What changed in this filing

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Item 1. Financial Statements

2023-05-12 compared with 2022-11-14 · 764 added, 796 removed, 1097 unchanged (59% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Cash and cash equivalents $ 28,869,594 $ 28,567,825

1 unchanged sentence

Cash held in escrow by lender 3,571,083 3,268,563

Marketable securities — 1,310,000

Loans held for investment, net 445,320,278 457,329,582

Loans held for investment acquired through participation, net 44,858,965 12,343,732

Loans held for investment, net of allowance for credit losses of $ 28,504,829

and $ 25,471,890

571,176,710 584,417,939

Loans held for investment acquired through participation, net of allowance for

credit losses of $ 146,748 and none

38,772,079 42,072,828

Equity investment in unconsolidated investments 53,566,840 62,498,340

Held-to-maturity debt securities 20,025,024 —

Real estate owned, net ( Note 6 )

4 unchanged sentences

Interest receivable 5,227,742 4,100,501

Due from related party — 2,605,639

Other assets 3,851,770 2,928,327

1 unchanged sentence

Liabilities and Equity

Term loan payable, net of deferred financing fees $ — $ 91,940,062

Term loan payable $ 25,000,000 $ 25,000,000

Unsecured notes payable, net of debt issuance cost 116,976,542 116,530,673

2 unchanged sentences

13,209,982 12,680,594

Mortgage loan payable, net of deferred financing fees and other 31,612,338 32,134,295

Mortgage loans payable, net of deferred financing fees and other 60,768,698 29,488,326

Revolving line of credit payable, net of deferred financing fees 124,741,957 89,807,448

Secured borrowing — 34,586,129

Interest reserve and other deposits held on investments 4,611,794 4,633,204

7 unchanged sentences

Unearned income 378,018 378,018

Distributions payable 3,906 —

Other liabilities 739,507 1,159,885

3 unchanged sentences

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

125 shares authorized and 125 shares issued and outstanding at

September 30, 2022 and December 31, 2021 125,000 125,000

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

shares issued and outstanding at September 30, 2022 and December 31, 2021 194,875 194,875

125 shares authorized and no shares and 125 shares issued and outstanding at

March 31, 2023 and December 31, 2022, respectively

Class A Common Stock, $ 0.01 par value, 450,000,000 shares authorized and no

shares issued, at both March 31, 2023 and December 31, 2022

Class B Common Stock, $ 0.01 par value, 450,000,000 shares authorized and

24,335,404 and 24,335,370 shares issued and outstanding at March 31, 2023 and

December 31, 2022, respectively

243,354 243,354

Additional paid-in capital 444,450,291 444,449,813

2 unchanged sentences

Total liabilities and equity $ 858,481,215 $ 813,336,892

See notes to unaudited consolidated financial statements .

See notes to consolidated financial statements .

Terra Property Trust, Inc.

Consolidated Statements of Operations

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

2022 2021 2022 2021

Three Months Ended March 31,

Interest income $ 15,615,807 $ 8,882,151

Real estate operating revenue 1,332,969 2,979,454

Prepayment fee income 809,301 190,997 1,984,061 190,997

Other operating income 53,395 250,665

4 unchanged sentences

Asset servicing fee 470,525 349,329

Provision for loan losses 9,188,129 716,164 9,264,058 1,565,245

(Reversal of) provision for credit losses ( 850,051 ) 50,296

Real estate operating expenses 1,209,912 1,217,963

5 unchanged sentences

6,978,233 9,219,798

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

Operating income 10,023,938 2,892,472

Other income and expenses

Interest expense from obligations under

participation agreements ( 562,182 ) ( 3,278,294 ) ( 2,875,946 ) ( 7,931,176 )

Interest expense on repurchase agreement

payable ( 2,394,754 ) — ( 4,815,863 ) —

Interest expense on mortgage loan payable ( 534,617 ) ( 573,687 ) ( 1,574,063 ) ( 1,916,696 )

Interest expense from obligations under participation agreements ( 532,146 ) ( 1,075,109 )

Interest expense on repurchase agreements payable ( 3,056,506 ) ( 755,826 )

Interest expense on mortgage loans payable ( 746,128 ) ( 518,617 )

Interest expense on revolving line of credit ( 1,965,534 ) ( 524,294 )

2 unchanged sentences

Interest expense on secured borrowing — ( 552,785 )

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

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

Income from equity investment in

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

Gain on sale of interests in unconsolidated

investments 799,827 — 799,827 —

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

Net unrealized gains (losses) on marketable securities 6,584 ( 99,044 )

(Loss) income from equity investment in unconsolidated investments ( 436,860 ) 1,419,335

Realized gains on marketable securities — 51,133

( 9,476,459 ) ( 3,650,359 )

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

Net income (loss) $ 547,479 $ ( 757,887 )

Series A preferred stock dividend declared $ ( 3,907 ) $ ( 3,906 )

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

(Loss) earnings per share — basic and diluted

Net income (loss) allocable to common stock $ 543,572 $ ( 761,793 )

Income (loss) per share — basic and diluted

$ 0.02 $ ( 0.04 )

2 unchanged sentences

Distributions declared per common share $ 0.19 $ 0.20

See notes to unaudited consolidated financial statements.

See notes to consolidated financial statements.

Terra Property Trust, Inc.

Consolidated Statements of Changes in Equity

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

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

Class A Common Stock Class B Common Stock Additional

Capital Accumulated Deficit

$ 0.01 Par Value

Shares Amount Shares Amount Total equity

$ 0.01 Par Value

Shares Amount Shares Amount Shares Amount Total equity

Balance at January 1, 2023 $ — 125 $ 125,000 — $ — 24,335,370 $ 243,354 $ 444,449,813 $ ( 122,935,993 ) $ 321,882,174

Distributions declared on common shares

($0.20 per share) — — — — — — ( 3,893,595 ) ( 3,893,595 )

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

Net loss — — — — — — ( 757,887 ) ( 757,887 )

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

Distributions declared on common shares

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

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

Cumulative effect of credit loss

accounting standard effective

January 1, 2023 ( Note 2 )

— — — — — — — — ( 4,619,723 ) ( 4,619,723 )

Shares issued from reinvestment of

shareholder distributions — — — — — 34 — 478 — 478

Redemption of Series A Preferred

Stock — ( 125 ) ( 125,000 ) — — — — — — ( 125,000 )

Distributions declared on common

shares ($ 0.19 per share)

— — — — — — — — ( 4,650,492 ) ( 4,650,492 )

Distributions declared on preferred

shares — — — — — — — — ( 3,907 ) ( 3,907 )

Net income — — — — — — — — 547,479 547,479

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

Distributions declared on common shares

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

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

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

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

See notes to unaudited consolidated financial statements .

Terra Property Trust, Inc.

Consolidated Statements of Changes in Equity (Continued)

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

Balance at March 31, 2023 $ — — $ — — $ — 24,335,404 $ 243,354 $ 444,450,291 $ ( 131,662,636 ) $ 313,031,009

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

Common Stock Additional

Capital Accumulated Deficit

2 unchanged sentences

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

Distributions declared on common shares

($0.20 per share) — — — — — — ( 3,893,595 ) ( 3,893,595 )

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

Net income — — — — — — 1,476,096 1,476,096

Balance at March 31, 2021 $ — 125 $ 125,000 19,487,460 $ 194,875 $ 373,443,672 $ ( 72,859,887 ) $ 300,903,660

Distributions declared on common shares

($0.23 per share) — — — — — — ( 4,429,352 ) ( 4,429,352 )

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

Net loss — — — — — — ( 104,771 ) ( 104,771 )

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

Distributions declared on common shares

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

Distributions declared on common shares ($ 0.20 per share)

— — — — — — ( 3,893,595 ) ( 3,893,595 )

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

Net loss — — — — — — ( 757,887 ) ( 757,887 )

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

See notes to unaudited consolidated financial statements .

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

See notes to consolidated financial statements .

Terra Property Trust, Inc.

Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

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

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

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

Net income (loss) $ 547,479 $ ( 757,887 )

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

Depreciation and amortization 681,813 1,718,516

Provision for loan losses 9,264,058 1,565,245

(Reversal of) provision for credit losses ( 850,051 ) 50,296

Impairment charge — 1,604,989

6 unchanged sentences

Amortization of above-market rent ground lease ( 32,587 ) ( 32,588 )

Realized loss on loan repayments — 517,989

Realized gain on marketable securities — ( 51,133 )

Unrealized losses on marketable securities 133,994 23,063

Loss on sale of real estate 51,984 —

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

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

Unrealized losses (gains) on marketable securities ( 6,584 ) 99,044

Distributions received in excess of equity income (equity income in excess of

distributions received) 5,061,178 ( 1,119,913 )

Changes in operating assets and liabilities:

8 unchanged sentences

Other liabilities ( 1,010,363 ) ( 797,996 )

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

Net cash provided by operating activities 8,661,008 3,109,077

Cash flows from investing activities:

1 unchanged sentence

Proceeds from repayments of loans 59,177,506 750,000

Purchase of real estate properties ( 48,798,273 ) —

Purchase of held-to-maturity debt securities ( 20,025,024 ) —

Return of capital on equity interests in unconsolidated investments 3,870,322 —

Purchase of equity interests in unconsolidated investments — ( 21,164,384 )

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

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

Distributions in excess of net income 742,651 415,172

Purchase of marketable securities — ( 6,479,147 )

Proceeds from sale of marketable securities — 628,715

Distributions in excess equity income — 336,000

Net cash used in investing activities ( 51,990,191 ) ( 107,569,490 )

1 unchanged sentence

Consolidated Statements of Cash Flows (Continued)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from financing activities:

Repayments of obligations under participation agreements ( 22,239,670 ) ( 23,625,186 )

Proceeds from obligations under participation agreements 17,023,011 57,103,598

Proceeds from borrowings under repurchase agreements 1,300,858 131,949,549

Proceeds from borrowings under revolving line of credit 34,864,135 26,377,654

Repayments of borrowings under revolving line of credit ( 55,609,325 ) —

Proceeds from mortgage loan payable 32,100,000 —

Proceeds from obligations under participation agreements 521,886 15,863,187

Repayments of borrowings under repurchase agreements ( 19,230,071 ) —

Distributions paid ( 4,653,921 ) ( 3,893,595 )

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

Change in interest reserve and other deposits held on investments ( 21,410 ) 646,956

Payment of financing costs ( 844,415 ) ( 895,247 )

Redemption of Series A Preferred Stock ( 125,000 ) —

Repayment of borrowings under the term loan — ( 93,763,471 )

Proceeds from secured borrowing — 2,850,520

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

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

Repayment of mortgage principal — ( 204,967 )

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

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

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

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

Net cash provided by financing activities 43,912,062 78,930,586

Net increase (decrease) in cash, cash equivalents and restricted cash 582,879 ( 25,529,827 )

Cash, cash equivalents and restricted cash at beginning of period 36,469,592 51,098,647

1 unchanged sentence

$ 37,052,471 $ 25,568,820

Nine Months Ended September 30,

Three Months Ended March 31,

Supplemental Disclosure of Cash Flows Information:

Cash paid for interest $ 7,683,565 $ 4,920,363

See notes to unaudited consolidated financial statements .

Supplemental non-cash information:

Reinvestment of stockholder distributions $ 478 $ —

See notes to consolidated financial statements .

Terra Property Trust, Inc.

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2022

March 31, 2023

Terra Property Trust, Inc.

6 unchanged sentences

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

As of September 30, 2022, Terra JV, LLC (“Terra JV”) held 87.4 % of the issued and outstanding shares of the Company’s common stock with the remainder held by Terra Offshore Funds REIT, LLC (“Terra Offshore REIT”).

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

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 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 “1940 Act”).

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 ).

1 unchanged sentence

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

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

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 (“Terra LLC”), a wholly owned subsidiary of the Company, 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 ).

As of March 31, 2023, Terra JV, LLC (“Terra JV”), former shareholders of Terra BDC and Terra Offshore Funds REIT, LLC (“Terra Offshore REIT”) held 70.0 %, 19.9 % and 10.1 % of the issued and outstanding shares of the Company’s common stock, respectively.

Summary of Significant Accounting Policies

4 unchanged sentences

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

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

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

Notes to Unaudited Consolidated Financial Statements

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

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

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.

6 unchanged sentences

Loans Held for Investment

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

The Company originates, acquires, and structures, or acquires 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:

Loans are carried at amortized cost less allowance for credit losses.

Current Expected Credit Losses Reserve

Accounting Standards Codification (“ASC”) 326, Financial Instruments – Credit Losses , became effective for the Company on January 1, 2023.

ASC 326 mandates the use of a current expected credit loss (“CECL”) model for estimating future credit losses of certain financial instruments measured at amortized cost, instead of the “incurred loss” credit model previously required under United States generally accepted accounting principles (“U.S.

The CECL model requires the consideration of possible credit losses over the life of an instrument as opposed to only estimating credit losses upon the occurrence of a discrete loss event under the previous “incurred loss” methodology.

The CECL model applies to the Company’s loan portfolio and the held-to-maturity debt securities which are carried at amortized cost, including future funding commitments for which the Company does not have the unconditional right to cancel.

Amortized cost is defined as the principal amount outstanding, adjusted for the accretion of purchase discounts and disposition fees, and amortization of purchase premiums and origination fees, and includes accrued interest receivable related to these loans and securities.

As permitted by ASC 326, the Company elected not to measure an allowance for credit losses on accrued interest receivable (which is presented separately on the consolidated balance sheet), but rather write off in a timely manner by reversing interest income that would likely be uncollectible.

The Company’s adoption of the CECL model resulted in a $ 4.6 million increase to total reserve, including reserve on future funding commitments, which was recognized as a cumulative-effect adjustment to accumulated deficit as of January 1, 2023.

Subsequent to the adoption of the CECL model, any increase or decrease to the CECL reserve is recorded in earnings on the consolidated statements of operations.

The Company utilizes information obtained from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts about the future to determine the expected credit losses for its loan portfolio.

The Company does not have a meaningful history of realized credit losses on its loan portfolio so it has subscribed to a third-party database service to provide the Company with industry losses for its loans.

The Company utilizes a loan loss model that is widely used among banks and commercial mortgage REITs and is marketed by a leading commercial mortgage-based security data analytics provider.

It employs logistic regression to forecast expected losses at the loan level based on a commercial real estate loan securitization database that contains activity dating back to 1998.

The Company provides specific loan-level inputs which include loan-to-value and debt service coverage ratio metrics, as well as principal balances, property type, location, coupon rate, coupon rate type, original or remaining term, expected repayment dates and contractual future funding

Notes to Unaudited Consolidated Financial Statements

Risk Rating Description

1 Very 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.

The Company selects from a group of independent five-year macroeconomic forecasts included in the model that are updated regularly based on current economic trends.

Because the Company’s loan portfolio is comprised of a small number of loans, the Company measures the CECL reserve based on an evaluation of each loan as its own segregated asset.

Based on the inputs, the loan loss model determines a loan loss rate through the generation of probability of defaults (PD) and loss given defaults (LGD) for each loan.

The CECL reserve is then calculated by applying the loan loss rate to the total outstanding loan balance of each loan.

These results require a significant amount of judgment applied in selecting inputs and analyzing the results produced by the models to determine the allowance for credit losses.

Changes in such estimates can significantly affect the expected credit losses.

The calculation of the estimate of expected credit loss considers historical experience and current conditions for each loan and reasonable and supportable forecasts about the future.

The reasonable and supportable forecast period is determined based on the Company’s assessment of the most likely scenario of assumptions and plausible outcomes for the U.S.

economy, current portfolio composition, level of historical loss forecast estimates, material changes in growth and credit strategy and other factors that may affect its loss experience.

The Company regularly evaluates the reasonable and supportable forecast period to determine if a change is needed.

Beyond the Company’s reasonable and supportable forecast period, the Company generally reverts to historical loss information, pooled by asset type and investment structure, over the remaining loan period, taken from a period that most accurately reflects the expectation of conditions expected to exist during the period of reversion.

The Company may adjust historical loss information for differences in risk that may not reflect the characteristics of its current portfolio, including but not limited to, loan-to-value and debt service coverage ratios, among other relevant factors.

The method of reversion selected represents the best estimate of the collectability of the investments and is reevaluated each reporting period.

The Company generally expects to use an average historical loss for reversion, utilizing an immediate or straight-line method for the remaining life of the loans.

The Company also performs a qualitative assessment beyond model estimates and applies qualitative adjustments as necessary.

The Company’s qualitative analysis includes a review of data that may directly impact its estimates including internal and external information about the loan or property including current market conditions, asset specific conditions, property operations or borrower/sponsor details (i.e., refinance, sale, bankruptcy) which allows the Company to determine the amount of the expected loss more accurately and reasonably for these investments.

The Company also evaluates the contractual life of its loans to determine if changes are needed for contractual extension options, renewals, modifications, and prepayments.

During the loan review process, if the Company determines that it is not able to collect all amounts due for both principal and interest according to the contractual terms of a loan, the Company considers that loan non-performing.

For all non-performing loans, such as those in default, collateral-dependent or modified loans, including historical troubled debt restructurings, the Company removes these loans from the industry loss rate approach described above and analyzes them separately.

The credit loss reserve for these loans is calculated as any excess of the amortized cost of the loan over (i) the present value of expected future cash flows discounted at the appropriate discount rate or (ii) the fair value of collateral, if repayment is expected solely from the collateral.

Some of the Company’s loans include commitments to fund incremental proceeds to the borrowers over the life of the loan and these unfunded commitments are also subject to the CECL model because the Company does not have an unconditional right to cancel such commitments.

The CECL reserve related to unfunded commitments is recorded as a component of other liabilities on the Company’s consolidated balance sheets.

This CECL reserve is estimated using the same method outlined above for the Company’s outstanding loan balances, and increases or decreases in the CECL reserve relating to unfunded commitments are also recorded in earnings on the consolidated statements of operations.

As discussed below in Recent Accounting Pronouncements, the Company adopted the provisions of Accounting Standards Update (“ASU”) 2022-02 Financial Instruments—Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) concurrently with the adoption of CECL on January 1, 2023, prospectively .

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.

Notes to Unaudited Consolidated Financial Statements

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.

5 unchanged sentences

Changes in the fair value of debt securities are reported in other comprehensive income until a gain or loss on the securities is realized.

Held-to-Maturity Debt Securities

The Company classifies debt securities for which it has both the positive intent and ability to hold until maturity of the security as held-to-maturity debt securities.

These securities are recorded at amortized cost with changes in amortized cost recognized in earnings until realized.

Held-to-maturity debt securities are subject to the CECL reserve described above.

Real Estate Owned, Net

10 unchanged sentences

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

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

Notes to Unaudited Consolidated Financial Statements

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

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

7 unchanged sentences

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

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

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

Notes to Unaudited Consolidated Financial Statements

Revenue Recognition

4 unchanged sentences

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.

The Company generally reverses the accrued and unpaid interest against interest income and no longer accrues for the interest when, in the opinion of the Manager, recovery of income and principal becomes doubtful.

Interest is then recorded on the basis of cash received until accrual is resumed when the loan becomes contractually current and performance is demonstrated.

Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability.

18 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

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

September 30,

March 31, 2023 March 31, 2022

Cash and cash equivalents $ 28,869,594 $ 9,858,153

3 unchanged sentences

statements of cash flows $ 37,052,471 $ 25,568,820

Notes to Unaudited Consolidated Financial Statements

Participation Interests

6 unchanged sentences

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

See “Term Loan” in Note 8 for additional information.

See “Goldman Master Purchase Agreement” in Note 9 for additional information.

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

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

Repurchase Agreements

3 unchanged sentences

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.

7 unchanged sentences

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

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

As a REIT, the

Notes to Unaudited Consolidated Financial Statements

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

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

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

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

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

federal and state income taxes at regular corporate rates.

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

The Company did not have any uncertain tax positions that met the recognition or measurement criteria of Accounting Standards Codification (“ASC”) 740-10-25, Income Taxes , nor did the Company have any unrecognized tax benefits as of the periods presented herein.

As of March 31, 2023, the Company has satisfied all the requirements for a REIT.

Notes to Unaudited Consolidated Financial Statements

periods presented herein.

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

For the three and nine months ended September 30, 2022 and 2021, the Company did not incur any interest or penalties.

For the three months ended March 31, 2023 and 2022, the Company did not incur any interest or penalties.

Although the Company files federal and state tax returns, its major tax jurisdiction is federal.

1 unchanged sentence

Earnings Per Share

The Company has a simple equity capital structure with only common stock and preferred stock outstanding.

The Company has a simple equity capital structure with only common stock outstanding as of March 31, 2023 and common stock and preferred stock outstanding as of December 31, 2022.

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.

4 unchanged sentences

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

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

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

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

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

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

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

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

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

Segment Information

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.

From time to time, the Company may acquire real estate encumbering the senior loans through foreclosure, may invest in real estate related joint ventures and may directly acquire real estate properties.

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

Notes to Unaudited Consolidated Financial Statements

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326):

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

4 unchanged sentences

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

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

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

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

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

The Company recorded 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.

7 unchanged sentences

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

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

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

In 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.

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.

Notes to Unaudited Consolidated Financial Statements

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.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”).

ASU 2022-02 eliminates troubled debt restructuring guidance for organizations that adopted the amendments in ASU 2016-13 while providing for additional disclosures for loan modifications.

ASU 2022-02 also amends the vintage disclosure guidance for public business entities.

The Company adopted the provisions of ASU 2022-02 concurrently with the adoption of ASU 2016-03.

The adoption of ASU 2022-02 did not have any material impact on the Company’s financial condition and results of operations.

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, par value $ 0.01 per share (“Class B Common Stock”) and (ii) cash, without interest, in lieu of any fractional shares of Class B Common Stock otherwise issuable in an amount, rounded to the nearest whole cent, determined by multiplying (x) the fraction of a share of Class B Common Stock to which such holder would otherwise be entitled by (y) $ 14.38 .

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

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

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

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

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

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

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

Notes to Unaudited 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

Cash paid for fractional shares 12,920

Transaction costs 2,283,785

Assets Acquired and Liabilities Assumed at Fair Value

Cash and cash equivalents $ 24,321,951

Restricted cash 260,614

Loans held for investment 77,562,528

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

Interest receivable 1,367,044

Other assets 55,465

Term loan payable ( 25,000,000 )

Unsecured notes payable ( 33,770,000 )

Obligations under participation agreements ( 6,114,979 )

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

Due to manager ( 682,541 )

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

Notes to Unaudited Consolidated Financial Statements

any consent in writing or by electronic transmission in lieu of any such meeting), cast all votes entitled to be cast by each of them in favor of the election of the Terra BDC Designees until the earlier of (i) the first anniversary of the Closing Date, (ii) the TPT Class B Common Stock Distributions (as defined in the 2022 Voting Agreement) or (iii) an amendment and restatement of the amended and restated management agreement between the Company and Terra REIT Advisors approved by the Company’s Board, including the Terra BDC Designees.

Indemnification Agreements

The Company has entered into customary indemnification agreements with each member of the Board (including each Terra BDC Designee).

These agreements, among other things, require the Company to indemnify each director to the maximum extent permitted by Maryland law, including indemnification of expenses such as attorney’s fees, judgments, fines and settlement amounts incurred in any action or proceeding, including any action or proceeding by or in right of the Company, arising out of his or her service as a director.

Loans Held for Investment

The Company elected the practical expedient under ASC 326 to exclude accrued interest from amortized cost.

As of March 31, 2023 and December 31, 2022, accrued interest receivable of $ 4.8 million and $ 4.1 million, respectively, is included in interest receivable on the consolidated balance sheets, and is excluded from the amortized cost of loans held for investment.

Portfolio Summary

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

September 30, 2022 December 31, 2021

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

March 31, 2023 December 31, 2022

Fixed Rate Floating

11 unchanged sentences

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

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

Coupon rate shown was determined using LIBOR of 4.86 %, average SOFR of 4.63 % and forward-looking term rate based on SOFR (“Term SOFR”) of 4.80 % as of March 31, 2023 and LIBOR of 4.39 %, average SOFR of 4.06 % and Term SOFR of 4.36 % as of December 31, 2022.

(2) As of March 31, 2023 and December 31, 2022, amount included $ 427.3 million and $ 413.1 million of senior mortgages used as collateral for $ 277.9 million and $ 261.0 million of borrowings under credit facilities, respectively ( Note 9 ).

(3) As of March 31, 2023 and December 31, 2022, twenty-two and twenty-one of these loans, respectively, are subject to a LIBOR or SOFR floor, as applicable.

Notes to Unaudited Consolidated Financial Statements

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

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

Lending Activities

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

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, 2023 $ 584,417,939 $ 42,072,828 $ 626,490,767

Cumulative effect of credit loss accounting standard effective

January 1, 2023 ( Note 2 )

( 4,250,052 ) — ( 4,250,052 )

New loans made 46,214,722 — 46,214,722

3 unchanged sentences

net ( 34,186 ) ( 18,541 ) ( 52,727 )

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

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

Reversal of provision for credit losses 1,070,365 — 1,070,365

Balance, March 31, 2023 $ 571,176,710 $ 38,772,079 $ 609,948,789

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

2 unchanged sentences

Principal repayments received ( 750,000 ) — ( 750,000 )

PIK interest (1)

1,955,109 — 1,955,109

Net amortization of premiums on loans ( 15,348 ) — ( 15,348 )

1 unchanged sentence

net 1,029,625 11,884 1,041,509

Realized loss on loan repayments (2)(3)

( 651,553 ) — ( 651,553 )

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

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

_______________

(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 nine months ended September 30, 2021.

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

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

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

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

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

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

Notes to Unaudited Consolidated Financial Statements

Provision for credit losses ( 50,296 ) — ( 50,296 )

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

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 September 30, 2022 and December 31, 2021:

September 30, 2022 December 31, 2021

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

March 31, 2023 December 31, 2022

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

3 unchanged sentences

Credit facility — — — % 28,802,833 29,080,183 4.6 %

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

Allowance for credit losses — ( 28,651,577 ) ( 4.7 ) % — ( 25,471,890 ) ( 4.1 ) %

Total $ 632,832,672 $ 609,948,789 100.0 % $ 645,795,459 $ 626,490,767 100.0 %

September 30, 2022 December 31, 2021

Notes to Unaudited Consolidated Financial Statements

March 31, 2023 December 31, 2022

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

Office $ 162,206,536 $ 162,659,401 26.6 % $ 184,196,708 $ 184,722,657 29.4 %

Multifamily 122,292,865 123,503,449 25.2 % 80,805,787 81,835,756 17.4 %

Industrial 127,399,590 128,361,229 21.0 % 147,796,164 148,891,742 23.8 %

Multifamily 112,973,073 113,781,434 18.7 % 104,589,464 105,570,432 16.9 %

Mixed-use 85,128,218 86,026,507 14.1 % 64,880,450 65,838,965 10.5 %

Infill land 49,652,873 50,535,097 8.3 % 48,860,291 49,565,437 7.9 %

Hotel - full/select service 43,222,382 43,793,356 7.2 % 43,222,382 43,758,804 7.0 %

Mixed use 29,497,123 29,558,901 6.0 % 28,940,658 28,977,024 6.2 %

Student housing 31,000,000 31,744,890 5.2 % 31,000,000 31,774,261 5.1 %

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

Infrastructure 21,250,000 21,698,452 3.6 % 21,250,000 21,840,359 3.5 %

Allowance for credit losses — ( 28,651,577 ) ( 4.7 ) % — ( 25,471,890 ) ( 4.1 ) %

Total $ 632,832,672 $ 609,948,789 100.0 % $ 645,795,459 $ 626,490,767 100.0 %

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

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

3 unchanged sentences

Georgia 72,983,863 73,647,905 12.1 % 72,401,718 73,101,964 11.7 %

Washington 51,517,559 51,778,575 10.6 % 3,523,401 3,382,683 0.7 %

New Jersey 70,891,499 71,920,880 11.8 % 62,228,622 62,958,482 10.0 %

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

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

Texas 68,160,964 68,687,384 11.3 % 67,625,000 68,142,046 10.9 %

Washington 63,376,281 63,434,458 10.4 % 56,671,267 57,027,639 9.1 %

Utah 49,250,000 50,522,239 8.3 % 49,250,000 50,698,251 8.1 %

North Carolina 44,171,046 44,601,994 7.3 % 43,520,028 44,041,162 7.0 %

Arizona 31,000,000 31,288,062 5.1 % 31,000,000 31,276,468 5.0 %

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

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

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

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

Allowance for credit losses — ( 28,651,577 ) ( 4.7 ) % — ( 25,471,890 ) ( 4.1 ) %

Total $ 632,832,672 $ 609,948,789 100.0 % $ 645,795,459 $ 626,490,767 100.0 %

Current Expected Credit Losses Reserve

As described in Note 2 , on January 1, 2023, the Company adopted the provisions of ASU 2016-13, which requires entities to recognize credit losses on financial instruments based on an estimate of current expected credit losses.

The adoption of ASU 2016-13 resulted in a $ 4.6 million increase to total reserve, including reserve on future funding commitments, which was recognized as a cumulative-effect adjustment to accumulated deficits as of January 1, 2023.

The following table presents the activity in allowance for credit loss for funded loans:

Three Months Ended March 31,

Allowance for credit losses, beginning of period $ 25,471,890 $ 13,658,481

Cumulative effect of credit loss accounting standard effective

January 1, 2023 ( Note 2 )

(Reversal of) provision for credit losses (1)

( 1,070,365 ) 50,296

Charge-offs — —

Recoveries — —

Allowance for credit losses, end of period $ 28,651,577 $ 13,708,777

Notes to Unaudited Consolidated Financial Statements

_______________

(1) Prior to the adoption of the CECL model on January 1, 2023, the Company recorded an allowance for credit 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) non-performing loan reserves, if any.

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 unfunded commitments amounted to approximately $ 71.0 million and $ 47.3 million as of March 31, 2023 and December 31, 2022, respectively.

The following table presents the activity in the liability for credit losses on unfunded commitments:

Three Months Ended March 31, 2023

Liability for credit losses on unfunded commitments, beginning of period $ —

Cumulative effect of credit loss accounting standard effective January 1, 2023 ( Note 2 )

Provision for credit losses 220,314

Liability for credit losses on unfunded commitments, end of period $ 589,985

The liability for credit losses on unfunded commitments is included in other liabilities on the consolidated balance sheets.

Accrued Interest Receivable

The Company elected not to measure a CECL reserve on accrued interest receivable due to the Company’s policy of writing off uncollectible accrued interest receivable balances in a timely matter.

If the Company determines it has uncollectible accrued interest receivable, it generally would reverse the accrued and unpaid interest against interest income and no longer accrues for interest.

For the three months ended March 31, 2023 and 2022, the Company did not reverse any interest income accrual because all accrued interest income were deemed collectible.

As of March 31, 2023 and 2022, the Company had three and two loans that were in default, and suspended interest income accrual of $ 3.4 million and $ 1.1 million for the three months ended March 31, 2023 and 2022, respectively, because recovery of such income was doubtful.

As of March 31, 2023 and December 31, 2022, there was no outstanding interest receivable on these loans.

Non-Performing Loans

As discussed in Note 2 , for loans that are considered non-performing, the Company removes them from the industry loss rate approach and analyzes them separately.

As of March 31, 2023 and December 31, 2022, the Company had four non-performing loans with total carrying value of $ 89.5 million and $ 89.9 million, respectively.

The allowance for credit losses for these non-performing loans were $ 25.5 million as of both March 31, 2023 and December 31, 2022.

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.

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

September 30, 2022 December 31, 2021

Loan Risk Rating Number of Loans Principal Balance Carrying Value % of Total Number of Loans Principal Balance Carrying Value % of Total

The Company 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:

Risk Rating Description

1 Very low risk

3 Moderate/average risk

4 Higher risk

5 Highest risk

Notes to Unaudited Consolidated Financial Statements

The following table presents the amortized cost of the Company’s loan portfolio by year of origination and loan risk rating as of March 31, 2023:

March 31, 2023

Loan Risk Rating Number of Loans Amortized Cost % of Total Amortized Cost by Year Originated

2023 2022 2021 2020 2019 Prior

1 — $ — — % $ — $ — $ — $ — $ — $ —

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5 — — — % — — — — — —

Non-performing 4 89,473,319 14.0 % — — — — 1,364,944 88,108,375

30 30 638,600,366 100.0 % $ 2,218,577 $ 250,427,639 $ 116,762,096 $ 27,561,203 $ 143,601,373 $ 98,029,478

Allowance for credit losses ( 28,651,577 )

Total, net of allowance for credit losses $ 609,948,789

The following table presents the principal balance and the amortized cost of the Company’s loans based on the loan risk rating as of December 31, 2022:

December 31, 2022

Loan Risk Rating Number of Loans Principal Balance Amortized Cost % of Total

1 — $ — $ — — %

Allowance for loan losses ( 22,922,539 ) ( 13,658,481 )

Total, net of allowance for loan losses $ 490,179,243 $ 469,673,314

2 2 25,000,000 25,041,782 3.8 %

(1) Because these loans have an event of default, they are removed from the pool of loans on which a general allowance is calculated and are evaluated for collectability individually.

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

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

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

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

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

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

Nine Months Ended September 30,

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

Provision for loan losses 9,264,058 1,565,245

Charge-offs (1)

3 25 530,867,244 536,992,660 82.4 %

Recoveries — —

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

Non-performing (1)

4 89,928,215 89,928,215 13.8 %

(1) Amount related to the TDR below.

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

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

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

Notes to Unaudited Consolidated Financial Statements

31 $ 645,795,459 651,962,657 100.0 %

Allowance for credit losses ( 25,471,890 )

Total, net of allowance for credit losses $ 626,490,767

_______________

(1) Because these loans have an event of default, they were removed from the pool of loans on which a general allowance was calculated and were evaluated for collectability individually.

As of December 31, 2022, the specific allowance for credit losses on these loans were $ 25.5 million, as a result of a decline in the fair value of the respective collateral.

Troubled Debt Restructuring

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

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

This investment was repaid in full in April 2022.

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

The Company purchased the 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.

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

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 receivable and it is fully reserved for as of March 31, 2023 and 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.

Notes to Unaudited Consolidated Financial Statements

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

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Post-modified recorded carrying value (1)

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

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

For the period ended September 30, 2021, interest income from the new senior loan was $ 0.2 million.

_______________

(1) As of March 31, 2023 and December 31, 2022 the principal balance of this loan was the same as the carrying value.

The Company recorded an allowance for credit 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 March 31, 2023.

Equity Investment in Unconsolidated Investments

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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 September 30, 2022 and December 31, 2021, the unfunded commitment was $ 19.3 million and $ 15.1 million, respectively.

As of March 31, 2023 and December 31, 2022, the unfunded commitment was $ 30.3 million and $ 22.4 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 September 30, 2022 and December 31, 2021, the Company owned 30.9 % and 50.0 % of the equity interest in RESOF, respectively.

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

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

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

Notes to Unaudited Consolidated Financial Statements

As of March 31, 2023 and December 31, 2022, the Company owned 23.4 % and 27.9 % of the equity interest in RESOF, respectively.

As of March 31, 2023 and December 31, 2022, the carrying value of the Company ’ s investment in RESOF was $ 28.6 million and $ 36.8 million, respectively.

For the three months ended March 31, 2023, the Company recorded equity income from RESOF of $ 0.3 million, and received distributions from RESOF of $ 3.8 million.

For the three months ended March 31, 2022, the Company recorded equity income from RESOF of $ 1.3 million and received no distributions from RESOF.

In connection with the equity investment in RESOF, the Company paid origination fees to the Manager totaling $ 0.5 million, to be amortized to equity income on a straight-line basis over the life of RESOF.

Notes to Unaudited Consolidated Financial Statements

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

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Investments at fair value (cost of $ 164,364,984 and $ 176,035,290 , respectively)

$ 166,309,340 $ 178,283,703

Other assets 36,931,099 23,918,841

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$ 41,726,565 , respectively)

38,753,105 41,962,861

Other liabilities 19,189,912 17,120,804

1 unchanged sentence

Partners’ capital $ 117,690,343 $ 128,322,894

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

2022 2021 2022 2021

Three Months Ended March 31,

Total investment income $ 8,111,779 $ 4,844,664

1 unchanged sentence

Net investment income 4,944,984 3,551,348

Unrealized (depreciation) appreciation on

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

Net increase in partners’ capital resulting from

operations $ 8,502,283 $ 2,546,333 $ 17,745,379 $ 6,454,064

Unrealized (depreciation) appreciation on investments ( 595,911 ) 69,051

Net increase in partners’ capital resulting from operations $ 4,349,073 $ 3,620,399

Equity Investment in Joint Ventures

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

As of March 31, 2023 and 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.

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

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

September 30, 2022 December 31, 2021

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.

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

March 31, 2023 December 31, 2022

Entity Co-owner (1)

7 unchanged sentences

Affiliate/Third Party 30.6 % 6,370,863 30.6 % 6,896,816

SF-Dallas Industrial, LLC (3)

N/A N/A 10,065,935 N/A 10,013,691

$ 24,929,935 $ 25,703,666

_______________

Notes to Unaudited Consolidated Financial Statements

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

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

Notes to Unaudited Consolidated Financial Statements

(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:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Net investments in real estate $ 192,052,300 $ 192,616,298

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Members’ capital $ 51,863,232 $ 54,588,417

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

2022 2021 2022 2021

Three Months Ended March 31,

Revenues $ 3,924,579 $ 2,450,438

Operating expenses ( 2,143,267 ) ( 816,681 )

Depreciation expense ( 1,296,079 ) — ( 3,051,976 ) —

Depreciation and amortization expense ( 1,965,037 ) ( 690,831 )

Interest expense ( 2,559,954 ) ( 1,085,561 )

Unrealized gains 1,617,548 — 3,023,925 —

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

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

There was no such equity income or loss recorded or distributions received for the three and nine months ended September 30, 2021.

Unrealized (losses) gains ( 826,501 ) 235,511

Net (loss) income $ ( 3,570,180 ) $ 92,876

For the three months ended March 31, 2023, the Company recorded net equity loss from the joint ventures and the mezzanine loan of $ 0.7 million, and received distributions from the joint ventures of $ 0.3 million.

For the three months ended March 31, 2022, the Company recorded equity income from the joint ventures of $ 0.1 million and received distributions from the joint venture of $ 0.3 .

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.

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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.

2023 — In March 2023, the Company purchased three industrial properties located in Texas for total costs of $ 48.8 million, including capitalized transaction costs.

This acquisition was deemed to be real estate asset acquisition, and therefore transaction costs were capitalized to the cost basis of the assets.

The following table presents an allocation of the total capitalized costs:

Total Capitalized Costs

Land $ 9,327,855

Buildings and Improvements 39,248,352

Intangible asset and liability:

In-please lease (weighted-average expected life of 2.63 years)

Below-market rent (weighted-average expected life of 2.69 years)

( 4,093,267 )

Notes to Unaudited Consolidated Financial Statements

2022 — In June 2022, the Company sold the 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.

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:

September 30, 2022 December 31, 2021

Real estate owned is comprised of three single-tenant industrial buildings located in Texas and a multi-tenant office building located in California, with lease intangible assets and liabilities.

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

March 31, 2023 December 31, 2022

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

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

Land $ 9,327,855 $ — $ 9,327,855 $ — $ — $ —

Building and building

12 unchanged sentences

Total real estate $ 106,102,770 $ ( 17,337,112 ) $ 88,765,658 $ 57,304,497 $ ( 16,722,650 ) $ 40,581,847

_______________

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

Real Estate Operating Revenues and Expenses

The following table presents the components of real estate operating revenues and expenses that are included in the consolidated statements of operations:

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

2022 2021 2022 2021

Three Months Ended March 31,

Real estate operating revenues:

7 unchanged sentences

Management fees 39,418 67,868

Lease expense, including amortization of

above-market ground lease (1)

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

Lease expense, including amortization of above-market ground lease 487,163 487,163

Other operating expenses 84,872 113,750

Total $ 1,209,912 $ 1,217,963

_______________

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

The last rent reset was on November 1, 2020.

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

Notes to Unaudited Consolidated Financial Statements

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

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

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

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

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

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

As of September 30, 2022, the Company owned a multi-tenant office building that was leased to four tenants.

As of March 31, 2023, the Company owned three industrial buildings that were leased to three tenants and a multi-tenant office building also leased to three tenants.

As of December 31, 2022, the Company owned a multi-tenant office building that was leased to three 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 September 30, 2022, and provides for a new base rent every 5 years based on the greater of the annual base rent for the prior lease year or 9 % of the fair market value of the land.

The ground lease had a remaining lease term of 63.6 years as of March 31, 2023, 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.

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Scheduled Future Minimum Rent Income

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

Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants, under non-cancelable operating leases at March 31, 2023 are as follows:

Years Ending December 31, Total

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

2023 (April 1 through December 31) $ 4,265,856

2024 5,845,112

2025 1,810,128

2026 1,443,553

Thereafter 1,815,497

Total $ 16,028,160

Notes to Unaudited Consolidated Financial Statements

Scheduled Annual Net Amortization of Intangibles

Based on the intangible assets and liabilities recorded at September 30, 2022, scheduled annual net amortization of intangibles for each of the next five calendar years and thereafter is as follows:

Based on the intangible assets and liabilities recorded at March 31, 2023, scheduled annual net amortization of intangibles for each of the next five calendar years and thereafter is as follows:

Years Ending December 31, Net Decrease in Real Estate Operating Revenue (1)

1 unchanged sentence

Decrease in Rent Expense (1)

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

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

2023 (April 1 through December 31) $ ( 1,403,903 ) $ 2,220,354 $ ( 97,761 ) $ 718,690

2024 ( 1,884,920 ) 3,044,369 ( 130,348 ) 1,029,101

8 unchanged sentences

and amortization of above-market ground lease is recorded as a reduction to rent expense.

Notes to Unaudited Consolidated Financial Statements

Supplemental Ground Lease Disclosures

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

September 30, 2022 December 31, 2021

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

March 31, 2023 December 31, 2022

Operating lease

4 unchanged sentences

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Operating lease cost $ 519,750 $ 519,750

$ 519,750 $ 519,750 $ 1,559,250 $ 1,695,000

_______________

(1) The decrease in operating lease cost for the nine months ended September 30, 2022 as compared to the same period in 2021 was a result of the ground rent reset in 2021 as described above.

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

Nine Months Ended September 30,

Three Months Ended March 31,

Amounts included in the measurement of lease liability:

2 unchanged sentences

Operating lease $ 519,750 $ 519,750

Notes to Unaudited Consolidated Financial Statements

Maturities of operating lease liability are as follows:

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

Years Ending December 31, Operating Lease

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

2023 2,079,000

2023 (April 1 through December 31) $ 1,559,250

2024 2,079,000

7 unchanged sentences

Fair Value Measurements

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

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

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

1 unchanged sentence

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).

The hierarchy gives the highest priority to unadjusted quoted prices in active markets

Notes to Unaudited Consolidated Financial Statements

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:

7 unchanged sentences

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

As of September 30, 2022 and December 31, 2021, the Company has not elected the fair value option for its financial instruments, including loans held for investment, loans held for investment acquired through participation, obligations under participation agreements, secured borrowing, term loan payable, repurchase agreement payable, mortgage loan payable and revolving line of credit.

As of March 31, 2023 and December 31, 2022, 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, held-to-maturity debt securities, obligations under participation agreements, 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.

Notes to Unaudited Consolidated Financial Statements

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

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.

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 and included in Other assets in 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.

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

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

As discussed in Note 9 , in March 2023, the Company entered into a loan agreement with a lender to provide financing for the acquisition of real estate properties ( Note 6 ).

In connection with the financing, the Company purchased an interest rate cap for $ 258,500 to effectively cap the related index rate at 5.0 %.

The interest rate cap meets all the criteria of a derivative under ASC 815, but it does not met the criteria under ASC 815-20-25 to qualify for hedging accounting.

As such, the interest rate cap is reported at fair value and is included in other assets in the consolidated balance sheet, and the change in the fair value of the interest rate cap is reported in income.

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

March 31, 2023

Fair Value Measurements

Level 1 Level 2 Level 3 Total

Marketable Securities:

Debt securities $ 154,544 $ — $ — $ 154,544

Interest rate cap — — 258,500 258,500

Total $ 154,544 $ — $ 258,500 $ 413,044

Notes to Unaudited Consolidated Financial Statements

December 31, 2022

2 unchanged sentences

Marketable Securities:

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

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

Total $ 147,960 $ — $ — $ 147,960

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

Nine Months Ended September 30,

The following table presents the activities of the marketable securities and derivatives:

Three Months Ended March 31,

Marketable Securities Derivatives Marketable Securities

Beginning balance $ 147,960 $ — $ 1,310,000

1 unchanged sentence

Proceeds from sale — — ( 628,715 )

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

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

Unsettled sale — — ( 123,223 )

Reclassification of net realized gains on marketable securities

into earnings — — 51,133

Unrealized (losses) gains on marketable securities 6,584 — ( 99,044 )

Ending balance $ 154,544 $ 258,500 $ 510,151

Financial Instruments Not Carried at Fair Value

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

September 30, 2022 December 31, 2021

In the first quarter of 2023, the Company purchased $ 20.0 million of corporate bonds with a coupon rate of 6.125 % that mature on May 15, 2023.

The Company classified these bonds as held-to-maturity debt securities, as it has the intent and ability to hold these securities until maturity.

The following table presents the carrying value and estimated fair value of the Company’s financial instruments that are not carried at fair value on the consolidated balance sheets as of:

March 31, 2023 December 31, 2022

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

5 unchanged sentences

Total loans $ 632,832,672 $ 609,948,789 $ 612,325,188 $ 645,795,459 $ 626,490,767 $ 623,145,754

Other investment:

Held-to-maturity debt

securities 1 $ 20,000,000 $ 20,025,024 $ 19,800,000 $ — $ — $ —

Term loan payable 3 $ 25,000,000 $ 25,000,000 $ 25,000,000 $ 25,000,000 $ 25,000,000 $ 25,000,000

4 unchanged sentences

Mortgage loan payable 3 61,352,308 60,768,698 61,606,608 29,252,308 29,488,326 29,394,870

Secured borrowing 3 — — — 34,521,104 34,586,129 34,425,029

Revolving line of credit

2 unchanged sentences

Notes to Unaudited Consolidated Financial Statements

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

The Company estimated that its other financial assets and liabilities, not included in the tables above, had fair values that approximated their carrying values at both March 31, 2023 and December 31, 2022 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.

The fair value of the Company’s investment in equity securities, held-to-maturity debt 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.

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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.

Because there is no readily available market for these investments, the fair values of these investments are approved in good faith by the Company’s board of directors (which is made up exclusively of independent directors).

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

The following table summarizes the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 loans as of September 30, 2022 and December 31, 2021.

The following tables summarize the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 loans as of March 31, 2023 and December 31, 2022.

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 September 30, 2022 Primary Valuation Technique Unobservable Inputs September 30, 2022

Fair Value at March 31, 2023 Primary Valuation Technique Unobservable Inputs March 31, 2023

Asset Category Minimum Maximum Weighted Average

6 unchanged sentences

Mortgage loan payable 61,606,608 Discounted cash flow Discount rate 8.30 % 8.65 % 8.47 %

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

Revolving line of credit 125,000,000 Discounted cash flow Discount rate 8.15 % 8.15 % 8.15 %

7 unchanged sentences

Total Level 3 Assets $ 623,145,754

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

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

1 unchanged sentence

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

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

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

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

5 unchanged sentences

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Origination and extension fee expense (1)(2)

4 unchanged sentences

Disposition fee (3)

410,694 342,508 890,194 657,196

Total $ 5,407,217 $ 4,452,352

2 unchanged sentences

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

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

(2) Amount for the three months ended March 31, 2023 excluded $ 0.5 million of origination fee paid to the Manager in connection with the acquisition of the three industrial buildings in 2023.

Amount for the three months ended March 31, 2022 excluded $ 0.2 million of origination fee paid to the Manager in connection with the Company’s equity investment in an unconsolidated investment.

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

3 unchanged sentences

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.

Notes to Unaudited Consolidated Financial Statements

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

Notes to Unaudited Consolidated Financial Statements

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

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

Asset Servicing Fee

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

As of March 31, 2023 and December 31, 2022, the Company has not received any breakup fees.

Operating Expenses

5 unchanged sentences

Cost Sharing and Reimbursement Agreement

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

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

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

For the three months ended March 31, 2023 and 2022, the Company made distributions to investors totaling $ 4.7 million and $ 3.9 million, respectively, of which $ 4.2 million and $ 2.9 million were returns of capital, respectively ( Note 11 ).

Due to Manager

As of September 30, 2022 and December 31, 2021, approximately $ 2.9 million and $ 2.4 million was due to the Manager, respectively, as reflected on the consolidated balance sheets, primarily related to the present value of the disposition fees on individual loans due to the Manager.

Due from Related Party

As of September 30, 2022, there was no amount due from related party.

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

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

As of both March 31, 2023 and December 31, 2022, approximately $ 3.9 million was due to the Manager, as reflected on the consolidated balance sheets, primarily related to the present value of the disposition fees on individual loans due to the Manager.

Notes to Unaudited Consolidated Financial Statements

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

The Company has determined that the participation agreements it enters into are accounted for as secured borrowings under ASC 860 (See “ Participation interests ” in Note 2 and “ Obligations under Participation Agreements ” in ( Note 8 ).

Participation Interests Purchased by the Company

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In accordance with the terms of each participation agreement, each Participant’s rights and obligations, as well as the proceeds received from the related borrower/issuer of the loan, are based upon their respective pro rata participation interest in the loan.

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

September 30, 2022

The table below lists the participation interests purchased by the Company pursuant to participation agreements as of:

March 31, 2023

Participating Interests Principal Balance Carrying Value

Hillsborough Owners LLC (1)

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

Mesa AZ Industrial Owner, LLC (1)

5 unchanged sentences

Participating Interests Principal Balance Carrying Value

Hillsborough Owners LLC (1)

Havemeyer TSM LLC (1)(2)

23.00 % $ 3,282,208 $ 3,313,813

Mesa AZ Industrial Owner, LLC (1)

38.27 % 31,000,000 31,276,468

UNJ Sole Member, LLC (1)

2 unchanged sentences

________________

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

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

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

(2) This loan was repaid in February 2023.

Notes to Unaudited Consolidated Financial Statements

Transfers of Participation Interest by the Company

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

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

September 30, 2022

Principal Balance Carrying Value % Transferred Principal Balance Carrying Value

370 Lex Part Deux, LLC (1)

$ 60,583,057 $ 60,583,057 35.00 % $ 21,204,070 $ 21,204,068

RS JZ Driggs, LLC (1)

4,773,805 4,773,805 50.00 % 2,390,064 2,390,064

Shopoff & Cindy I.

March 31, 2023

Principal Balance Carrying Value

% Transferred Principal Balance Carrying Value

610 Walnut Investors LLC (1)

$ 19,398,129 $ 19,533,518 67.57 % $ 13,106,844 $ 13,209,982

2 unchanged sentences

December 31, 2022

Principal Balance Carrying Value % Transferred Principal Balance Carrying Value

370 Lex Part Deux, LLC (1)

$ 60,012,639 $ 60,012,639 35.00 % $ 21,004,424 $ 21,004,423

RS JZ Driggs, LLC (1)

15,606,409 15,754,641 50.00 % 7,806,370 7,880,516

Shopoff & Cindy I.

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

1 unchanged sentence

________________

(1) Participant is Terra BDC.

(1) Participant was a third party.

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

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

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 December 31, 2021:

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

Notes to Unaudited Consolidated Financial Statements

Unsecured Notes Payable

The 6.00 % Senior Notes Due 2026

On June 10, 2021, the Company issued $ 78.5 million in aggregate principal amount of its 6.00 % notes due 2026 (the “initial note”), for net proceeds of $ 76.0 million after deducting underwriting commissions of $ 2.5 million, but before offering expenses payable by the Company.

On June 25, 2021, the underwriters partially exercised their option to purchase an additional $ 6.6 million of the notes for net proceeds of $ 6.4 million (the “additional notes” and, together with the initial notes, the “notes”), after deducting underwriting commissions of $ 0.2 million, but before offering expenses payable by us, which closed on June 29, 2021.

Interest on the notes is paid quarterly in arrears every March 30, June 30, September 30 and December 30, at a fixed rate of 6.00 % per year, beginning September 30, 2021.

The notes mature on June 30, 2026 , unless redeemed earlier by the Company.

The notes may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after June 10, 2023.

In connection with the issuance of the notes, the Company entered into (i) an Indenture, dated June 10, 2021 (the “Base Indenture”), by and between the Company and U.S.

On June 25, 2021, the underwriters partially exercised their option to purchase an additional $ 6.6 million of the notes for net proceeds of $ 6.4 million (the “additional notes” and, together with the initial notes, the “ 6.00 % Senior Notes Due 2026”), after deducting underwriting commissions of $ 0.2 million, but before offering expenses payable by us, which closed on June 29, 2021.

Interest on the 6.00 % Senior Notes Due 2026 is paid quarterly in arrears every March 30, June 30, September 30 and December 30, at a fixed rate of 6.00 % per year, beginning September 30, 2021.

The 6.00 % Senior Notes Due 2026 mature on June 30, 2026, unless redeemed earlier by the Company, and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after June 10, 2023.

In connection with the issuance of the 6.00 % Senior Notes Due 2026, the Company entered into (i) an Indenture, dated June 10, 2021 (the “Base Indenture”), by and between the Company and U.S.

Bank National Association, as trustee (the “Trustee”), and (ii) the First Supplemental Indenture thereto, dated June 10, 2021 (the “Supplemental Indenture” and, collectively with the Base Indenture, the “Indenture”), by and between the Company and the Trustee.

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

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

September 30, 2022 December 31, 2021

Principal Balance Carrying Value (1)

Fair Value Principal Balance Carrying Value (1)

Unsecured notes payable $ 85,125,000 $ 82,325,341 $ 72,356,250 $ 85,125,000 $ 81,856,799 $ 85,210,125

The Indenture also provides for customary events of default which, if any of them occurs,

Notes to Unaudited Consolidated Financial Statements

would permit or require the principal of and accrued interest on the notes to become or to be declared due and payable.

As of March 31, 2023 and December 31, 2022, 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 “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 1940 Act, 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:

March 31, 2023 December 31, 2022

Principal Balance Carrying Value Fair Value Principal Balance Carrying Value Fair Value

6.00 % Senior Notes Due 2026 (1)

$ 85,125,000 $ 82,653,051 $ 71,130,447 $ 85,125,000 $ 82,487,769 $ 68,100,000

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

7.00 % Senior Notes Due 2026 (2)

38,375,000 34,323,491 36,840,000 38,375,000 34,042,904 35,381,748

$ 123,500,000 $ 116,976,542 $ 107,970,447 $ 123,500,000 $ 116,530,673 $ 103,481,748

_______________

(1) Carrying value is net of unamortized issue discount of $ 1.8 million and $ 1.9 million, and unamortized deferred financing costs of $ 0.6 million and $ 0.7 million as of March 31, 2023 and December 31, 2022, respectively.

(2) Carrying value is net of unamortized purchase discount of $ 4.1 million and $ 4.3 million as of March 31, 2023 and December 31, 2022, respectively.

Notes to Unaudited Consolidated Financial Statements

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.

Prior to March 31, 2023 borrowings under the Revolving Line of Credit bore interest at an annual rate of LIBOR + 3.25 % with a combined floor of 4.0 %.

In connection with the transition of LIBOR, on March 31, 2023, the Revolving Line of Credit was amended and the interest rate was changed to Term SOFR + 3.35 % with a combined floor of 6.0 %.

The Revolving Line of Credit was scheduled to mature on March 12, 2023.

5 unchanged sentences

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

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

Notes to Unaudited Consolidated Financial Statements

As of March 31, 2023 and December 31, 2022, the Company was in compliance with these covenants.

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

3 unchanged sentences

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

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

For the nine months ended September 30, 2022 and 2021, the Company received proceeds from the Revolving Line of Credit of $ 41.2 million and $ 25.3 million, respectively, and made repayments of $ 55.6 million and $ 0.0 million , respectively.

On September 3, 2020, Terra Mortgage Capital I, LLC (the “Issuer”), a special-purpose indirect wholly-owned subsidiary of the Company, entered into an Indenture and Credit Agreement (the “Indenture and Credit Agreement”) with Goldman Sachs Bank USA, as initial lender (“Goldman”) and Wells Fargo Bank, National Association, as the trustee, custodian, collateral agent, loan agent and note administrator (“Wells Fargo”).

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.

Notes to Unaudited Consolidated Financial Statements

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

December 31, 2021

Mortgage Assets Borrowings Under the Term Loan (1)(2)

Principal Amount Carrying Value Fair

330 Tryon DE LLC $ 22,800,000 $ 22,902,354 $ 22,594,654 $ 13,680,000

1389 Peachtree St, LP;

1401 Peachtree St, LP;

1409 Peachtree St, LP 53,289,288 53,536,884 52,031,363 31,283,661

AGRE DCP Palm Springs, LLC 43,222,381 43,669,992 43,829,842 23,146,265

Patrick Henry Recovery Acquisition, LLC 18,000,000 18,041,124 18,055,377 10,800,000

University Park Berkeley, LLC 25,815,378 25,991,962 26,015,500 14,853,544

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

For the nine months ended September 30, 2022 and 2021, the Company made repayments on borrowings under the Term Loan of $ 93.8 million and $ 16.6 million, respectively, and received proceeds from borrowings under the Term Loan of $ 0.0 million and $ 2.6 million, respectively.

As of March 31, 2023 and December 31, 2022, borrowings under the Revolving Line of Credit were $ 125.0 million and $ 90.1 million, respectively, collateralized by $ 217.9 million and $ 177.4 million of eligible assets, respectively.

For the three months ended March 31, 2023 and 2022, the Company received proceeds from the Revolving Line of Credit of $ 34.9 million and $ 26.4 million, respectively, and did not make any repayments.

Repurchase Agreements

6 unchanged sentences

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.

Notes to Unaudited Consolidated Financial Statements

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.

7 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

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

September 30, 2022

In March 2022, the Company amended the UBS Guarantee Agreement to reduce the EBITDA to interest expense ratio of not less than 1.25 to 1.00, and as of March 31, 2023 and December 31, 2022, the Company was in compliance with these covenants.

The following tables present detailed information with respect to each borrowing under the UBS Master Repurchase Agreement as of:

March 31, 2023

Collateral Borrowings Under Master Repurchase Agreement

1 unchanged sentence

Value Borrowing Date Principal Amount Interest

14th & Alice Street Owner, LLC $ 39,935,197 $ 40,695,573 $ 40,700,960 11/8/2021 $ 25,599,600 LIBOR+1.45% (LIBOR floor of 0.1%)

NB Factory TIC 1, LLC $ 28,000,000 $ 28,823,787 $ 28,908,756 11/8/2021 $ 18,970,000 LIBOR+ 1.74 % (LIBOR floor of 0.1 %)

7 unchanged sentences

Value Borrowing Date Principal Amount Interest

14th & Alice Street Owner, LLC $ 39,384,000 $ 40,089,153 $ 40,130,448 11/8/2021 $ 25,599,600 LIBOR+1.45% (LIBOR floor of 0.1%)

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

For the nine months ended September 30, 2022, the Company borrowed $ 30.9 million under the UBS Master Repurchase Agreement for the financing of new investments, and did not make any repayments.

For the three months ended March 31, 2023, the Company did not borrow or make any repayments under the UBS Master Repurchase Agreement.

For the three months ended March 31, 2022, the Company borrowed $ 13.6 million and did not make any repayments under the UBS Master Repurchase Agreement.

Goldman Master Repurchase Agreement

The Company entered into a credit agreement with Goldman Sachs Banks to provide for a term loan of up to $ 103.0 million.

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 provides for advances of up to $ 200.0 million in the aggregate, which the Company expects to use to finance the originations of certain

Notes to Unaudited Consolidated Financial Statements

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.

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

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

Notes to Unaudited Consolidated Financial Statements

Repurchase Agreement.

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

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

as of September 30, 2022, the Company was in compliance with these covenants.

The following table presents detailed information with respect to each borrowing under the Repurchase Agreement as of September 30, 2022:

September 30, 2022

As of March 31, 2023 and December 31, 2022, the Company was in compliance with these covenants.

The following tables present detailed information with respect to each borrowing under the Repurchase Agreement as of:

March 31, 2023

Collateral Borrowings Under Repurchase Agreement

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Patrick Henry Recovery Acquisition, LLC 18,000,000 18,042,414 17,873,381 2/18/2022 14,400,000 Term SOFR + 0.865 % ( 1.5 % floor)

$ 141,243,997 $ 142,236,428 $ 141,016,432 $ 101,897,394

Notes to Unaudited Consolidated Financial Statements

December 31, 2022

Collateral Borrowings Under Repurchase Agreement

Principal Amount Carrying Value Fair

Value Borrowing Date Principal Amount Interest

330 Tryon DE LLC $ 22,800,000 $ 22,902,215 $ 22,687,235 2/18/2022 $ 18,240,000 Term SOFR + 2.015 % ( 0.01 % floor)

1389 Peachtree St, LP;

1401 Peachtree St, LP;

1409 Peachtree St, LP 57,184,178 57,453,482 56,844,322 2/18/2022 41,587,275 Term SOFR + 2.465 %

AGRE DCP Palm Springs, LLC 43,222,382 43,758,804 43,062,933 2/18/2022 28,094,548 Term SOFR + 1.315 % ( 1.8 % floor)

Patrick Henry Recovery Acquisition, LLC 18,000,000 18,041,782 17,824,300 2/18/2022 14,400,000 Term SOFR + 0.865 % ( 1.5 % floor)

University Park Berkeley, LLC 26,342,468 26,536,122 26,472,938 2/18/2022 17,504,783 Term SOFR + 1.365 % ( 1.50 % floor)

$ 167,549,028 $ 168,692,405 $ 166,891,728 $ 119,826,606

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

Mortgage Loan Payable

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

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

September 30, 2022 December 31, 2021

For the three months ended March 31, 2023 and 2022 the Company borrowed $ 1.3 million and $ 118.3 million, respectively, under the Repurchase Agreement and made repayments of $ 19.2 million and zero , respectively.

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 “Term Loan”).

The scheduled maturity date of the Term Loan was April 9, 2025.

The Term 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 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.

Notes to Unaudited Consolidated Financial Statements

The Credit Agreement contains customary representations, warranties, reporting requirements, borrowing conditions and affirmative, negative and financial covenants.

As of March 31, 2023 and December 31, 2022 , Terra LLC was in compliance with these covenants.

Mortgage Loans Payable

In connection with the acquisition of real estate properties described in Note 6 , the Company entered into a loan agreement with a lender to provide financing of up to $ 37.0 million for the acquisition.

As of March 31, 2023, $ 32.1 million has been funded.

This mortgage loan bears interest at an annual rate of Term SOFR plus 3.5 % with a Term SOFR floor of 3.75 % and matures on April 9, 2027.

The following table presents certain information about mortgage loans payable as of:

March 31, 2023 December 31, 2022

Lender Current

2 unchanged sentences

Collateral Principal Amount Carrying Value Carrying Value of

Centennial Bank LIBOR + 3.85%

(LIBOR Floor of 2.23%) November 14, 2022 $ 31,338,350 $ 31,612,338 $ 41,748,898 $ 31,962,692 $ 32,134,295 $ 46,067,129

Notes to Unaudited Consolidated Financial Statements

Term SOFR + 3.85 %

(Term SOFR Floor of 2.23 %)

May 31, 2023 $ 29,252,308 $ 29,506,608 $ 39,967,385 $ 29,252,308 $ 29,488,326 $ 40,581,847

Term SOFR + 3.5 % (Term SOFR Floor of 3.75 %

April 9, 2027 32,100,000 31,262,090 48,798,273 — — —

$ 61,352,308 $ 60,768,698 $ 88,765,658 $ 29,252,308 $ 29,488,326 $ 40,581,847

___________________

(1) This loan is collateralized by a multi-tenant office building that the Company acquired through foreclosure.

(2) This loan is collateralized by three industrial buildings that the Company acquired in March 2023.

Scheduled Debt Principal Payments

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

Scheduled debt principal payments for each of the five calendar years following March 31, 2023 are as follows:

Years Ending December 31, Total

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

2023 (April 1 through December 31) $ 54,252,308

2024 277,947,395

2026 123,500,000

2027 32,100,000

Unamortized deferred financing costs ( 8,540,193 )

Total $ 479,259,510

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

Obligations Under Participation Agreements and Secured Borrowing

As discussed in Note 2 , the Company follows the guidance in ASC 860 when accounting for loan participations and loans sold.

At March 31, 2023 and December 31, 2022, the unamortized deferred debt issuance costs were $ 8.5 million and $ 8.6 million, respectively.

Obligations Under Participation Agreements

As discussed in Note 2 , the Company follows the guidance in ASC 860 when accounting for loan participations.

Such guidance requires the transferred interests meet certain criteria in order for the transaction to be recorded as a sale.

Loan participations and loans transferred from the Company which do not qualify for sale treatment remain on the Company’s consolidated balance sheets and the proceeds are recorded as obligations under participation agreements or secured borrowing, as applicable.

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

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

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

The secured borrowing was repaid in August 2022.

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.

As of March 31, 2023 and December 31, 2022, obligations under participation agreements had a carrying value of approximately $ 13.2 million and $ 12.7 million, respectively,

Notes to Unaudited Consolidated Financial Statements

and the carrying value of the loans that are associated with these obligations under participation agreements was approximately $ 19.5 million and $ 18.7 million, respectively, (see “ Participation Agreements ” in Note 8 ).

The weighted-average interest rate on the obligations under participation agreements was approximately 16.8 % and 16.4 % as of March 31, 2023 and December 31, 2022, respectively.

Commitments and Contingencies

Impact of COVID-19

While the impact of the COVID-19 pandemic on the global economy generally, and the Company’s business in particular, continues to evolve, as of September 30, 2022, no contingencies have been recorded on the Company’s consolidated balance sheet as a result of the COVID-19 pandemic.

As the pandemic continues, it may have long-term impacts on the Company’s financial condition, results of operations, and cash flows.

Refer to Note 2 for further discussion of COVID-19.

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 $ 63.6 million and $ 71.8 million as of September 30, 2022 and December 31, 2021, respectively.

These fundings amounted to approximately $ 71.0 million and $ 47.3 million as of March 31, 2023 and December 31, 2022, respectively.

The Company expects to maintain sufficient cash on hand to fund such commitments through matching these commitments with principal repayments on outstanding loans or draw downs on credit facilities.

Notes to Unaudited Consolidated Financial Statements

Unfunded Investment Commitment

As discussed in Note 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 September 30, 2022 and December 31, 2021, the unfunded investment commitment was $ 19.3 million and $ 15.1 million, respectively.

As of March 31, 2023 and December 31, 2022, the unfunded investment commitment was $ 30.3 million and $ 22.4 million, respectively.

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

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Additionally, as described above under “ Note 6 .

Real Estate Owned, Net—Real Estate Operating Revenue and Expenses,” as of September 30, 2022, the Company owned a multi-tenant office building that is subject to a ground lease.

Real Estate Owned, Net—Real Estate Operating Revenue and Expenses,” as of March 31, 2023 and 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.

9 unchanged sentences

See Note 8 for a discussion of the Company’s commitments to the Manager.

Notes to Unaudited Consolidated Financial Statements

Earnings Per Share

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

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

2022 2021 2022 2021

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

The following table presents earnings per share:

Three Months Ended March 31,

Net income (loss) $ 547,479 $ ( 757,887 )

Series A preferred stock dividend declared ( 3,907 ) ( 3,906 )

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

Weighted-average shares outstanding

- basic and diluted 19,487,460 19,487,460 19,487,460 19,487,460

(Loss) earnings per share - basic and diluted $ ( 0.35 ) $ ( 0.04 ) $ ( 0.33 ) $ 0.03

Net income (loss) allocable to common stock $ 543,572 $ ( 761,793 )

Weighted-average shares outstanding - basic and diluted 24,335,373 19,487,460

Income (loss) per share - basic and diluted $ 0.02 $ ( 0.04 )

Preferred Stock Classes

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

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

Notes to Unaudited Consolidated Financial Statements

As of March 31, 2023, there were no Preferred Stock issued or outstanding.

As of December 31, 2022 there were 125 shares of Series A Preferred Stock (as defined below) issued and outstanding.

Series A Preferred Stock

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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 Series A Preferred Stock paid dividends at an annual rate of 12.5 % of the liquidation preference.

These dividends were 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, ranked 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 Stock holders’ voting is required if (i) authorization or issuance of any securities senior to the Series A Preferred Stock;

The Series A Preferred Stock carried a redemption premium of $ 50 per share if redeemed prior to January 1, 2019.

The Series A Preferred Stock generally had no voting rights.

However, the Series A Preferred Stockholders’ voting was required if (i) authorization or issuance of any securities senior to the Series A Preferred Stock;

(ii) an amendment to the Company’s charter that has a material adverse effect on the rights and preference of the Series A Preferred Stock;

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

As of September 30, 2022, Terra JV held 87.4 % of the issued and outstanding shares of the Company’s common stock with the remainder held by Terra Offshore REIT.

As of September 30, 2022, Terra Fund 5 and Terra Secured Income Fund 7, LLC (“Terra Fund 7”) owned an 87.6 % and 12.4 % interest in Terra JV, respectively, and Terra Secured Income Fund 5 International and Terra Income Fund International owned a 51.6 % and 48.4 % interest in Terra Offshore REIT, respectively.

On October 1, 2022, in connection with the Merger, the Company amended its charter to increase the shares authorized from 500,000,000 to 950,000,000 , consisting of 450,000,000 shares of Class A Common Stock, $ 0.01 par value per share (“Class A Common Stock”), 450,000,000 shares of Class B Common Stock, $ 0.01 par value per share (“Class B Common Stock”), and 50,000,000 shares of Preferred Stock.

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

In March 2023, the Series A Preferred Stock was fully redeemed at par for a total of $ 125,000 plus accrued dividends.

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, 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 March 31, 2023, 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.

Notes to Unaudited Consolidated Financial Statements

On the date that is 180 calendar days (or, if such date is not a business day, the next business day) after the date (the “First Conversion Date”) of initial listing of shares of Class A Common Stock for trading on a national securities exchange or such earlier date as approved by the Board, one-third of the issued and outstanding shares of Class B Common Stock will automatically and without any action on the part of the holder thereof convert into an equal number of shares of Class A Common Stock.

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

2 unchanged sentences

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

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

Additionally, for each of the three and nine months ended September 30, 2022 and 2021, the Company made distributions to preferred stockholders of $ 3,906 and $ 11,718 , respectively.

Additionally, for the three months ended March 31, 2023 and 2022, the Company made distributions to preferred stockholders of $ 3,907 and $ 3,906 , respectively.

Dividend Reinvestment Plan

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.

For the three months ended March 31, 2023, the Company issued 34 shares of Class B Common Stock for a total of 478 pursuant the Plan.

Subsequent Events

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

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

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

Notes to Unaudited Consolidated Financial Statements

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

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

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

Assumption of Notes

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

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

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

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

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

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

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

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

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

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

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

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

The TIF6 Indenture also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the TIF6 Notes to become or to be declared due and payable.

Amendment to Credit Facility

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

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

Pursuant to the Credit Facility Amendment (i) Eagle

Notes to Unaudited Consolidated Financial Statements

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

Amendment to the Charter

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

Pursuant to the Charter Amendment, (i) the authorized shares of stock which the Company has authority to issue were increased from 500,000,000 to 950,000,000 , consisting of 450,000,000 shares of Class A Common Stock, 450,000,000 shares of Class B Common Stock, and 50,000,000 shares of Preferred Stock, and (ii) each share of the Company’s common stock issued and outstanding immediately prior to the Effective Time was automatically changed into one issued and outstanding share of Class B Common Stock.

Appointment of Directors

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

Voting Support Agreement

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

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

Indemnification Agreements

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

Notes to Unaudited Consolidated Financial Statements

Cost Sharing and Reimbursement Agreement

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

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

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• our expected financial performance, operating results and our ability to make distributions to our stockholders in the future;

• the potential negative impacts of the coronavirus ( “ COVID-19 ” ) pandemic on the global economy and the impacts of the COVID-19 pandemic on our financial condition, results of operations, liquidity and capital resources and business operations;

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

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

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

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

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

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

repurchase plan or a strategic business combination, in each case, which may include the distribution of our common stock indirectly owned by certain of our affiliate funds (the “Terra Funds”) to the ultimate investors in the Terra Funds, and the timing of any such transactions;

• actions and initiatives of the U.S.

federal, state and local government and changes to the U.S.

federal, state and local government policies and the execution and impact of these actions, initiatives and policies;

• limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our exemption from registration as an “investment company” under the Investment Company Act of 1940, as amended (the “1940 Act”), and to maintain our qualification as a real estate investment trust (“REIT”) for U.S.

federal, state and local government and changes to the U.S., federal, state and local government policies and the execution and impact of these actions, initiatives and policies;

• limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our exemption exclusion or from registration under the Investment Company Act of 1940, as amended (the “1940 Act”), and to maintain our qualification as a real estate investment trust (“REIT”) for U.S.

federal income tax purposes;

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• changes in the economy;

• risks associated with possible disruption in our operations or the economy generally due to acts of war or other military conflicts (including the recent outbreak of hostilities between Russia and Ukraine), terrorism or natural disasters;

• risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters;

• future changes in laws or regulations and conditions in our operating areas.

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Stockholders are advised to consult any additional disclosures that we may make directly to stockholders or through reports that we may file in the future with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

We are a real estate credit focused company that originates, structures, funds and manages commercial real estate credit investments, including mezzanine loans, first mortgage loans, subordinated mortgage loans and preferred equity investments throughout the United States, which we collectively refer to as our targeted assets.

We are 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 throughout the United States, which we collectively refer to as our targeted assets.

From time to time, we may acquire real estate encumbering the senior loans through foreclosure, may invest in real estate related joint ventures and may directly acquire real estate properties.

Our loans finance the acquisition, construction, development or redevelopment of quality commercial real estate in the United States.

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

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

As of March 31, 2023, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 30 loans in 10 states with an aggregate net principal balance of $619.7 million, a weighted average coupon rate of 11.8% and a weighted average remaining term to maturity of 1.1 years.

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

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

As of September 30, 2022, our portfolio included underlying properties located in 21 markets, across eight states and includes property types such as multifamily housing, hotels, student housing, commercial offices, medical offices, mixed-use and industrial properties.

As of March 31, 2023, our portfolio included underlying properties located in 30 markets, across 10 states and includes property types such as multifamily housing, student housing, commercial offices, medical offices, mixed-use and industrial properties.

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

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

As of September 30, 2022, Terra JV held 87.4 % of the issued and outstanding shares of our common stock with the remainder held by Terra Offshore REIT.

Following the consummation of the BDC Merger (as defined below) and as of March 31, 2023, former Terra BDC stockholders owned approximately 19.9% of our common equity, Terra JV held 70.0% of the issued and outstanding shares of our common stock with the remainder of 10.1% held by Terra Offshore REIT;

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

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

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Recent Developments

Terra BDC Merger

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

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

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

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

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

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

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

Pursuant to the Charter Amendment, (i) the authorized shares of our stock which we have authority to issue were increased from 500,000,000 to 950,000,000, consisting of 450,000,000 shares of Class A Common Stock, $0.01 par value per share (“Class A Common Stock”), 450,000,000 shares of Class B Common Stock, and 50,000,000 shares of Preferred Stock, $0.01 par value per share (“Preferred Stock”), and (ii) each share of our common stock issued and

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

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

On the date that is 180 calendar days (or, if such date is not a business day, the next business day) after the date (the “First Conversion Date”) of initial listing of shares of Class A Common Stock for trading on a national securities exchange or such earlier date as approved by our board of directors (our “Board”), one-third of the issued and outstanding shares of Class B Common Stock will automatically and without any action on the part of the holder thereof convert into an equal number of shares of Class A Common Stock.

On the date that is 365 calendar days (or, if such date is not a business day, the next business day) after the date of initial listing of shares of Class A Common Stock for trading on a national securities exchange or such earlier date following the First Conversion Date as approved by our Board (the “Second Conversion Date”), one-half of the issued and outstanding shares of Class B Common Stock will automatically and without any action on the part of the holder thereof convert into an equal number of shares of Class A Common Stock.

On the date that is 545 calendar days (or, if such date is not a business day, the next business day) after the date of initial listing of shares of Class A Common Stock for trading on a national securities exchange or such earlier date following the Second Conversion Date as approved by our Board, all of the issued and outstanding shares of Class B Common Stock will automatically and without any action on the part of the holder thereof convert into an equal number of shares of Class A Common Stock.

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

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

COVID-19 Pandemic

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

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

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

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

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

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

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

Portfolio Summary

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

September 30, 2022

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

March 31, 2023

Fixed Rate Floating

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Principal balance $ 59,726,205 $ 573,106,467 $ 632,832,672 $ 13,106,844 $ 619,725,828

Amortized cost 44,483,378 445,695,865 490,179,243 36,952,837 453,226,406

Carrying value 60,121,950 549,826,839 609,948,789 13,209,982 596,738,807

Fair value 59,314,040 553,011,148 612,325,188 13,209,983 599,115,205

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Rate (1)(2)(3)

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

Total Gross Loans Obligations under Participation Agreements Total Net Loans

Number of loans 8 23 31 1 31

Principal balance $ 90,990,183 $ 554,805,276 $ 645,795,459 $ 12,584,958 $ 633,210,501

Amortized cost 75,520,212 394,153,102 469,673,314 76,818,156 392,855,158

Carrying value 92,274,998 534,215,769 626,490,767 12,680,594 613,810,173

Fair value 90,729,098 532,416,656 623,145,754 12,680,595 610,465,159

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(1) These loans pay a coupon rate of London Interbank Offered Rate (“LIBOR”) or Secured Overnight Financing Rate (“SOFR”) plus a fixed spread.

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

In addition to our net loan portfolio, as of September 30, 2022, we owned a multi-tenant office building acquired pursuant to a foreclosure and as of December 31, 2021, we owned 4.9 acres of land acquired pursuant to a deed in lieu of foreclosure and the multi-tenant office building.

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

The real estate and related lease intangible assets and liabilities had a net carrying value of $41.7 million and $56.1 million as of September 30, 2022 and December 31, 2021, respectively.

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

Additionally, as of September 30, 2022 and December 31, 2021, we owned 30.9 % and 50.0%, respectively, of equity interest in a limited partnership that invests primarily in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets.

During 2022 and 2021, we purchased equity interests in three joint ventures.

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

Coupon rate shown was determined using LIBOR of 4.86%, average SOFR of 4.63% and forward-looking term rate based on SOFR (“Term SOFR”) of 4.80% as of March 31, 2023, and LIBOR of 4.39%, average SOFR of 4.06% and Term SOFR of 4.36% as of December 31, 2022.

(2) As of March 31, 2023 and December 31, 2022, amount included $427.3 million and $413.1 million of senior mortgages used as collateral for $277.9 million and $261.0 million of borrowings under credit facilities, respectively.

(3) As of March 31, 2023 and December 31, 2022, 22 and 21 of these loans, respectively, are subject to a LIBOR or SOFR floor, as applicable.

In addition to our net loan portfolio, as of March 31, 2023, we owned three industrial buildings acquired in 2023 and a multi-tenant office building acquired pursuant to a foreclosure and as of December 31, 2022, we owned a multi-tenant office building acquired pursuant to a foreclosure.

The real estate and related lease intangible assets and liabilities had a net carrying value of $88.8 million and $40.6 million as of March 31, 2023 and December 31, 2022, respectively.

In connection with the acquisition of the industrial buildings in 2023, we obtained mortgage financing of $32.1 million for the acquisition.

As of March 31, 2023, the mortgage loans payable encumbering the industrial buildings and the multi-tenant office building had an outstanding principal amount of $61.4 million and as of December 31, 2022, the mortgage loans payable encumbering the multi-tenant office building had an outstanding principal amount of $29.3 million.

Additionally, as of March 31, 2023 and December 31, 2022, we owned 23.4% and 50.0%, respectively, of equity interest in a limited partnership that invests primarily in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets.

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

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

We accounted for this arrangement as an equity investment.

As of March 31, 2023 and December 31, 2022, these equity investments had total carrying value of $53.6 million and $62.5 million, respectively.

Book Value Per Share

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

Our book value per share of Class B Stock Common Stock as of March 31, 2023 and December 31, 2022 was $12.86 and $13.23, respectively.

Portfolio Investment Activity

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

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

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

For the three months ended March 31, 2023 and 2022, we invested $25.7 million and $26.0 million in new and add-on investments and had $39.9 million and $1.4 million of repayments, resulting in net repayments of $14.2 million and net investments of $24.6 million, respectively.

Net Loan Portfolio Information

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Loan Structure Principal Balance Carrying

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Total $ 619,725,828 $ 596,738,807 100.0 % $ 633,210,501 $ 613,810,173 100.0 %

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Property Type Principal Balance Carrying

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Office $ 149,099,692 $ 149,449,419 25.1 % $ 171,611,750 $ 172,042,063 27.9 %

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

Industrial 127,399,590 128,361,229 21.5 % 147,796,164 148,891,742 24.3 %

Multifamily 112,973,073 113,781,434 19.1 % 104,589,464 105,570,432 17.2 %

Mixed-use 85,128,218 86,026,507 14.4 % 64,880,450 65,838,965 10.7 %

Infill land 49,652,873 50,535,097 8.5 % 48,860,291 49,565,437 8.1 %

Hotel - full/select service 43,222,382 43,793,356 7.3 % 43,222,382 43,758,804 7.1 %

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

Student housing 31,000,000 31,744,890 5.3 % 31,000,000 31,774,261 5.2 %

Infrastructure 21,250,000 21,698,452 3.6 % 21,250,000 21,840,359 3.6 %

Allowance for loan losses — (28,651,577) (4.8) % — (25,471,890) (4.1) %

Total $ 619,725,828 $ 596,738,807 100.0 % $ 633,210,501 $ 613,810,173 100.0 %

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Geographic Location Principal Balance Carrying

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Georgia 72,983,863 73,647,905 12.3 % 72,401,718 73,101,964 11.9 %

Washington 51,517,559 51,778,575 11.4 % 3,523,401 3,382,683 0.9 %

New Jersey 70,891,499 71,920,880 12.1 % 62,228,622 62,958,482 10.3 %

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

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

Texas 68,160,964 68,687,384 11.5 % 67,625,000 68,142,046 11.1 %

Washington 63,376,281 63,434,458 10.6 % 56,671,267 57,027,639 9.3 %

Utah 49,250,000 50,522,239 8.5 % 49,250,000 50,698,251 8.3 %

North Carolina 44,171,046 44,601,994 7.5 % 43,520,028 44,041,162 7.2 %

Arizona 31,000,000 31,288,062 5.2 % 31,000,000 31,276,468 5.1 %

Massachusetts 7,000,000 7,000,000 1.2 % 7,000,000 7,000,000 1.1 %

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

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

Allowance for loan losses — (28,651,577) (4.8) % — (25,471,890) (4.1) %

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

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

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

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

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

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

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

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

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

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Results of Operations

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

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

2022 2021 Change 2022 2021 Change

The following table presents the comparative results of our operations:

Three Months Ended March 31,

2023 2022 Change

Interest income $ 15,615,807 $ 8,882,151 $ 6,733,656

Real estate operating revenue 1,332,969 2,979,454 (1,646,485)

Prepayment fee income 809,301 190,997 618,304 1,984,061 190,997 1,793,064

Other operating income 53,395 250,665 (197,270)

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Operating expenses

Operating expenses reimbursed to

Manager 2,013,135 1,528,223 484,912 6,082,333 4,878,050 1,204,283

Operating expenses reimbursed to Manager 2,177,004 1,928,563 248,441

Asset management fee 1,997,427 1,488,095 509,332

Asset servicing fee 470,525 349,329 121,196

Provision for loan losses 9,188,129 716,164 8,471,965 9,264,058 1,565,245 7,698,813

(Reversal of) provision for credit losses (850,051) 50,296 (900,347)

Real estate operating expenses 1,209,912 1,217,963 (8,051)

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6,978,233 9,219,798 (2,241,565)

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

Operating income 10,023,938 2,892,472 7,131,466

Other income and expenses

Interest expense from obligations

under participation agreements ( 562,182 ) (3,278,294) 2,716,112 ( 2,875,946 ) ( 7,931,176 ) 5,055,230

Interest expense on repurchase

agreement payable ( 2,394,754 ) — (2,394,754) ( 4,815,863 ) — (4,815,863)

Interest expense on mortgage loan

payable ( 534,617 ) (573,687) 39,070 ( 1,574,063 ) ( 1,916,696 ) 342,633

Interest expense on revolving line

of credit ( 647,473 ) (223,902) (423,571) ( 1,872,504 ) ( 404,399 ) (1,468,105)

Interest expense on term loan

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

Interest expense on unsecured

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

Interest expense on secured

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

Net unrealized losses on

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

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

Income from equity investment in

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

Gain on sale of interests in

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

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

Realized gains on marketable

securities — 22,428 (22,428) 83,411 22,428 60,983

Interest expense from obligations under participation agreements (532,146) (1,075,109) 542,963

Interest expense on repurchase agreements payable (3,056,506) (755,826) (2,300,680)

Interest expense on mortgage loans payable (746,128) (518,617) (227,511)

Interest expense on revolving line of credit (1,965,534) (524,294) (1,441,240)

Interest expense on term loan payable (351,563) (164,969) (186,594)

Interest expense on unsecured notes payable (2,394,306) (1,430,183) (964,123)

Interest expense on secured borrowing — (552,785) 552,785

Net unrealized gains (losses) on marketable securities 6,584 (99,044) 105,628

(Loss) income from equity investment in unconsolidated investments (436,860) 1,419,335 (1,856,195)

Realized gains on marketable securities — 51,133 (51,133)

(9,476,459) (3,650,359) (5,826,100)

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

Net income (loss) $ 547,479 $ (757,887) $ 1,305,366

Net Loan Portfolio

In assessing the performance of our loans, we believe it is appropriate to evaluate the loans on an economic basis, that is, gross loans net of obligations under participation agreements, term loan payable, revolving credit facility and repurchase agreement payable.

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

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

Weighted Average Principal Amount (1)

Weighted Average Coupon Rate (2)

Weighted Average Principal Amount (1)

Weighted Average Coupon Rate (2)

Total portfolio

Gross loans $ 533,529,996 9.8 % $ 472,048,987 8.6 %

Obligations under participation agreements

and secured borrowing (68,210,457) 10.5 % (135,954,081) 11.4 %

Repurchase agreement payable (193,403,018) 4.8 % — — %

Term loan payable — — % (105,432,234) 5.3 %

Revolving line of credit (42,251,492) 6.4 % (14,284,331) 4.0 %

Net loans (3)

$ 229,665,029 14.4 % $ 216,378,341 8.8 %

Gross loans 394,986,942 8.6 % 274,103,005 6.5 %

Obligations under participation agreements

and secured borrowing (25,547,563) 8.1 % (58,354,524) 8.5 %

Repurchase agreement payable (193,403,018) 4.8 % — — %

Term loan payable — — % (105,432,234) 5.3 %

Revolving line of credit (42,251,492) 6.4 % (14,284,331) 4.0 %

Net loans (3)

$ 133,784,869 15.0 % $ 96,031,916 7.1 %

Subordinated loans (4)

Gross loans 138,543,054 12.9 % 197,945,982 11.5 %

Obligations under participation agreements (42,662,894) 12.7 % (77,599,557) 13.6 %

Net loans (3)

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

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

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

Three Months Ended March 31, 2023 Three Months Ended March 31, 2022

Weighted Average Principal Amount (1)

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Interest Income

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

For the three months ended March 31, 2023 as compared to the same period in 2022, interest income increased by $6.7 million, primarily due to an increase in contractual interest income as a result of an increase in the weighted average principal balance of gross loans due to new loans we originated in 2022 and loans we acquired in connection with the BDC Merger, as well as an increase in the weighted average coupon rate due to increases in the underlying index rates.

Real Estate Operating Revenue

For the three and nine months ended September 30, 2022 as compared to the same periods in 2021, real estate operating revenue increased by $0.8 million and $2.5 million, respectively, as a result of lease termination income recognized in 2022 in connection with a termination notice received in November 2021.

Prepayment Fee Income

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

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

For the three months ended March 31, 2023 as compared to the same period in 2022, real estate operating revenue decreased by $1.6 million, as a result of lease termination income recognized in the first quarter of 2022 in connection with a termination notice received in November 2021.

Other Operating Income

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

For the three months ended March 31, 2023 as compared to the same period in 2022, other operating income decreased by $0.2 million, primarily as a result of a decrease in application fees income on deals under application.

Operating Expenses Reimbursed to Manager

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

For the three and nine months ended September 30, 2022 as compared to the same periods in 2021, operating expenses reimbursed to our Manager increased by $0.5 million and $1.2 million, respectively, as a result of an increase in the allocation ratio resulting from an increase in total assets under management.

For the three months ended March 31, 2023 as compared to the same period in 2022, operating expenses reimbursed to our Manager increased by $0.2 million, as a result of an increase in the allocation ratio resulting from an increase in total assets under management primarily due to loans acquired in connection with the BDC Merger.

Asset Management Fee

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

For the three and nine months ended September 30, 2022 as compared to the same periods in 2021, asset management fees increased by $0.2 million and $1.0 million, respectively, primarily due to an increase in total assets under management.

For the three months ended March 31, 2023 as compared to the same period in 2022, asset management fees increased by $0.5 million, primarily due to an increase in total assets under management primarily resulting from loans acquired in connection with the BDC Merger.

Asset Servicing Fee

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

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

Provision for Loan Losses

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

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

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

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

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

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

For each of the three months ended March 31, 2023 as compared to the same period in 2022, asset servicing fees increased by $0.1 million, primarily due to an increase in total assets under management primarily resulting from loans acquired in connection with the BDC Merger.

(Reversal of) Provision for Credit Losses

On January 1, 2023, we adopted the provisions of Accounting Standards Update (“ASU”) 2016-13, Financial Instruments

— Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to recognize credit losses on financial instruments based on an estimate of current expected credit losses.

Prior to the adoption of ASU 2016-13, we recorded an allowance for credit 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) past due loan reserves, if any.

For the three months ended March 31, 2023, we reversed $0.9 million of provision for credit losses due to an improvement in macroeconomic forecasts during the period, partially offset by incremental credit losses incurred on newly originated loans.

For the three months ended March 31, 2022, we recorded provision for credit losses of $0.1 million.

Depreciation and Amortization

For the three and nine months ended September 30, 2022 as compared to the same periods in 2021, depreciation and amortization increased by $0.8 million and $2.4 million, respectively, primarily due to a lease termination notice received in November 2021, at which time we accelerated the amortization of lease intangibles.

For the three months ended March 31, 2023 as compared to the same period in 2022, depreciation and amortization decreased by $1.0 million, primarily due to a lease termination notice received in November 2021, at which time we accelerated the amortization of lease intangibles through November 2022, with no corresponding accelerated amortization recognized in the first quarter of 2023.

Impairment Charge

For the nine months ended September 30, 2022, we recorded an impairment charge of $1.6 million on the development land in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost

For the three months ended March 31, 2023, we did not record any impairment charges.

For the three months ended March 31, 2022, we recognized an impairment charge of $1.6 million, on 4.9 acres of the development land located in Pennsylvania in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost of sale.

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

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

Professional Fees

For the three and nine months ended September 30, 2022 as compared to the same periods in 2021, professional fees increased by $0.1 million and $0.8 million, respectively, primarily due to legal fees incurred in connection with litigation related to the ground rent described above as well as a loan refinancing in 2022 which we accounted for as a loan modification.

For the three months ended September 30, 2022 as compared to the same period in 2021, other expense was substantially the same.

For the nine months ended September 30, 2022 as compared to the same period in 2021, other expense increased by $0.2 million, as a result of a fee paid to a third-party in connection with the sale of a parcel of land.

For the three months ended March 31, 2023 as compared to the same period in 2022, professional fees increased by $0.2 million, primarily due to higher costs of compliance as a result of the BDC Merger.

Directors Fees

For the three months ended March 31, 2023 as compared to the same period in 2022, directors fees increased by $0.1 million, as a result of an increase in the size of our Board due to the BDC Merger.

For the three months ended March 31, 2023 as compared to the same period in 2022, other expense increased by $0.1 million, as a result of an increase in filing fees and dead deal costs.

Interest Expense from Obligations under Participation Agreements

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

Interest Expense on Repurchase Agreement Payable

For the three months ended March 31, 2023 as compared to the same period in 2022, interest expense from obligations under participation agreements decreased by $0.5 million, as a result of a decrease in the weighted average principal amount outstanding on obligations under participation agreements, primarily due to the release of obligations under participation agreements with Terra BDC in connection with the BDC Merger.

Interest Expense on Repurchase Agreements Payable

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

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

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

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

Interest Expense on Mortgage Loan Payable

For the three and nine months ended September 30, 2022 as compared to the same periods in 2021, interest expense on mortgage loan payable decreased by $0.04 million and $0.3 million, respectively, as a result of a decrease in the weighted average principal amount outstanding on mortgage loan payable.

For the three months ended March 31, 2023, interest expense on repurchase agreement payable increased by $2.3 million, as a result of an increase in the weighted average principal amount outstanding on repurchase agreements payable as well as an increase in the weighted average coupon rate.

Interest Expense on Mortgage Loans Payable

For the three months ended March 31, 2023 as compared to the same period in 2022, interest expense on mortgage loan payable increased by $0.2 million, as a result of an increase in the weighted average principal amount outstanding on mortgage loan payable, primarily due to financing obtained in connection with an acquisition of real estate in March 2023, as well as in increase in the index rate on the existing mortgage loan payable.

Interest Expense on Revolving Line of Credit

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

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

For the three months ended March 31, 2023 as compared to the same period in 2022, interest expense on revolving line of credit increased by $1.4 million, due to an increase in weighted average principal amount outstanding on the revolving line of credit as well as an increase in the index rate on the revolving line of credit

Interest Expense on Term Loan Payable

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

indenture and credit agreement.

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

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

For the three and nine months ended September 30, 2022 as compared to the same periods in 2021, interest expense on term loan payable decreased by $1.7 million and $4.8 million, respectively, as a result of a decrease in the weighted average principal amount outstanding on term loan payable.

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

On February 18,

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

Additionally, in connection with the BDC Merger, we assumed a term loan of $25.0 million.

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

For the three months ended March 31, 2023 as compared to the same period in 2022, interest expense on term loan payable increased by $0.2 million, as a result of interest expense recognized on the term loan that we acquired in connection with the BDC Merger on October 1, 2022, partially offset by the reversal of the previously accrued step-up interest of $0.4 million during the first quarter of 2022 in connection with the termination of the old term loan.

Interest Expense on Unsecured Notes Payable

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

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

For the three months ended March 31, 2023 as compared to the same periods in 2022, interest expense on unsecured notes payable increased by $1.0 million, as a result of an increase in the weighted average principal amount outstanding due to the assumption of unsecured notes payable in connection with the BDC Merger.

Interest Expense on Secured Borrowing

In March 2020, we 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 treatment and therefore, the gross amount of the loan remains in the consolidated balance sheets.

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

However, the sale of the A-note position did not qualify for sale accounting treatment and therefore, the gross amount of the loan remained in the consolidated balance sheets.

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

The secured borrowing was repaid in August 2022.

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

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

Interest Expense on Unsecured Notes Payable

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

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

Income from Equity Investment in Unconsolidated Investments

For the three months ended March 31, 2023 as compared to the same period in 2022, interest expense on secured borrowing decreased by $0.6 million as a result of a decrease in the weighted average principal amount outstanding due to repayment in August 2022.

Net Unrealized Gains (Losses) on Marketable Securities

For the three months ended March 31, 2023 we recognized net unrealized gains on marketable securities of $0.01 million, as result of an increase in the price of the marketable securities.

For the three months ended March 31, 2022, we recognized net unrealized losses of $0.1 million, as result of an increase in the price of the marketable securities.

(Loss) Income from Equity Investment in Unconsolidated Investments

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

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

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

In the fourth quarter of 2021, we purchased an 80% equity interest in two joint ventures with one of the joint ventures owning a 1.4 million square feet industrial facility located in Arlington, Texas and the other one owning a 147,000 square feet warehouse facility located in Miami, Florida.

Additionally, in the first quarter of 2022, we purchased a 90% equity interest in a joint venture that owns a three-property 371-unit multifamily facility in South Florida.

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

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

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

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

Gain on Sale of Interests in Unconsolidated Investments

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

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

Realized Loss on Repayment of Loans

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

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

Net (loss) Income

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

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

As of March 31, 2023 and 2022, we owned 23.4% and 27.9% of the equity interest in RESOF, respectively.

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

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

We accounted for this arrangement as an equity investment.

For the three months ended March 31, 2023, we recognized a loss from equity investment in unconsolidated investments of $0.4 million, which primarily consisted of net equity loss from the joint ventures and the mezzanine loan of $0.7 million, partially offset by equity income from RESOF of $0.3 million .

For the three months ended March 31, 2022, we recognized income from equity investment in unconsolidated investments of $1.4 million, which consisted of equity income from RESOF of $1.3 million and equity income from the joint ventures of $0.1 million.

Net Income (Loss)

For the three months ended March 31, 2023, net income was $0.5 million, compared to net loss of $0.8 million for the same period in 2022.

Financial Condition, Liquidity and Capital Resources

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

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

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

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

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

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

Additionally, we expect to fund approximately $60.4 million of the unfunded commitments to borrowers during the next twelve months.

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

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

The mortgage loan payable matures on November 14, 2022.

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

We expect to fund approximately $51.3 million of the unfunded commitments to borrowers during the next twelve months.

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

Additionally, we had $29.3 million of borrowings outstanding under a mortgage loan payable that bear interest at an annual rate of Term SOFR plus 3.85% with a Term SOFR floor of 2.23%, that is collateralized by an office building.

The mortgage loan payable matures on May 31, 2023.

We expect to exercise the extension option to extend the mortgage loan payable for another six months then sell the underlying collateral and repay the mortgage loan payable.

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

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

We expect to either maintain sufficient liquidity to repay the facility or refinance the facility.

Summary of Financing

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

The table below summarizes our debt financing as of March 31, 2023:

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

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

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

Term loan N/A 25,000,000 N/A 5.625% 7/1/2023

$ 148,500,000

Variable Rate:

Mortgage loan payable N/A $ 31,338,350 N/A LIBOR plus 3.85% with a LIBOR floor of 2.23% 11/14/2022

Line of credit $ 125,000,000 24,135,865 $ 100,864,135 LIBOR plus 3.25% with a combined floor of 4.0% 3/12/2024

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

Mortgage loan payable N/A 32,100,000 N/A Term SOFR +3.5% (Term SOFR Floor of 3.75% 4/9/2027

Line of credit $ 125,000,000 125,000,000 $ — Term SOFR plus 3.35% with a combined floor of 6.00% 3/12/2024

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

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$ 520,000,000 $ 339,299,702 $ 242,052,606

Cash Flows Used In Operating Activities

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

Cash Flows Provided by Operating Activities

For the three months ended March 31, 2023 as compared to the same period in 2022, cash flows provided by operating activities increased by $5.6 million, primarily due to an increase in net contractual interest income.

Cash Flows Used in Investing Activities

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

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

Cash Flows (Used In) From Financing Activities

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

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

Additionally, we received proceeds from borrowings under the revolving line of credit of $ 41.2 million and made repayments on borrowings under the revolving line of credit of $ 55.6 million.

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

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

For the three months ended March 31, 2023, cash flows used in investing activities were $52.0 million, primarily related to purchase of real estate properties of $48.8 million, origination and purchase of loans of $46.2 million and purchase of held-to-maturity debt securities of $20.0 million, partially offset by proceeds from repayments of loans of $59.2 million and return of capital on unconsolidated investments of $3.9 million.

For the three months ended March 31, 2022, cash flows used in investing activities were $107.6 million, primarily related to origination and purchase of loans of $88.1 million and purchase of equity interests in unconsolidated investments of $21.2 million.

Cash Flows Provided by Financing Activities

For the three months ended March 31, 2023, cash flows provided by financing activities were $43.9 million, primarily due to proceeds from borrowings under the revolving line of credit of $34.9 million, and proceeds from mortgage loan payable of $32.1 million, partially offset by repayments of borrowings under repurchase agreements of $19.2 million and distributions paid of $4.7 million.

For the three months ended March 31, 2022, cash flows from financing activities were $78.9 million, primarily due to proceeds from borrowings under the revolving line of credit and repurchase agreements of $158.3 million and proceeds from obligations under participation agreements and secured borrowing of $18.7 million.

These cash inflows were partially offset by repayments on borrowings under the term loan of $93.8 million and distributions paid of $3.9 million.

Distribution Reinvestment Plan

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

Critical Accounting Policies and Use of Estimates

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As we execute our expected operating plans, we will describe additional critical accounting policies in the notes to our future consolidated financial statements in addition to those discussed below.

Allowance for Loan Losses

Our loans are typically collateralized by either the sponsors’ equity interest in the real estate properties or the underlying real estate properties.

As a result, we regularly evaluate 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.

(ii) the ability of the borrower to refinance the loan;

and/or (iii) the property’s liquidation value.

We also evaluate the financial wherewithal of the sponsor as well as its competency in managing and operating the real estate property.

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

(ii) site inspections;

and (iii) current credit spreads and discussions with market participants.

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

A loan is impaired if it is deemed probable that we 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, we record 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, our Manager assesses the risk factors of each loan and assigns each loan a risk rating between 1 (very low risk) and 5 (highest risk), which is an average of the numerical ratings in the following categories:

(i) sponsor capability and financial conditions;

(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.

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

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

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.

Current Expected Credit Losses Reserve

On January 1, 2023, we adopted the provisions of ASU 2016-13, which requires entities to recognize credit losses on financial instruments based on an estimate of current expected credit losses (“CECL”).

We utilize information obtained from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts about the future to determine the expected credit losses for its loan portfolio.

We utilize a loan loss model that is widely used among banks and commercial mortgage REITs and is marketed by a leading commercial mortgage-based security data analytics provider.

It employs logistic regression to forecast expected losses at the loan level based on a commercial real estate loan securitization database that contains activity dating back to 1998.

We provide specific loan-level inputs which include loan-to-value and debt service coverage ratio metrics, as well as principal balances, property type, location, coupon rate, coupon rate type, original or remaining term, expected repayment dates and contractual future funding commitments.

We select from a group of independent five-year macroeconomic forecasts included in the model that are updated regularly based on current economic trends.

Based on the inputs, the loan loss model determines a loan loss rate through the generation of probability of defaults (PD) and loss given defaults (LGD) for each loan.

The CECL reserve is then calculated by applying the loan loss rate to the total outstanding loan balance of each loan.

These results require a significant amount of judgment applied in selecting inputs and analyzing the results produced by the models to determine the allowance for credit losses.

Changes in such estimates can significantly affect the expected credit losses.

Management Agreement with Terra REIT Advisors

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A disposition fee in the amount of 1.0% of the gross sale price received by our company from the disposition of each loan, but not upon the maturity, prepayment, workout, modification or extension of a loan unless there is a corresponding fee paid by the borrower, in which case the disposition fee will be the lesser of (i) 1.0% of the principal amount of the loan and (ii) the amount of the fee paid by the borrower in connection with such transaction.

If we take ownership of a property as a result of a workout or foreclosure of a loan, we will pay a disposition fee upon the sale of such property equal to 1.0% of the sales price.

If we take ownership of a

property as a result of a workout or foreclosure of a loan, we will pay a disposition fee upon the sale of such property equal to 1.0% of the sales price.

Transaction Breakup Fee .

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The following table presents a summary of fees paid and costs reimbursed to our Manager in connection with providing services to us:

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

2022 2021 2022 2021

Three Months Ended March 31,

Origination and extension fee expense (1)(2)

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Disposition fee (3)

410,694 342,508 890,194 657,196

Total $ 5,407,217 $ 4,452,352

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

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

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

(2) Amount for the three months ended March 31, 2023 excluded $0.5 million of origination fee paid to the Manager in connection with the acquisition of the three industrial buildings in 2023.

Amount for the three months ended March 31, 2022 excluded $0.2 million of origination fees paid to our Manager in connection with our equity investment in an unconsolidated investment.

These origination fees were capitalized to the carrying value of the unconsolidated investment as a transaction cost.

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

Cost Sharing and Reimbursement Agreement with Terra LLC

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

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

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

Participation Agreements

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

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

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

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

As of March 31, 2023, the principal balance of our participation obligation was $13.1 million, which was a participation obligation to a third party.

The loans that are subject to participation agreements are held in our name, but each of the participant’s rights and obligations, including with respect to interest income and other income (e.g., exit fee, prepayment income) and related fees/expenses (e.g., disposition fees, asset management and asset servicing fees), are based upon their respective pro rata participation interest in such participated investments, as specified in the respective participation agreements.

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

We do not have

direct liability to a participant with respect to the underlying loan and the participants’ share of the investments is repayable only from the proceeds received from the related borrower/issuer of the investments and, therefore, the participants also are subject to credit risk (i.e., risk of default by the underlying borrower/issuer).

Pursuant to the participation agreement with these entities, we receive and allocate the interest income and other related investment income to the participants based on their respective pro rata participation interest.

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

For the three and nine months ended September 30, 2022, the weighted average outstanding principal balance on obligations under participation agreements and secured borrowing was approximately $68.2 million and $77.5 million, respectively, and the weighted average interest rate was approximately 10.5% and 10.6%, respectively, compared to weighted average outstanding principal balance of approximately $136.0 million and $113.1 million, respectively, and weighted average interest rate of approximately 11.4% and 10.9% for the three and nine months ended September 30, 2021, respectively.

For the three months ended March 31, 2023, the weighted average outstanding principal balance on obligations under participation agreements was approximately $12.9 million, and the weighted average interest rate was approximately 16.8%, compared to weighted average outstanding principal balance of approximately $79.0 million, and weighted average interest rate of approximately 10.4% for the three months ended March 31, 2022.

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

What changed 10-Q

Item 1. Financial Statements