows $ 36,469,592 $ 51,098,647 Participation Interests Loan participations 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. For the investments for which participation has been granted, the interest earned on the entire loan balance is recorded within “ Interest income ” and the interest related to the participation interest is recorded within “ Interest expense from obligations under participation agreements ” in the consolidated statements of operations. Interest expense from obligations under participation agreement is reversed when recovery of interest income on the related loan becomes doubtful. See “ Obligations under Participation Agreements ” in Note 9 for additional information. Term Loan 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 United States generally accepted accounting principles (“U.S. GAAP”) establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The Company has not elected the fair value option for its financial instruments, including loans held for investment, loans held for investment acquired through participation, obligations under participation agreements, secured borrowing, unsecured notes, mortgage loan payable, term loan payable, repurchase agreement payment and revolving line of credit. Such financial instruments are carried at cost, less impairment, where applicable. Marketable securities are financial instruments that are reported at fair value. Deferred Financing Costs Deferred financing costs represent fees and expenses incurred in connection with obtaining financing for investments. These costs are presented in the consolidated balance sheets as a direct deduction of the debt liability to which the costs pertain. These costs are amortized using the effective interest method and are included in interest expense on the applicable borrowings in the consolidated statements of operations over the life of the borrowings. Income Taxes 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 dividends equal F-13 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 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. federal and state income taxes at regular corporate rates. As of December 31, 2022, the Company has satisfied all the requirements for a REIT. The Company did not have any uncertain tax positions that met the recognition or measurement criteria of Accounting Standards Codification (“ASC”) 740-10-25, Income Taxes , nor did the Company have any unrecognized tax benefits as of the periods presented herein. The Company recognizes interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in its consolidated statements of operations. For the years ended December 31, 2022 and 2021, the Company did not incur any interest or penalties. Although the Company files federal and state tax returns, its major tax jurisdiction is federal. The Company’s 2019-2022 federal tax returns remain subject to examination by the Internal Revenue Service. Earnings Per Share The Company has a simple equity capital structure with only common stock and preferred stock outstanding. As a result, earnings per share, as presented, represent both basic and dilutive per-share amounts for the periods presented in the consolidated financial statements. Income per basic share of common stock is calculated by dividing net income allocable to common stock by the weighted-average number of shares of common stock issued and outstanding during such period. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may ultimately differ from those estimates, and those differences could be material. Segment Information The Company’s primary business is originating, acquiring and structuring real estate-related loans related to high quality commercial real estate. From time to time, the Company may acquire real estate encumbering the senior loans through foreclosure. However, management treats the operations of the real estate acquired through foreclosure as the continuation of the original senior loans. The Company operates in a single segment focused on mezzanine loans, other loans and preferred equity investments, and to a lesser extent, owning and managing real estate. Recent Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. In April 2019, the FASB issued additional amendments to clarify the scope of ASU 2016-13 and address issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. 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 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. 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 F-14 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”). The amendments in ASU 2020-04 provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU No. 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”). 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. Note 3. BDC Merger BDC Merger 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. F-15 Notes to Consolidated Financial Statements The following table summarizes the total consideration and the fair values of assets acquired and liabilities assumed in the BDC Merger: Total Consideration 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 $ 73,351,325 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 ) 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. 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 F-16 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. Note 4. Loans Held for Investment Portfolio Summary The following table provides a summary of the Company’s loan portfolio as of: December 31, 2022 December 31, 2021 Fixed Rate Floating Rate (1)(2)(3) Total Fixed Rate Floating Rate (1)(2)(3) Total Number of loans 8 23 31 6 15 21 Principal balance $ 90,990,183 $ 554,805,276 $ 645,795,459 $ 74,880,728 $ 405,270,423 $ 480,151,151 Carrying value $ 92,274,998 $ 534,215,769 $ 626,490,767 $ 75,520,212 $ 394,153,102 $ 469,673,314 Fair value $ 90,729,098 $ 532,416,656 $ 623,145,754 $ 75,449,410 $ 391,752,209 $ 467,201,619 Weighted-average coupon rate 13.82 % 11.23 % 11.59 % 12.39 % 7.01 % 7.85 % Weighted-average remaining term (years) 1.35 1.10 1.14 1.93 1.45 1.53 _______________ (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 tables present the activities of the Company’s loan portfolio: Loans Held for Investment Loans Held for Investment through Participation Interests Total Balance, January 1, 2022 $ 457,329,582 $ 12,343,732 $ 469,673,314 New loans made 257,780,401 32,225,275 290,005,676 Principal repayments received ( 197,484,239 ) — ( 197,484,239 ) 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 ) Accrual, payment and accretion of investment-related fees and other, net 1,512,638 335,361 1,847,999 Provision for loan losses ( 11,813,409 ) — ( 11,813,409 ) Balance, December 31, 2022 $ 584,417,939 $ 42,072,828 $ 626,490,767 F-17 Notes to Consolidated Financial Statements Loans Held for Investment Loans Held for Investment through Participation Interests Total Balance, January 1, 2021 $ 417,986,462 $ 4,294,053 $ 422,280,515 New loans made 240,130,367 12,307,366 252,437,733 Principal repayments received ( 192,530,456 ) ( 4,250,000 ) ( 196,780,456 ) PIK interest (1) 1,955,109 — 1,955,109 Net amortization of premiums on loans ( 61,390 ) — ( 61,390 ) 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 ) Balance, December 31, 2021 $ 457,329,582 $ 12,343,732 $ 469,673,314 _______________ (1) Certain loans in the Company’s portfolio contain PIK interest provisions. The PIK interest represents contractually deferred interest that is added to the principal balance. PIK interest related to obligations under participation agreements amounted $ 1.0 million for the 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. On September 23, 2021, the hotel property was sold to a third party for $ 13.8 million. The net proceeds from the sale, together with a payment under a contractual guarantee of $ 0.8 million from the borrower, were used to pay off both loans in full. In connection with the loan repayment, the related obligation under participation agreement of $ 6.4 million was simultaneously satisfied. In connection with the loan repayment, the Company recorded a loss of $ 0.4 million related to the write-off of the interest accrued but uncollected in the third quarter of 2021, excluding the amount attributable to obligations under participation agreements of $ 0.1 million. (3) Amount also included realized loss of $ 0.3 million related to the TDR transaction described below. 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, 2022 December 31, 2021 Loan Structure Principal Balance Carrying Value % of Total Principal Balance Carrying Value % of Total First mortgages $ 456,408,889 $ 461,299,182 73.7 % $ 345,454,454 $ 348,101,455 74.0 % Preferred equity investments 121,231,434 122,132,177 19.5 % 92,252,340 92,400,572 19.7 % Mezzanine loans 39,352,303 39,451,115 6.3 % 17,444,357 17,622,804 3.8 % Credit facility 28,802,833 29,080,183 4.6 % 25,000,000 25,206,964 5.4 % 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 % F-18 Notes to Consolidated Financial Statements December 31, 2022 December 31, 2021 Property Type Principal Balance Carrying Value % of Total Principal Balance Carrying Value % of Total 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 % Student housing 31,000,000 31,774,261 5.1 % 31,000,000 31,565,670 6.7 % 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 % December 31, 2022 December 31, 2021 Geographic Location Principal Balance Carrying Value % of Total Principal Balance Carrying Value % of Total United States California $ 164,253,345 $ 165,839,561 26.5 % $ 234,968,151 $ 237,015,597 50.4 % New York 91,845,479 91,877,084 14.7 % 92,252,340 92,400,572 19.7 % Georgia 72,401,718 73,101,964 11.7 % 53,289,288 53,536,884 11.4 % Texas 67,625,000 68,142,046 10.9 % 13,625,000 13,725,690 2.9 % 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 % 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 % Loan Risk Rating As described in Note 2 , the Manager evaluates the Company’s loan portfolio on a quarterly basis or more frequently as needed. 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. F-19 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 Loan Risk Rating Number of Loans Principal Balance Carrying Value % of Total Number of Loans Principal Balance Carrying Value % of Total 1 — $ — $ — — % — $ — $ — — % 2 2 25,000,000 25,041,782 3.8 % 2 25,000,000 25,041,124 5.2 % 3 25 530,867,244 536,992,660 82.4 % 15 349,273,811 352,164,409 72.9 % 4 — — — — % 1 60,012,639 60,012,639 12.4 % 5 — — — — % — — — — % Other (1) 4 89,928,215 89,928,215 13.8 % 3 45,864,701 46,113,623 9.5 % 31 $ 645,795,459 651,962,657 100.0 % 21 $ 480,151,151 483,331,795 100.0 % Allowance for loan losses ( 25,471,890 ) ( 13,658,481 ) Total, net of allowance for loan losses $ 626,490,767 $ 469,673,314 _______________ (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. 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, 2022 2021 Allowance for loan losses, beginning of year $ 13,658,481 $ 3,738,758 Provision for loan losses 11,813,409 10,904,163 Charge-offs (1) — ( 984,440 ) Allowance for loan losses, end of year $ 25,471,890 $ 13,658,481 _______________ (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. 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 F-20 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) $ 1,364,944 _______________ (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. The Company purchased the senior loan from a third-party lender on September 3, 2021 in order to facilitate a refinancing. Subsequently on September 23, 2021, the senior and mezzanine loans were refinanced and the Company issued a new senior loan with a committed amount of $ 14.7 million, of which $ 13.6 million was funded at closing. The concession granted in the refinancing was the forgiveness of principal and accrued interest of $ 1.3 million on the mezzanine loan, of which $ 1.0 million was previously recorded as an allowance for loan losses, in addition to $ 0.4 million of nonaccrual interest. The Company classified the refinancing as 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: Number of loans modified 1 Pre-modified recorded carrying value $ 18,503,470 Post-modified recorded carrying value (1) $ 13,625,000 _______________ (1) As of December 31, 2021, the principal balance of this loan was $ 13.6 million and the carrying value of this loan, which includes the present value of the exit fee, was $ 13.7 million. There is no allowance for loan losses recorded for this new senior loan. 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. Note 5. Equity Investment in Unconsolidated Investments The Company owns interests in a limited partnership and three joint ventures. The Company accounts for its interests in these investments under the equity method of accounting ( Note 2 ). The Company classifies distributions received from equity method investments using the cumulative earnings approach. Distributions received are considered returns on the investment and classified as cash inflows from operating activities. If, however, the investor’s cumulative distributions received, less distributions received in prior periods determined to be returns of investment, exceeds cumulative equity in earnings recognized, the excess is considered a return of investment and is classified as cash inflows from investing activities. Equity Investment in a Limited Partnership On August 3, 2020, the Company entered into a subscription agreement with Mavik Real Estate Special Opportunities Fund, LP (“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 F-21 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. The Company evaluated its equity interest in RESOF and determined it does not have a controlling financial interest and is not the primary beneficiary. Accordingly, the equity interest in RESOF is accounted for as an equity method investment. As of 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, 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. The following tables present summarized financial information of the Company’s equity investment in RESOF. Amounts provided are the total amounts attributable to the investment and do not represent the Company’s proportionate share: As of December 31, 2022 2021 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 Total assets 202,202,544 113,843,985 Revolving line of credit, net of financing costs 14,795,985 14,909,717 Obligations under participation agreement (proceeds of $ 41,726,565 and $ 14,252,357 , respectively) 41,962,861 14,351,617 Other liabilities 17,120,804 5,296,603 Total liabilities 73,879,650 34,557,937 Partners’ capital $ 128,322,894 $ 79,286,048 Years Ended December 31, 2022 2021 Total investment income $ 31,436,886 $ 11,769,083 Total expenses 9,042,066 2,381,145 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 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. 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. F-22 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) 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 _______________ (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, 2022 2021 Net investments in real estate $ 192,616,298 $ 115,636,424 Other assets 12,817,388 4,856,249 Total assets 205,433,686 120,492,673 Mortgage loan payable 147,740,645 83,445,235 Other liabilities 3,104,624 1,305,572 Total liabilities 150,845,269 84,750,807 Members’ capital $ 54,588,417 $ 35,741,866 Years Ended December 31, 2022 2021 Revenues $ 15,071,626 $ 1,448,431 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, 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. F-23 Notes to Consolidated Financial Statements Note 6. Real Estate Owned, Net Real Estate Activities 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. The lease also provides a 3 % increase in rental payment every year. In November 2021, the Company received notice from a tenant of their intention to terminate its lease effective November 30, 2022. In connection with the lease termination, the Company received a termination fee of $ 3.1 million, to be amortized to income over the remaining life of the lease. In December 2021, the Company recorded an impairment charge of $ 3.4 million on the 4.9 acres of 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 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 Real estate: Land (1) $ — $ — $ — $ 10,000,000 $ — $ 10,000,000 Building and building improvements 51,725,969 ( 5,711,468 ) 46,014,501 51,725,969 ( 4,418,305 ) 47,307,664 Tenant improvements 1,854,640 ( 1,224,648 ) 629,992 1,854,640 ( 947,369 ) 907,271 Furniture and fixtures 236,000 ( 220,267 ) 15,733 236,000 ( 125,867 ) 110,133 Total real estate 53,816,609 ( 7,156,383 ) 46,660,226 63,816,609 ( 5,491,541 ) 58,325,068 Lease intangible assets: In-place lease 14,982,538 ( 12,493,079 ) 2,489,459 14,982,538 ( 7,627,326 ) 7,355,212 Above-market rent 156,542 ( 77,540 ) 79,002 156,542 ( 59,983 ) 96,559 Total intangible assets 15,139,080 ( 12,570,619 ) 2,568,461 15,139,080 ( 7,687,309 ) 7,451,771 Lease intangible liabilities: Below-market rent ( 2,754,922 ) 2,428,647 ( 326,275 ) ( 2,754,922 ) 1,496,125 ( 1,258,797 ) Above-market ground lease ( 8,896,270 ) 575,705 ( 8,320,565 ) ( 8,896,270 ) 445,357 ( 8,450,913 ) Total intangible liabilities ( 11,651,192 ) 3,004,352 ( 8,646,840 ) ( 11,651,192 ) 1,941,482 ( 9,709,710 ) 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. F-24 Notes to Consolidated Financial Statements Real Estate Operating Revenues and Expenses The following table presents the components of real estate operating revenues and expenses that are included in the consolidated statements of operations: Years Ended December 31, 2022 2021 Real estate operating revenues: Lease revenue $ 6,782,778 $ 7,167,049 Other operating income 4,669,136 1,727,942 Total $ 11,451,914 $ 8,894,991 Real estate operating expenses: Utilities $ 235,403 $ 208,098 Real estate taxes 1,400,519 1,401,279 Repairs and maintenances 728,944 645,316 Management fees 267,188 271,303 Lease expense, including amortization of above-market ground lease 1,948,652 2,084,402 Other operating expenses 424,845 393,495 Total $ 5,005,551 $ 5,003,893 Leases 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 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. 20STCV34217. The Company believes this determination should be based on comparable sales, while the landlord insists that the rent under the ground lease itself is also relevant. The Company’s position has prevailed in all three of the prior arbitrations to reset the ground rent. Since future rent reset determinations under the ground lease cannot be known at this time, the Company did not include any potential future rent increases in calculating the present value of future rent payments. The Company intends vigorously to pursue the litigation. While the Company believes its arguments will likely prevail, the outcome of the legal proceeding cannot be predicted with certainty. If the landlord prevails, the future rent reset determinations could result in significantly higher ground rent, which would likely result in a significant diminution in the value of the Company’s interest in the ground lease and the office building. Scheduled Future Minimum Rent Income Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants, under non-cancelable operating leases at December 31, 2022 are as follows: Years Ending December 31, Total 2023 $ 4,235,538 2024 4,380,043 2025 792,925 2026 816,724 2027 598,943 Thereafter 1,815,497 Total $ 12,639,670 F-25 Notes to Consolidated Financial Statements Scheduled Annual Net Amortization of Intangibles Based on the intangible assets and liabilities recorded at December 31, 2022, scheduled annual net amortization of intangibles for each of the next five calendar years and thereafter is as follows: Years Ending December 31, Net Decrease in Real Estate Operating Revenue (1) Increase in Depreciation and Amortization (1) Decrease in Rent Expense (1) Total 2023 $ ( 139,056 ) $ 1,093,878 $ ( 130,348 ) $ 824,474 2024 ( 152,107 ) 1,177,775 ( 130,348 ) 895,320 2025 17,556 87,121 ( 130,348 ) ( 25,671 ) 2026 17,556 87,121 ( 130,348 ) ( 25,671 ) 2027 8,778 43,564 ( 130,348 ) ( 78,006 ) Thereafter — — ( 7,668,825 ) ( 7,668,825 ) Total $ ( 247,273 ) $ 2,489,459 $ ( 8,320,565 ) $ ( 6,078,379 ) _______________ (1) Amortization of below-market rent and above-market rent intangibles is recorded as an adjustment to lease revenues; amortization of in-place lease intangibles is included in depreciation and amortization; and amortization of above-market ground lease is recorded as a reduction to rent expense. Supplemental Ground Lease Disclosures Supplemental balance sheet information related to the ground lease was as follows as of: December 31, 2022 2021 Operating lease Operating lease right-of-use asset $ 27,378,786 $ 27,394,936 Operating lease liability $ 27,378,786 $ 27,394,936 Weighted average remaining lease term — operating lease (years) 63.8 64.8 Weighted average discount rate — operating lease 7.6 % 7.6 % The component of lease expense for the ground lease was as follows: Years Ended December 31, 2022 2021 Operating lease cost $ 2,079,000 $ 2,214,750 Supplemental non-cash information related to the ground lease was as follows: Years Ended December 31, 2022 2021 Amounts included in the measurement of lease liability: Operating cash flows from an operating lease $ 2,079,000 $ 2,214,750 Right-of-use asset obtained in exchange for lease obligations: Operating lease $ 2,079,000 $ 2,214,750 F-26 Notes to Consolidated Financial Statements Maturities of operating lease liability as of December 31, 2022 was as follows: Years Ending December 31, Operating Lease 2023 $ 2,079,000 2024 2,079,000 2025 2,079,000 2026 2,079,000 2027 2,079,000 Thereafter 122,227,875 Total lease payments 132,622,875 Less: Imputed interest ( 105,244,089 ) Total $ 27,378,786 Note 7. 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. Market price observability is impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the existence and transparency of transactions between market participants). Investments with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Investments measured and reported at fair value are classified and disclosed into one of the following categories based on the inputs as follows: Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities that the Company has the ability to access. Level 2 — Pricing inputs are other than quoted prices in active markets, including, but not limited to, quoted prices for similar assets and liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs. Level 3 — Significant unobservable inputs are based on the best information available in the circumstances, to the extent observable inputs are not available, including the Company’s own assumptions used in determining the fair value of investments. Fair value for these investments are determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. As of December 31, 2022 and 2021, the Company has not elected the fair value option for its financial instruments, including loans held for investment, loans held for investment acquired through participation, obligations under participation agreements, secured borrowing, term loan payable, repurchase agreement payable, mortgage loan payable and revolving line of credit. Such financial instruments are carried at cost, less impairment or less net deferred costs, where applicable. Marketable securities are financial instruments that are reported at fair value. F-27 Notes to Consolidated Financial Statements Financial Instruments Carried at Fair Value on a Recurring Basis From time to time, the Company may invest in short-term debt and equity securities which are classified as available-for-sale securities, which are presented at fair value on the consolidated balance sheet. Changes in the fair value of equity securities are recognized in earnings. 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 according to the fair value hierarchy as of: December 31, 2022 Fair Value Measurements Level 1 Level 2 Level 3 Total Marketable Securities: Debt securities $ 147,960 $ — $ — $ 147,960 Total $ 147,960 $ — $ — $ 147,960 December 31, 2021 Fair Value Measurements Level 1 Level 2 Level 3 Total Marketable Securities: Equity securities $ 1,310,000 $ — $ — $ 1,310,000 Total $ 1,310,000 $ — $ — $ 1,310,000 The following table presents the activities of the marketable securities: Years Ended December 31, 2022 2021 Beginning balance $ 1,310,000 $ 1,287,500 Purchases 136,265 6,479,148 Proceeds from sale ( 1,259,417 ) ( 6,608,396 ) Reclassification of net realized gains on marketable securities into earnings 83,411 129,248 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 F-28 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 Level Principal Amount Carrying Value Fair Value Principal Amount Carrying Value Fair Value Loans: Loans held for investment 3 $ 604,068,894 $ 609,889,829 $ 581,182,892 $ 467,843,785 $ 470,988,063 $ 454,840,551 Loans held for investment acquired through participation 3 41,726,565 42,072,828 41,962,862 12,307,366 12,343,732 12,361,068 Allowance for loan losses — ( 25,471,890 ) — — ( 13,658,481 ) — Total loans $ 645,795,459 $ 626,490,767 $ 623,145,754 $ 480,151,151 $ 469,673,314 $ 467,201,619 Liabilities: Term loan payable 3 $ 25,000,000 $ 25,000,000 $ 25,000,000 $ 93,763,470 $ 91,940,062 $ 94,344,595 Unsecured notes payable 1 123,500,000 116,530,673 103,481,748 85,125,000 81,856,799 85,210,125 Repurchase agreement payable 3 170,876,606 169,304,710 170,876,606 44,569,600 43,974,608 44,569,600 Obligations under participation agreements 3 12,584,958 12,680,594 12,680,595 42,048,294 42,232,027 41,475,060 Mortgage loan payable 3 29,252,308 29,488,326 29,394,870 31,962,692 32,134,295 32,192,785 Secured borrowing 3 — — — 34,521,104 34,586,129 34,425,029 Revolving line of credit payable 3 90,135,865 89,807,448 90,135,865 38,575,895 38,186,472 38,575,895 Total liabilities $ 451,349,737 $ 442,811,751 $ 431,569,684 $ 370,566,055 $ 364,910,392 $ 370,793,089 The Company estimated that its other financial assets and liabilities, not included in the tables above, had fair values that approximated their carrying values at both December 31, 2022 and 2021 due to their short-term nature. Valuation Process for Fair Value Measurement 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. 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. a discounted cash flow methodology to arrive at an estimate of the fair value of each respective investment in the portfolio using an estimated market yield. In following this methodology, investments are evaluated individually, and management takes into account, in determining the risk-adjusted discount rate for each of the Company’s investments, relevant factors, which may include available current market data on applicable yields of comparable debt/preferred equity instruments; market credit spreads and yield curves; the investment’s yield; covenants of the investment, including prepayment provisions; the portfolio company’s ability to make payments, net operating income and debt-service coverage ratio; construction progress reports and construction budget analysis; the nature, quality and realizable value of any collateral (and loan-to-value ratio); the forces that influence the local markets in which the asset (the collateral) is purchased and sold, such as capitalization rates, occupancy rates, rental rates and replacement costs; and the anticipated duration of each real estate-related loan investment. The Manager designates a valuation committee to oversee the entire valuation process of the Company’s Level 3 loans. The valuation committee is comprised of members of the Manager’s senior management, deal and portfolio management teams, who meet on a quarterly basis, or more frequently as needed, to review the Company investments being valued as well as the inputs used in the proprietary valuation model. Valuations determined by the valuation committee are supported by pertinent data and, in addition to a proprietary valuation model, are based on market data, industry accepted third-party valuation models and discount rates or other methods the valuation committee deems to be appropriate. Because there is no readily available market for these investments, the fair values of these investments are approved in good faith by the Manager pursuant to the Company’s valuation policy. 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. F-29 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. Fair Value at December 31, 2022 Primary Valuation Technique Unobservable Inputs December 31, 2022 Asset Category Minimum Maximum Weighted Average Assets: Loans held for investment, net $ 581,182,892 Discounted cash flow Discount rate 8.71 % 19.36 % 11.46 % Loans held for investment acquired through participation, net 41,962,862 Discounted cash flow Discount rate 15.25 % 17.06 % 16.67 % Total Level 3 Assets $ 623,145,754 Liabilities: Repurchase agreement payable 170,876,606 Discounted cash flow Discount rate 5.22 % 6.17 % 6.82 % Obligations under participation agreements 12,680,595 Discounted cash flow Discount rate 16.36 % 16.36 % 16.36 % Mortgage loan payable 29,394,870 Discounted cash flow Discount rate 8.24 % 8.24 % 8.24 % 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 Fair Value at December 31, 2021 Primary Valuation Technique Unobservable Inputs December 31, 2021 Asset Category Minimum Maximum Weighted Average Assets: Loans held for investment, net $ 454,840,551 Discounted cash flow Discount rate 3.89 % 15.00 % 8.11 % Loans held for investment acquired through participation, net 12,361,068 Discounted cash flow Discount rate 8.25 % 15.00 % 12.33 % Total Level 3 Assets $ 467,201,619 Liabilities: 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 % Mortgage loan payable 32,192,785 Discounted cash flow Discount rate 6.08 % 6.08 % 6.08 % 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 Note 8. Related Party Transactions Management Agreement The Company entered into the Management Agreement with the Manager whereby the Manager is responsible for its day-to-day operations. The Management Agreement runs co-terminus with the amended and restated operating agreement for Terra Fund 5, which is scheduled to terminate on December 31, 2023 unless Terra Fund 5 is dissolved earlier. The following table presents a summary of fees paid and costs reimbursed to the Manager in connection with providing services to the Company that are included on the consolidated statements of operations: Years Ended December 31, 2022 2021 Origination and extension fee expense (1)(2) $ 2,967,291 $ 2,729,598 Asset management fee 6,556,492 5,134,149 Asset servicing fee 1,560,044 1,181,924 Operating expenses reimbursed to Manager 8,076,321 6,916,371 Disposition fee (3) 890,194 1,006,302 Total $ 20,050,342 $ 16,968,344 F-30 Notes to Consolidated Financial Statements _______________ (1) Origination and extension fee expense is generally offset with origination and extension fee income. Any excess is deferred and amortized to interest income over the term of the loan. (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. Origination and Extension Fee Expense Pursuant to the Management Agreement, the Manager or its affiliates receives an origination fee in the amount of 1 % of the amount used to originate, fund, acquire or structure real estate-related investments, including any third-party expenses related to such loans. In the event that the term of any real estate-related loan held by the Company is extended, the Manager also receives an extension fee equal to the lesser of (i) 1 % of the principal amount of the loan being extended or (ii) the amount of fee paid to the Company by the borrower in connection with such extension. Asset Management Fee 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. Asset Servicing Fee The Manager or its affiliates receives from the Company a monthly servicing fee at an annual rate of 0.25 % of the aggregate gross origination price or acquisition price, as defined in the Management Agreement, for each real estate-related loan held by the Company. Transaction Breakup Fee In the event that the Company receives any “breakup fees,” “busted-deal fees,” termination fees, or similar fees or liquidated damages from a third-party in connection with the termination or non-consummation of any loan or disposition transaction, the Manager will be entitled to receive one-half of such amounts, in addition to the reimbursement of all out-of-pocket fees and expenses incurred by the Manager with respect to its evaluation and pursuit of such transactions. As of December 31, 2022 and 2021, the Company has not received any breakup fees. Operating Expenses The Company reimburses the Manager for operating expenses incurred in connection with services provided to the operations of the Company, including the Company’s allocable share of the Manager’s overhead, such as rent, employee costs, utilities, and technology costs. Disposition Fee Pursuant to the Management Agreement, the Manager or its affiliates receives a disposition fee in the amount of 1 % of the gross sale price received by the Company from the disposition of any real estate-related loan, or any portion of, or interest in, any real estate-related loan. The disposition fee is paid concurrently with the closing of any such disposition of all or any portion of any real estate-related loan or any interest therein, which is the lesser of (i) 1 % of the principal amount of the loan or debt-related loan prior to such transaction or (ii) the amount of the fee paid by the borrower in connection with such transaction. 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 F-31 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, 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 As of December 31, 2022 and 2021, approximately $ 3.9 million and $ 2.4 million was due to the Manager, respectively, as reflected on the consolidated balance sheets, primarily related to the present value of the disposition fees on individual loans due to the Manager. Due from Related Party As of 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. Mavik Real Estate Special Opportunities Fund, LP On August 3, 2020, the Company entered into a subscription agreement with RESOF whereby the Company committed to fund up to $ 50.0 million to purchase limited partnership interests in RESOF. For more information on this investment, please see Note 5 . Participation Agreements 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 “Participants”). The purpose of the participation agreements is to allow the Company and an affiliate to originate a specified loan when, individually, the Company does not have the liquidity to do so or to achieve a certain level of portfolio diversification. The Company may transfer portions of its investments to other Participants or it may be a Participant to a loan held by another entity. ASC 860, Transfers and Servicing (“ASC 860”) , establishes accounting and reporting standards for transfers of financial assets. 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 a nd Secured Borrowing ” in ( Note 9 ). Participation Interests Purchased by the Company From time to time, the Company may purchase investments from affiliates pursuant to participation agreements. 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, 2022 Participating Interests Principal Balance Carrying Value 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) 40.80 % 7,444,357 7,482,547 $ 41,726,565 $ 42,072,828 F-32 Notes to Consolidated Financial Statements December 31, 2021 Participating Interests Principal Balance Carrying Value 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 $ 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: Transfers Treated as Obligations Under Participation Agreements as of December 31, 2022 Principal Balance Carrying Value % Transferred Principal Balance Carrying Value 610 Walnut Investors LLC (1) $ 18,625,738 $ 18,738,386 67.57 % $ 12,584,958 $ 12,680,594 $ 18,625,738 $ 18,738,386 $ 12,584,958 $ 12,680,594 Transfers Treated as Obligations Under Participation Agreements as of December 31, 2021 Principal Balance Carrying Value % Transferred Principal Balance Carrying Value 370 Lex Part Deux, LLC (2)(3) $ 60,012,639 $ 60,012,639 35.00 % $ 21,004,424 $ 21,004,423 RS JZ Driggs, LLC (2)(3) 15,606,409 15,754,641 50.00 % 7,806,370 7,880,516 William A. Shopoff & Cindy I. Shopoff (2)(3) 25,000,000 25,206,964 52.95 % 13,237,500 13,347,088 $ 100,619,048 $ 100,974,244 $ 42,048,294 $ 42,232,027 ________________ (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. , exit fee, prepayment income) and related fees/expenses ( e.g. , disposition fees, asset management and asset servicing fees), are based upon their respective pro rata participation interest in such participated investments, as specified in the respective participation agreement. The Participants’ share of the investments is repayable only from the proceeds received from the related borrower/issuer of the investments and, therefore, the Participants also are subject to credit risk ( i.e. , risk of default by the underlying borrower/issuer). Pursuant to the participation agreements with these entities, the Company receives and allocates the interest income and other related investment income to the Participants based on their respective pro rata participation interest. 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. F-33 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. 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 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 Note 9. Debt 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 “ 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. The Indenture contains certain covenants that, among other things, limit the ability of the Company, subject to exceptions, to make distributions in excess of 90% of the Company’s taxable income, incur indebtedness (as defined in the Indenture) or purchase shares of the Company’s capital stock unless the Company has an asset coverage ratio (as defined in the Indenture) of at least 150 % after giving effect to such transaction. 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, 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 F-34 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 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 On March 12, 2021, Terra Mortgage Portfolio II, LLC, an indirect wholly-owned subsidiary of the Company, entered into a Business Loan and Security Agreement (the “Revolving Line of Credit”) with Western Alliance Bank (“WAB”) to provide for advances up to the lesser of $ 75.0 million or the amount determined by the borrowing base, which is based on the eligible assets pledged to the lender. Borrowings under the Revolving Line of Credit bear interest at an annual rate of LIBOR + 3.25 % with a combined floor of 4.0 % per annum. The Revolving Line of Credit was scheduled to mature on March 12, 2023. On January 4, 2022, 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 F-35 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. The Revolving Line of Credit contains various affirmative and negative covenants, including maintenance of a debt to total net worth ratio and limitations on the incurrence of liens and indebtedness, loans, distributions, change of management and ownership, changes in the nature of business and transactions with affiliates. The Revolving Line of Credit also includes customary events of default, including a cross-default provision applicable to debt obligations of Terra Mortgage Portfolio II, LLC or the Company. The occurrence of an event of default may result in termination of the Revolving Line of Credit and acceleration of amounts due under the Revolving Line of Credit. 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. 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. Term Loan On September 3, 2020, Terra Mortgage Capital I, LLC (the “Issuer”), a special-purpose indirect wholly-owned subsidiary of the Company, entered into an Indenture and Credit Agreement (the “Indenture and Credit Agreement”) with Goldman Sachs Bank USA, as initial lender (“Goldman”) and Wells Fargo Bank, National Association, as the trustee, custodian, collateral agent, loan agent and note administrator (“Wells Fargo”). The Indenture and Credit Agreement provided for (A) the borrowing by the Issuer from Goldman of approximately $ 103.0 million under a floating rate loan (the “Term Loan”) and (B) the issuance by the Issuer to Terra Mortgage Portfolio I, LLC (the “Class B Holder”) of an aggregate of approximately $ 76.7 million principal amount of Class B Income Notes due 2025 (the “Class B Notes” and, together with the Term Loan, the “Debt”). The stated maturity date of the Debt was March 14, 2025. On February 18, 2022, the Company refinanced the Term Loan with a new repurchase agreement (see “ Goldman Master Repurchase Agreement ” below). The Term Loan bore interest at a variable rate initially equal to LIBOR (the “Benchmark Rate”) (but not less than 1.0 % per annum), plus a margin of 4.25 % per annum (plus 0.50 % on and after the payment date in October 2022, plus 0.25 % on and after the payment date in October 2023), payable each month, on the day specified in the Indenture and Credit Agreement beginning in September 2020 (each a “Payment Date”). The Company accounted for the step-up in interest rate using the effective interest rate method. In connection with the refinancing, the Company reversed the previously accrued step-up interest of $ 0.4 million. In connection with the Indenture and Credit Agreement, the Company entered into a non-recourse carveout Guaranty (the “Guaranty”) in favor of Goldman, pursuant to which the Company guaranteed the payment of certain losses, damages, costs, expenses, and other obligations incurred by Goldman in connection with the occurrence of fraud, intentional misrepresentation, or willful misconduct by the Issuer, Class B Holder or the Company, and certain other occurrences including breaches of certain provisions under the Indenture and Credit Agreement. The Company also guaranteed the payment of the aggregate outstanding amount of the Term Loan upon the occurrence of certain bankruptcy events. Under the Guaranty, the Company was required to maintain (a) a minimum tangible net worth in an amount not less than seventy-five percent ( 75 %) of its tangible net worth as of September 3, 2020, (b) a minimum liquidity of $ 10 million, and (c) an EBITDA to interest expense ratio of not less than 1.5 to 1.0. Failure to satisfy such maintenance covenants would constitute an event of default under the Indenture and Credit Agreement. 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. F-36 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 Mortgage Assets Borrowings Under the Term Loan (1)(2) Principal Amount Carrying Value Fair Value 330 Tryon DE LLC $ 22,800,000 $ 22,902,354 $ 22,594,654 $ 13,680,000 1389 Peachtree St, LP; 1401 Peachtree St, LP; and 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 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 UBS Master Repurchase Agreement On November 8, 2021, Terra Mortgage Capital III, LLC (the “Seller”), a special-purpose indirect wholly-owned subsidiary of the Company, entered into an Uncommitted Master Repurchase Agreement (the “UBS Master Repurchase Agreement”) with UBS AG ( the “Buyer”). The UBS Master Repurchase Agreement provides for advances of up to $ 195 million in the aggregate, which the Company expects to use to finance certain secured performing commercial real estate loans, including senior mortgage loans, where the underlying mortgaged properties consist of value-added assets with loan-to-value ratio between 65 % and 80 % that are typically yielding between 2.5 % and 5.0 %. Advances under the UBS Master Repurchase Agreement accrue interest at a per annum pricing rate equal to the sum of (i) the 30-day LIBOR or Term SOFR if LIBOR is not available and (ii) the applicable spread, which ranges from 1.60 % to 2.25 %, and have a maturity date of November 7, 2024. The actual terms of financing for each asset will be determined at the time of financing in accordance with the UBS Master Repurchase Agreement. Subject to satisfaction of certain conditions, the Seller may extend the maturity date of the UBS Master Repurchase Agreement annually thereafter on mutually agreeable terms. In connection with the UBS Master Repurchase Agreement, the Company incurred deferred financing costs of $ 0.6 million, which are being amortized to interest expense over the term of the facility. The UBS Master Repurchase Agreement contains margin call provisions that provide the Buyer with certain rights in the event of a decline in the credit of the underlying assets purchased under the UBS Master Repurchase Agreement. Upon the occurrence of a margin deficit event, the Buyer may require the Seller to make a payment to reduce the purchase price to eliminate any margin deficit. In connection with the UBS Master Repurchase Agreement, the Company entered into a Guarantee Agreement in favor of the Buyer (the “UBS Guarantee Agreement”), pursuant to which the Company will guarantee the payment of up to 25 % of the amount outstanding under the UBS Master Repurchase Agreement. The UBS Master Repurchase Agreement and the UBS Guarantee Agreement contain various representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types. In addition, the UBS Guarantee Agreement contains financial covenants, which require the Company to maintain: (i) cash liquidity of at least the greater of $ 5 million or 5 % of the then-current outstanding amount under the UBS Master Repurchase Agreement; (ii) total liquidity of at least the greater of $ 15 million or 10 % of the then-current outstanding amount under the UBS Master Repurchase Agreement (iii) tangible net worth at an amount equal to or greater than $ 215.7 million plus 75 % of new capital contributions thereafter; (iv) an EBITDA to interest expense ratio of not less than 1.50 to 1.00; and (v) a total indebtedness to tangible net worth ratio of not more than 3.50 to 1.00. In March 2022, the Company amended the UBS Guarantee Agreement to reduce the EBITDA to interest expense ratio of not less than 1.25 to 1.00, and as of December 31, 2022 and 2021, the Company was in compliance with these covenants. F-37 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 Collateral Borrowings Under Master Repurchase Agreement Principal Amount Carrying Value Fair Value Borrowing Date Principal Amount Interest Rate 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 Rate 14th & Alice Street Owner, LLC $ 39,384,000 $ 40,089,153 $ 40,130,448 11/8/2021 $ 25,599,600 LIBOR+ 1.45 % (LIBOR floor of 0.1 %) NB Factory TIC 1, LLC 28,000,000 28,420,056 28,851,547 11/8/2021 18,970,000 LIBOR+ 1.74 % (LIBOR floor of 0.1 %) $ 67,384,000 $ 68,509,209 $ 68,981,995 $ 44,569,600 For the 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 February 18, 2022, Terra Mortgage Capital I, LLC (the “GS Seller”), a special-purpose indirect wholly-owned subsidiary of the Company, entered into an Uncommitted Master Repurchase and Securities Contract Agreement (the “Repurchase Agreement”) with Goldman Sachs Bank USA ( the “GS Buyer”). The Repurchase Agreement provides for advances of up to $ 200.0 million in the aggregate, which the Company expects to use to finance the originations of certain secured performing commercial real estate loans and the acquisitions of certain secured non-performing commercial real estate loans. The Repurchase Agreement replaced the Term Loan, at which time all Mortgage Assets under the Term Loan were assigned as purchased assets under the Repurchase Agreement. Advances under the Repurchase Agreement accrue interest at a per annum pricing rate equal to the sum of (i) Term SOFR (subject to underlying loan floors on a case-by-case basis) and (ii) the applicable spread, which ranges from 1.75 % to 3.00 %, and have a maturity date of February 18, 2024. The actual terms of financing for each asset will be determined at the time of financing in accordance with the Repurchase Agreement. Subject to satisfaction of certain conditions, the GS Seller may extend the maturity date of the Repurchase Agreement for another 12-month term. In connection with the Repurchase Agreement, the Company incurred financing costs of $ 0.6 million, which are being amortized to interest expense over the term of the facility. Additionally, because the Repurchase Agreement was accounted for as a loan modification of the Term Loan, the remaining unamortized deferred financing fees of $ 1.7 million under the Term Loan were carried over to the Repurchase Agreement to be amortized over the life of the Repurchase Agreement. The Repurchase Agreement contains margin call provisions that provide the GS Buyer with certain rights in the event of a decline in debt yield, loan-to-value ratio, and value of the underlying loans purchased under the Repurchase Agreement. Upon the occurrence of a margin deficit event, the GS Buyer may require the GS Seller to make a payment to reduce the purchase price to eliminate any margin deficit. In connection with the Repurchase Agreement, the Company entered into a Guarantee Agreement in favor of the GS Buyer (the “Guarantee Agreement”), pursuant to which the Company will guarantee the obligations of the GS Seller under the Repurchase Agreement. Subject to certain exceptions, the maximum liability under the Repurchase Agreement will not exceed F-38 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. The Repurchase Agreement and the Guarantee Agreement contain various representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types. In addition, the Guarantee Agreement contains financial covenants, which require the Company to maintain: (i) cash liquidity of at least the greater of $ 5 million or 5 % of the then-current outstanding amount under the Repurchase Agreement; (ii) total liquidity in an amount equal to or greater than the lesser of $ 15 million or 10 % of the then-current outstanding amount under the Repurchase Agreement (iii) tangible net worth at an amount no less than 75 % of that at closing; (iv) an EBITDA to adjusted interest expense ratio of not less than 1.50 to 1.00; and (v) a total indebtedness to tangible net worth ratio of not more than 3.00 to 1.00. as of 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 Rate 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; and 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 F-39 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, 2022 December 31, 2021 Lender Current Interest Rate Maturity Date Principal Amount Carrying Value Carrying Value of Collateral Principal Amount Carrying Value Carrying Value of Collateral Centennial Bank LIBOR + 3.85 % (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 Scheduled debt principal payments for each of the five calendar years following December 31, 2022 are as follows: Years Ending December 31, Total 2023 $ 54,252,308 2024 261,012,472 2025 — 2026 123,500,000 2027 — Thereafter — 438,764,780 Unamortized deferred financing costs ( 8,633,623 ) Total $ 430,131,157 At December 31, 2022 and 2021, the unamortized deferred debt issuance costs were $ 8.6 million and $ 5.9 million, respectively. Obligations Under Participation Agreements and Secured Borrowing As discussed in Note 2 , the Company follows the guidance in ASC 860 when accounting for loan participations and loans sold. 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, F-40 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, 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. Note 10. Commitments and Contingencies Unfunded Commitments on Loans Held for Investment Certain of the Company’s loans contain provisions for future fundings, which are subject to the borrower meeting certain performance-related metrics that are monitored by the Company. These fundings amounted to approximately $ 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 commitments through matching these commitments with principal repayments on outstanding loans or draw downs on credit facilities. Unfunded Investment Commitment As discussed in Note 5 , on August 3, 2020, the Company entered into a subscription agreement with RESOF whereby the Company committed to fund up to $ 50.0 million to purchase limited partnership interests in RESOF. As of December 31, 2022 and 2021, the unfunded investment commitment was $ 22.4 million and $ 15.1 million, respectively. Other The Company enters into contracts that contain a variety of indemnification provisions. The Company’s maximum exposure under these arrangements is unknown; however, the Company has not had prior claims or losses pursuant to these contracts. The Manager has reviewed the Company’s existing contracts and expects the risk of loss to the Company to be remote. 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. 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. 20STCV34217. 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. See Note 8 for a discussion of the Company’s commitments to the Manager. F-41 Notes to Consolidated Financial Statements Note 11. Equity Earnings Per Share The following table presents earnings per share: Years Ended December 31, 2022 2021 Net loss $ ( 6,951,693 ) $ ( 12,355,727 ) Series A preferred stock dividend declared ( 15,624 ) ( 15,624 ) 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 per share - basic and diluted $ ( 0.34 ) $ ( 0.63 ) Preferred Stock Classes Preferred Stock 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 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 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 . The Series A Preferred Stock pays dividends at an annual rate of 12.5 % of the liquidation preference. These dividends are cumulative and payable semi-annually in arrears on June 30 and December 31 of each year. The Series A Preferred Stock, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company, rank senior to common stock. The Company, at its option, may redeem the shares, with written notice, at a redemption price of $ 1,000 per share, plus any accrued unpaid distribution through the date of the redemption. The Series A Preferred Stock carries a redemption premium of $ 50 per share if redeemed prior to January 1, 2019. The Series A Preferred Stock generally has no voting rights. 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. Common Stock 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 F-42 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 The Company generally intends to distribute substantially all of its taxable income, which does not necessarily equal net income as calculated in accordance with U.S. 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 Board and will depend upon its taxable income, financial condition, maintenance of REIT status, applicable law, and other factors as the Board deems relevant. 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. Additionally, for each of the years ended December 31, 2022 and 2021, the Company made distributions to preferred stockholders of $ 15,624 . Distributions paid to stockholders consist of ordinary income, capital gains, return of capital or a combination thereof for income tax purposes. The following table presents distributions per share, declared and paid during the years ended December 31, 2022 and 2021, reported for federal tax purposes and serves as a designation of capital gain distributions, if applicable, pursuant to Section 857(b)(3)(C) of the Internal Revenue Code and Treasury Regulation § 1.857-6(e): Years Ended December 31, 2022 2021 Ordinary income $ 0.47 $ 0.07 Capital gain — 0.06 Return of capital 0.31 0.75 $ 0.78 $ 0.88 Note 12. Subsequent Events Management has evaluated subsequent events through the date the consolidated financial statements were available to be issued. Management has determined that there are no material events other than the 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. F-43 Terra Property Trust, Inc. Schedule III – Real Estate and Accumulated Depreciation As of December 31, 2022 Initial Costs Cost Capitalized Subsequent to Acquisition Decrease in Net Investment (1) Gross Amount at Period End Description Encumbrance Land Building and Building Improvements Land Building and Building Improvements Total Accumulated Depreciation Date of Construction Date Acquired Life Used for Depreciation Office building in Santa Monica, CA $ 29,252,308 $ — $ 51,308,076 $ 2,508,533 $ — $ — $ 53,816,609 $ 53,816,609 $ 7,156,383 2002-2004 July 30, 2018 40 years Land in Conshohocken, PA — 14,703,359 — 242,071 ( 14,945,430 ) — — — — N/A January 9, 2019 N/A $ 29,252,308 $ 14,703,359 $ 51,308,076 $ 2,750,604 $ ( 14,945,430 ) $ — $ 53,816,609 $ 53,816,609 $ 7,156,383 ___________________________ (1) For the year ended December 31, 2019, the Company recorded an impairment charge of $ 1.5 million on the land in order to reduce the carrying value of the land to its estimated fair value, which was the then estimated selling price less the cost of sale. 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 are as follows: Real Estate Asset Accumulated Depreciation Year Ended December 31, 2022 Year Ended December 31, 2022 Balance, beginning of year $ 63,816,609 Balance, beginning of year $ 5,491,541 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 F-44 Terra Property Trust, Inc. Schedule IV – Mortgage Loans on Real Estate As of December 31, 2022 Portfolio Company (1) Collateral Location Property Type Interest Payment Rates Maximum Maturity Date (2) Periodic Payment Terms Prior Liens Face Amount Carrying Amount Mezzanine Loans: 150 Blackstone River Road, LLC US - MA Industrial 8.5 % 9/6/2027 Interest Only $ — $ 7,000,000 $ 7,000,000 610 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 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 39,352,303 39,451,115 First Mortgages: 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 — 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 F-45 Terra Property Trust, Inc. Schedule IV – Mortgage Loans on Real Estate (Continued) As of December 31, 2022 Portfolio Company (1) Collateral Location Property Type Interest Payment Rates Maximum Maturity Date (2) 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) 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 — 15,983,234 15,983,234 RS JZ Driggs, LLC (10) US - NY Multifamily 12.3 % 8/1/2021 Interest Only — 4,993,245 4,993,245 121,231,434 122,132,177 Credit facility: William A. Shopoff & Cindy I. Shopoff (11) US-CA Industrial 15.0 % 4/4/2023 Interest Only — 28,802,833 29,080,183 28,802,833 29,080,183 Allowance for loan losses — ( 25,471,890 ) Total investments $ 645,795,459 $ 626,490,767 F-46 ___________________________ (1) All of the Company’s loans have a prepayment penalty provision. (2) Maximum maturity date assumes all extension options are exercised. (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 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 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 %. F-47 Terra Property Trust, Inc. Notes to Schedule IV - Mortgage Loans on Real Estate December 31, 2022 Reconciliation of Mortgage Loans on Real Estate Year Ended December 31, 2022 Balance, beginning of year $ 469,673,314 Additions during the period: New mortgage loans 290,005,676 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 Deductions during the period: Collections of principal ( 197,484,239 ) Provision for loan losses ( 11,813,409 ) Amortization of premium ( 557,012 ) Balance, end of year $ 626,490,767 F-48 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 10, 2023 TERRA PROPERTY TRUST, INC. By: /s/ Vikram S. Uppal Vikram S. Uppal Chief Executive Officer (Principal Executive Officer) By: /s/ Gregory M. Pinkus Gregory M. Pinkus Chief Financial Officer and Chief Operating Officer, (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Vikram S. Uppal Chairman of the Board, Chief Executive Officer and Chief Investment Officer March 10, 2023 Vikram S. Uppal (Principal Executive Officer) /s/ Gregory M. Pinkus Chief Financial Officer, Chief Operating Officer, Treasurer and Secretary March 10, 2023 Gregory M. Pinkus (Principal Financial and Accounting Officer) /s/ Roger H. Beless Director March 10, 2023 Roger H. Beless /s/ Michael L. Evans Director March 10, 2023 Michael L. Evans /s/ Adrienne M. Everett Director March 10, 2023 Adrienne M. Everett /s/ Spencer E. Goldenberg Director March 10, 2023 Spencer E. Goldenberg /s/ Gaurav Misra Director March 10, 2023 Gaurav Misra 59