What changed in this filing

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Item 1. Financial Statements

2023-08-11 compared with 2023-05-12 · 517 added, 299 removed, 1562 unchanged (34% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Cash and cash equivalents $ 51,808,573 $ 28,567,825

8 unchanged sentences

Equity investment in unconsolidated investments 32,608,994 62,498,340

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

Real estate owned, net ( Note 6 )

29 unchanged sentences

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

March 31, 2023 and December 31, 2022, respectively

June 30, 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

shares issued, at both June 30, 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

24,335,513 and 24,335,370 shares issued and outstanding at June 30, 2023 and

December 31, 2022, respectively

7 unchanged sentences

Consolidated Statements of Operations

Three Months Ended March 31,

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

2023 2022 2023 2022

Interest income $ 15,878,453 $ 10,274,051 $ 31,494,260 $ 19,156,202

Real estate operating revenue 2,803,934 2,991,321 4,136,903 5,970,775

Prepayment fee income — 1,174,760 — 1,174,760

Other operating income 100,068 247,981 153,463 498,646

4 unchanged sentences

Asset servicing fee 496,374 395,718 966,899 745,047

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

Provision for credit losses 4,652,644 25,633 3,802,593 75,929

Real estate operating expenses 1,864,212 1,247,328 3,074,124 2,465,291

5 unchanged sentences

25,820,320 8,590,119 32,798,553 17,809,917

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

Operating (loss) income ( 7,037,865 ) 6,097,994 2,986,073 8,990,466

Other income and expenses

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 from obligations under

participation agreements ( 576,915 ) ( 1,238,655 ) ( 1,109,061 ) ( 2,313,764 )

Interest expense on repurchase agreements

payable ( 2,946,797 ) ( 1,665,283 ) ( 6,003,303 ) ( 2,421,109 )

Interest expense on mortgage loans payable ( 1,640,972 ) ( 520,829 ) ( 2,387,100 ) ( 1,039,446 )

3 unchanged sentences

Interest expense on secured borrowing — ( 556,855 ) — ( 1,109,640 )

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

Unrealized gains (losses) on investments, net 51,224 ( 34,950 ) 57,808 ( 133,994 )

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

(Loss) income from equity investment in

unconsolidated investments ( 1,759,934 ) 1,364,332 ( 2,196,794 ) 2,783,667

Realized (losses) gains on investments, net ( 25,024 ) 32,278 ( 25,024 ) 83,411

( 12,199,200 ) ( 4,805,560 ) ( 21,675,659 ) ( 8,455,919 )

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

Net (loss) income $ ( 19,237,065 ) $ 1,292,434 $ ( 18,689,586 ) $ 534,547

Series A preferred stock dividend declared — $ ( 3,906 ) $ ( 3,907 ) $ ( 7,812 )

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

Income (loss) per share — basic and diluted

Net (loss) income allocable to common stock $ ( 19,237,065 ) $ 1,288,528 $ ( 18,693,493 ) $ 526,735

(Loss) income per share — basic and diluted

$ ( 0.79 ) $ 0.07 $ ( 0.77 ) $ 0.03

27 unchanged sentences

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

Shares issued from reinvestment of

shareholder distributions — — — — — 109 — 1,510 — 1,510

Distributions declared on common

shares ($ 0.19 per share)

— — — — — — — — ( 4,650,501 ) ( 4,650,501 )

Net loss — — — — — — — — ( 19,237,065 ) ( 19,237,065 )

Balance at June 30, 2023 $ — — $ — — $ — 24,335,513 $ 243,354 $ 444,451,801 $ ( 155,550,202 ) $ 289,144,953

See notes to 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

9 unchanged sentences

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 )

Net income — — — — — — 1,292,434 1,292,434

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

See notes to consolidated financial statements .

1 unchanged sentence

Consolidated Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

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

Net (loss) income $ ( 18,689,586 ) $ 534,547

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

Depreciation and amortization 2,438,477 3,436,745

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

Provision for credit losses 3,802,593 75,929

Impairment charge 11,765,540 1,604,989

6 unchanged sentences

Amortization of above-market rent ground lease ( 65,174 ) ( 65,175 )

Realized gain on marketable securities — ( 51,133 )

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 )

Realized loss (gain) on investments, net 25,024 ( 83,411 )

Unrealized (gains) losses on investments, net ( 57,808 ) 133,994

Loss on sale of real estate — 51,984

Distributions received from equity investment in unconsolidated investments 5,087,025 225,280

Loss (income) from equity investment in unconsolidated investments 4,001,731 ( 1,991,014 )

Changes in operating assets and liabilities:

13 unchanged sentences

Purchase of real estate properties ( 52,313,739 ) —

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

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

Proceeds from redemption of held-for-maturity securities 20,000,000 —

Purchase of marketable securities ( 1,051,754 ) —

Proceeds from sale of marketable securities — 1,259,417

Return of capital on equity interests in unconsolidated investments 10,650,947 —

Cash acquired in purchase of real estate 712,608 —

Purchase of equity interests in unconsolidated investments — ( 20,915,067 )

Proceeds from sale of marketable securities — 628,715

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

Distributions in excess equity income — 497,920

2 unchanged sentences

Consolidated Statements of Cash Flows (Continued)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from financing activities:

4 unchanged sentences

Repayments of borrowings under repurchase agreements ( 49,344,783 ) —

Repayments of obligations under participation agreements — ( 15,000,000 )

Repayments of borrowings under revolving line of credit ( 41,720,000 ) ( 30,920,124 )

Distributions paid ( 9,302,911 ) ( 7,681,975 )

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 ( 10,000,000 ) ( 93,763,471 )

1 unchanged sentence

Repayment of mortgage principal ( 1,649,191 ) ( 413,065 )

Change in interest reserve and other deposits held on investments ( 1,431,269 ) 10,041

Payment of financing costs ( 2,025,783 ) ( 975,947 )

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

Net cash provided by financing activities 16,446,305 60,665,809

3 unchanged sentences

$ 58,096,906 $ 40,753,395

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental Disclosure of Cash Flows Information:

2 unchanged sentences

Reinvestment of stockholder distributions $ 1,988 $ —

Supplemental non-cash investing information:

In May 2023, the Company acquired five industrial buildings for a $ 3.5 million cash payment and the settlement of a mezzanine loan that was accounted for as an equity investment and five senior loans that were held for investment.

The following table presents a summary of the total capitalized costs and the values of the net assets acquired:

Total Capitalized Costs:

Cash and cash equivalents $ 3,515,466

Loans held for investment 68,737,877

Equity investment in unconsolidated investment 10,149,642

Interest receivable 456,650

Other assets 429,326

Net Assets Acquired

Cash and cash equivalents $ 712,608

Other assets 33,802

Land 14,457,149

Buildings and Improvements 65,365,376

Intangible asset and liability:

In-please lease 8,403,667

Below-market rent ( 4,770,870 )

Accounts payable and accrued expenses ( 912,771 )

See notes to consolidated financial statements .

1 unchanged sentence

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2023

June 30, 2023

Terra Property Trust, Inc.

14 unchanged sentences

(“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.

As of June 30, 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

126 unchanged sentences

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

Cash held in escrow is restricted and is not available for general corporate purposes.

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

March 31, 2023 March 31, 2022

Cash and cash equivalents $ 51,808,573 $ 28,978,788

14 unchanged sentences

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

In June 2023, the Company made a repayment of $ 10.0 million on the Term Loan.

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

19 unchanged sentences

federal and state income taxes at regular corporate rates.

As of March 31, 2023, 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

As of June 30, 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 months ended March 31, 2023 and 2022, the Company did not incur any interest or penalties.

For the three and six months ended June 30, 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 outstanding as of March 31, 2023 and common stock and preferred stock outstanding as of December 31, 2022.

The Company has a simple equity capital structure with only common stock outstanding as of June 30, 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.

14 unchanged sentences

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

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

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

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

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

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

The adoption of ASU 2016-13 resulted in an incremental reserve of approximately $ 4.6 million, which included a 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.

9 unchanged sentences

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

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

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

ASU 2022-06 deferred the sunset date of ASU 2020-04 to

Notes to Unaudited Consolidated Financial Statements

December 31, 2024.

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.

45 unchanged sentences

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

Pursuant to the 2022 Voting Agreement, effective as of the Closing Date, Terra JV and Terra

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.

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 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

3 unchanged sentences

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.

As of June 30, 2023 and December 31, 2022, accrued interest receivable of $ 3.9 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:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Fixed Rate Floating

10 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 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.

(1) These loans pay a coupon rate of LIBOR, Secured Overnight Financing Rate (“SOFR”), or forward-looking term rate based on SOFR (“Term SOFR”), as applicable, plus a fixed spread.

Coupon rates shown were determined using LIBOR of 5.22 %, average SOFR of 5.07 % and Term SOFR of 5.14 % as of June 30, 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 June 30, 2023 and December 31, 2022, amount included $ 336.8 million and $ 413.1 million of senior mortgages used as collateral for $ 228.3 million and $ 261.0 million of borrowings under credit facilities, respectively ( Note 9 ).

(3) As of June 30, 2023 and December 31, 2022, sixteen and twenty-one loans, respectively, were subject to a LIBOR, SOFR or Term SOFR floor, as applicable.

Notes to Unaudited Consolidated Financial Statements

9 unchanged sentences

Net amortization of premiums on loans ( 823,785 ) — ( 823,785 )

Settlement of loans in exchange for real estate properties ( Note 6 )

( 68,737,877 ) — ( 68,737,877 )

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

net ( 242,361 ) ( 9,197 ) ( 251,558 )

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

Provision for credit losses ( 3,397,676 ) ( 9,178 ) ( 3,406,854 )

Balance, June 30, 2023 $ 475,173,171 $ 38,645,336 $ 513,818,507

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

6 unchanged sentences

Provision for credit losses ( 75,929 ) — ( 75,929 )

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

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

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:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

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

6 unchanged sentences

Notes to Unaudited Consolidated Financial Statements

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

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

Office $ 164,837,437 $ 165,327,122 32.2 % $ 184,196,708 $ 184,722,657 29.4 %

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

Multifamily 103,427,397 104,222,850 20.3 % 104,589,464 105,570,432 16.9 %

Industrial 64,340,667 64,865,942 12.6 % 147,796,164 148,891,742 23.8 %

Mixed-use 62,746,351 63,257,099 12.3 % 64,880,450 65,838,965 10.5 %

5 unchanged sentences

Total $ 541,855,443 $ 513,818,507 100.0 % $ 645,795,459 $ 626,490,767 100.0 %

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

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

2 unchanged sentences

New York 88,336,078 88,336,079 17.2 % 91,845,479 91,877,084 14.7 %

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

New Jersey 77,371,876 78,691,851 15.3 % 62,228,622 62,958,482 10.0 %

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

Georgia 75,205,257 75,840,968 14.8 % 72,401,718 73,101,964 11.7 %

Washington 52,969,210 53,070,927 10.3 % 56,671,267 57,027,639 9.1 %

Utah 49,250,000 50,399,536 9.8 % 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 31,296,394 6.1 % 31,000,000 31,276,468 5.0 %

North Carolina 21,476,465 21,578,080 4.2 % 43,520,028 44,041,162 7.0 %

Massachusetts 7,000,000 7,000,000 1.4 % 7,000,000 7,000,000 1.1 %

Texas — — — % 67,625,000 68,142,046 10.9 %

Allowance for credit losses — ( 33,128,796 ) ( 6.4 ) % — ( 25,471,890 ) ( 4.1 ) %

4 unchanged sentences

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

Three Months Ended March 31,

Six Months Ended June 30,

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

1 unchanged sentence

January 1, 2023 ( Note 2 )

(Reversal of) provision for credit losses (1)

Provision for credit losses (1)

3,406,854 75,929

6 unchanged sentences

Certain of the Company’s loans contain provisions for future fundings, which are subject to the borrower meeting certain performance-related metrics that are monitored by the Company.

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

These unfunded commitments amounted to approximately $ 53.2 million and $ 47.3 million as of June 30, 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

Six Months Ended June 30, 2023

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

6 unchanged sentences

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.

For the three and six months ended June 30, 2023 and 2022, the Company did not reverse any interest income accrual because all accrued interest income were deemed collectible.

As of June 30, 2023 and 2022, the Company had three and two loans that were in default, and suspended interest income accrual of $ 3.7 million and $ 1.2 million for the three months ended June 30, 2023 and 2022, respectively, because recovery of such income was doubtful.

For the six months ended June 30, 2023 and 2022, the Company suspended interest income accrual of $ 7.2 million and $ 2.3 million on three and two loans, respectively, because recovery of such income was doubtful.

As of June 30, 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.

As of June 30, 2023 and December 31, 2022, the Company had four non-performing loans with total carrying value of $ 89.7 million and $ 89.9 million, respectively.

The allowance for credit losses for these non-performing loans were $ 25.5 million as of both June 30, 2023 and December 31, 2022.

Loan Risk Rating

11 unchanged sentences

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

The following table presents the amortized cost of the Company’s loan portfolio by year of origination and loan risk rating as of June 30, 2023:

June 30, 2023

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

28 unchanged sentences

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.

As a result, the remaining $ 1.4 million is reflected as a loan receivable and it is fully reserved for as of June 30, 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.

5 unchanged sentences

_______________

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

(1) As of June 30, 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.

There was no income from this investment from the date of modification on December 28, 2022 through June 30, 2023.

Equity Investment in Unconsolidated Investments

9 unchanged sentences

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

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

As of June 30, 2023 and December 31, 2022, the unfunded commitment was $ 37.4 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 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.

As of June 30, 2023 and December 31, 2022, the Company owned 14.9 % and 27.9 % of the equity interest in RESOF, respectively.

As of June 30, 2023 and December 31, 2022, the carrying value of the Company ’ s investment in RESOF was $ 18.1 million and $ 36.8 million, respectively.

For the three and six months ended June 30, 2023, the Company recorded equity loss from RESOF of $ 1.2 million and $ 0.9 million, respectively, as a result of adjustments made to equity income due to the dilution in the Company’s ownership interest in RESOF as new investors were admitted in 2022 and 2023.

For the three and six months ended June 30, 2023, the Company received distributions from RESOF of $ 0.9 million and $ 4.7 million, respectively.

For the three and six months ended June 30, 2022, the Company recorded equity income from RESOF of $ 1.6 million and $ 2.9 million, respectively, and 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.

2 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Investments at fair value (cost of $ 166,181,966 and $ 176,035,290 , respectively)

9 unchanged sentences

Partners’ capital $ 118,632,497 $ 128,322,894

Three Months Ended March 31,

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

2023 2022 2023 2022

Total investment income $ 8,264,132 $ 5,891,371 $ 16,375,911 $ 10,736,035

2 unchanged sentences

Unrealized (depreciation) appreciation on investments ( 288,031 ) 1,493,140 ( 883,942 ) 1,562,191

Provision for income tax ( 138,944 ) — ( 138,944 ) —

Net increase in partners’ capital resulting from operations $ 4,009,573 $ 5,622,697 $ 8,358,646 $ 9,243,096

Equity Investment in Joint Ventures

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.

As of June 30, 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.

2 unchanged sentences

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.

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

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

In May 2023, the Company purchased the underlying asset ( Note 8 ) and the $ 10.0 million mezzanine loan was settled in connection with the purchase.

Notes to Unaudited Consolidated Financial Statements

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Entity Co-owner (1)

11 unchanged sentences

_______________

Notes to Unaudited Consolidated Financial Statements

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

1 unchanged sentence

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

As discussed above, this investment was settled in May 2023.

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:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Net investments in real estate $ 191,629,757 $ 192,616,298

5 unchanged sentences

Members’ capital $ 50,577,674 $ 54,588,417

Three Months Ended March 31,

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

2023 2022 2023 2022

Revenues $ 4,243,689 $ 3,681,032 $ 8,168,268 $ 6,131,470

4 unchanged sentences

Net (loss) income $ ( 2,685,557 ) $ ( 164,378 ) $ ( 6,255,737 ) $ ( 71,502 )

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 .

For the three and six months ended June 30, 2023, the Company recorded net equity loss from the joint ventures and the mezzanine loan of $ 0.6 million and $ 1.3 million, respectively, and did not receive any distributions from the joint ventures.

For the three and six months ended June 30, 2022, the Company recorded equity income from the joint ventures of $ 0.2 million and $ 0.1 million, respectively, and received distributions from the joint venture of $ 0.4 million and $ 0.7 million, respectively.

In connection with these investments, the Company paid origination fee to the Manager totaling $ 0.5 million, to be amortized to equity income over the life of the respective joint venture.

Notes to Unaudited Consolidated Financial Statements

Real Estate Owned, Net

Real Estate Activities

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.

2023 — During the three and six months ended June 30, 2023, the Company recorded an impairment charge of $ 11.8 million on the multi-tenant office building located in California in order to reduce the carrying value of the building to its estimated fair value.

Additionally, during the six months ended June 30, 2023, the Company entered into the following investments:

Location Number of

Properties Date of

Acquisition Property Type Total Capitalized

Texas, United States 3 3/24/2023 Industrial $ 48,798,273

Texas, United States 5 5/25/2023 Industrial 83,288,961

$ 132,087,234

These acquisitions were deemed to be real estate asset acquisitions, and therefore total 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:

Cash and cash equivalents $ 52,313,739

Loans held for investment 68,737,877

Equity investment in unconsolidated investment 10,149,642

Interest receivable 456,650

Other assets 429,326

$ 132,087,234

Net Assets Acquired

Cash and cash equivalents $ 712,608

Other assets 33,802

Land 23,785,004

Buildings and Improvements 104,613,728

Intangible asset and liability:

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

Intangible assets and liabilities:

In-place lease (weighted-average expected life of 3.95 years)

Below-market rent (weighted-average expected life of 3.98 years)

( 8,864,137 )

Notes to Unaudited Consolidated Financial Statements

Accounts payable and accrued expenses ( 912,771 )

$ 132,087,234

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.

Notes to Unaudited Consolidated Financial Statements

Real Estate Owned, Net

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.

Real estate owned is comprised of eight 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

June 30, 2023 December 31, 2022

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

16 unchanged sentences

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 March 31,

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

2023 2022 2023 2022

Real estate operating revenues:

10 unchanged sentences

Total $ 1,864,212 $ 1,247,328 $ 3,074,124 $ 2,465,291

Notes to Unaudited Consolidated Financial Statements

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 June 30, 2023, the Company owned eight industrial buildings that were leased to ten tenants and a multi-tenant office building that was 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 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.

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

Notes to Unaudited Consolidated Financial Statements

tenant) to the ground lease.

The ground lease had a remaining lease term of 63.3 years as of June 30, 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.

8 unchanged sentences

Scheduled Future Minimum Rent Income

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

Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants, under non-cancelable operating leases at June 30, 2023 are as follows:

Years Ending December 31, Total

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

2023 (July 1 through December 31) $ 4,650,111

2024 9,456,610

1 unchanged sentence

2026 4,600,139

2027 3,162,610

Thereafter 5,821,613

1 unchanged sentence

Scheduled Annual Net Amortization of Intangibles

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:

Based on the intangible assets and liabilities recorded at June 30, 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)

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

2023 (July 1 through December 31) $ ( 1,567,274 ) $ 2,757,572 $ ( 65,174 ) $ 1,125,124

2024 ( 3,104,584 ) 5,467,389 ( 130,348 ) 2,232,457

11 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Operating lease

4 unchanged sentences

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

Three Months Ended March 31,

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

2023 2022 2023 2022

Operating lease cost $ 519,750 $ 519,750 $ 1,039,500 $ 1,039,500

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

Three Months Ended March 31,

Six Months Ended June 30,

Amounts included in the measurement of lease liability:

2 unchanged sentences

Operating lease $ 1,039,500 $ 1,039,500

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

Maturities of operating lease liability as of June 30, 2023 was as follows:

Years Ending December 31, Operating Lease

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

2023 (July 1 through December 31) $ 1,039,500

2024 2,079,000

23 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 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.

As of June 30, 2023 and December 31, 2022, the Company had 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.

6 unchanged sentences

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.

The interest rate cap met all the criteria of a derivative under ASC 815, but it did not meet 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

June 30, 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

Money market fund (1)

$ 5,041,526 $ — $ — $ 5,041,526

Marketable securities - debt securities (2)

1,203,973 — — 1,203,973

Derivative - interest rate cap (2)

— — 281,028 281,028

Total $ 6,245,499 $ — $ 281,028 $ 6,526,527

_______________

Notes to Unaudited Consolidated Financial Statements

(1) Amount is included in cash and cash equivalents on the consolidated balance sheets.

(2) Amount is included in other assets on the consolidated balance sheets.

December 31, 2022

5 unchanged sentences

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

Three Months Ended March 31,

Six Months Ended June 30,

Marketable Securities Derivatives Marketable Securities

2 unchanged sentences

Proceeds from sale — — ( 1,259,417 )

Unsettled sale — — ( 123,223 )

Amortization of interest rate cap — ( 31,021 ) —

Reclassification of net realized gains on marketable securities

into earnings — — 83,411

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

Unrealized (losses) gains on marketable securities and derivatives 4,259 53,549 ( 133,994 )

Ending balance $ 1,203,973 $ 281,028 $ —

Financial Instruments Not Carried at Fair Value

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.

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

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

These securities were recorded at amortized cost and were fully redeemed at par on May 15, 2023.

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

June 30, 2023 December 31, 2022

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

5 unchanged sentences

Total loans $ 541,855,443 $ 513,818,507 $ 517,494,731 $ 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 $ 15,000,000 $ 14,850,000 $ 15,000,000 $ 25,000,000 $ 25,000,000 $ 25,000,000

Unsecured notes payable 1 123,500,000 117,433,372 101,228,000 123,500,000 116,530,673 103,481,748

Repurchase agreement payable 3 152,947,394 151,772,313 152,947,394 170,876,606 169,304,710 170,876,606

Repurchase agreement

payable 3 122,832,682 122,070,840 122,832,682 170,876,606 169,304,710 170,876,606

Obligations under participation

5 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 March 31, 2023 and December 31, 2022 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 June 30, 2023 and December 31, 2022 due to their short-term nature.

Items Measured at Fair Value on a Non-Recurring Basis (Including Impairment Charges)

The Company periodically assesses whether there are any indicators that the value of its real estate investments may be impaired or that their carrying value may not be recoverable ( Note 2 ).

The following tables present information about assets for which the Company recorded an impairment charge and that were measured at fair value on a non-recurring basis:

Three Months Ended June 30,

Fair Value Impairment Charges Fair Value Impairment Charges

Impairment Charges

Real estate and intangibles $ 27,603,118 $ 11,765,540 $ — $ —

$ 11,765,540 $ —

Six Months Ended June 30,

Fair Value Impairment Charges Fair Value Impairment Charges

Impairment Charges

Real estate and intangibles $ 27,603,118 $ 11,765,540 $ 8,395,011 $ 1,604,989

$ 11,765,540 $ 1,604,989

Impairment charges, and their related triggering events and fair value measurements, recognized during the three and six months ended June 30, 2023 and 2022 were as follows:

Real Estate and Intangibles

The impairment charges described below are reflected within Impairment charges in the consolidated statements of operations.

During the three and six months ended June 30, 2023, the Company recorded an impairment charge of $ 11.8 million on the multi-tenant office building located in California in order to reduce the carrying value of the building to its estimated fair value.

The fair value measurement was determined by estimating discounted cash flows using two significant unobservable inputs, which were the cash flow discount rate ( 8.50 %) and terminal capitalization rate ( 7.50 %).

For the six months June 30, 2022, the Company recorded an impairment charge of $ 1.6 million on the 4.9 acres of land located in Pennsylvania to reduce the carrying value of the land to its estimated fair value, which was based on the selling price in the purchase and sale agreement.

The land was sold in June 2022.

There was no impairment charge recorded for the three months ended June 30, 2022.

Valuation Process for Fair Value Measurement

3 unchanged sentences

In following this methodology, investments are evaluated individually, and management takes into account, in determining the risk-adjusted discount rate for each of the Company’s investments, relevant factors, which may include available current market data on applicable yields of comparable debt/preferred equity instruments;

market credit spreads and yield curves;

market credit

Notes to Unaudited Consolidated Financial Statements

spreads and yield curves;

the investment’s yield;

10 unchanged sentences

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 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 following tables summarize the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 loans as of June 30, 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 March 31, 2023 Primary Valuation Technique Unobservable Inputs March 31, 2023

Fair Value at June 30, 2023 Primary Valuation Technique Unobservable Inputs June 30, 2023

Asset Category Minimum Maximum Weighted Average

9 unchanged sentences

Total Level 3 Liabilities $ 357,557,745

Notes to Unaudited Consolidated Financial Statements

Fair Value at December 31, 2022 Primary Valuation Technique Unobservable Inputs December 31, 2022

10 unchanged sentences

Total Level 3 Liabilities $ 328,087,936

Notes to Unaudited Consolidated Financial Statements

Related Party Transactions

3 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 March 31,

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

2023 2022 2023 2022

Origination and extension fee expense (1)(2)

4 unchanged sentences

Disposition fee (3)

917,750 479,500 1,208,563 479,500

Total $ 5,982,361 $ 5,038,428 $ 11,389,578 $ 9,490,780

2 unchanged sentences

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

(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.

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

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

5 unchanged sentences

In the event that the Company receives any “breakup fees,” “busted-deal fees,” termination fees, or similar fees or liquidated damages from a third-party in connection with the termination or non-consummation of any loan or disposition transaction, the Manager will be entitled to receive one-half of such amounts, in addition to the reimbursement of all out-of-pocket fees and expenses incurred by the Manager with respect to its evaluation and pursuit of such transactions.

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

As of June 30, 2023 and December 31, 2022, the Company had not received any breakup fees.

Notes to Unaudited Consolidated Financial Statements

Operating Expenses

8 unchanged sentences

Distributions Paid

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 ).

For the three months ended June 30, 2023 and 2022, the Company made distributions to investors totaling $ 4.7 million and $ 3.8 million, respectively, of which $ 4.7 million and $ 2.8 million were returns of capital, respectively.

For the six months ended June 30, 2023 and 2022, the Company made distributions to investors totaling $ 9.3 million and $ 7.7 million, respectively, of which $ 8.8 million and $ 5.7 million were returns of capital, respectively ( Note 11 ).

Due to Manager

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

As of June 30, 2023 and December 31, 2022, approximately $ 3.4 million and $ 3.9 million, respectively, 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.

Mavik Real Estate Special Opportunities Fund, LP

8 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

Participation Interests Purchased by the Company

2 unchanged sentences

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

March 31, 2023

June 30, 2023

Participating Interests Principal Balance Carrying Value

3 unchanged sentences

40.80 % 7,444,357 7,485,029

Allowance for credit losses — ( 136,087 )

$ 38,444,357 $ 38,645,336

11 unchanged sentences

(2) This loan was repaid in February 2023.

Notes to Unaudited Consolidated Financial Statements

Transfers of Participation Interest by the Company

1 unchanged sentence

Transfers Treated as Obligations Under Participation Agreements as of

March 31, 2023

June 30, 2023

Principal Balance Carrying Value

15 unchanged sentences

, disposition fees, asset management and asset servicing fees), are based upon their respective pro rata participation interest in such participated investments, as specified in the respective participation agreement.

The Participants’ share of the investments is repayable only from the proceeds received from the related borrower/issuer of the investments and, therefore, the Participants also are subject to credit risk ( i.e.

The Participants’ share of the investments is repayable only

Notes to Unaudited Consolidated Financial Statements

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).

10 unchanged sentences

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,

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

As of June 30, 2023 and December 31, 2022, the Company was in compliance with the covenants included in the Indenture.

The 7.00 % Senior Notes Due 2026

7 unchanged sentences

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.

Terra LLC may redeem the 7.00 % Senior Notes Due 2026 in whole or in part at any time

Notes to Unaudited Consolidated Financial Statements

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.

2 unchanged sentences

The table below presents detailed information regarding the unsecured notes payable as of:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

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

5 unchanged sentences

_______________

(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

(1) Carrying value is net of unamortized issue discount of $ 1.7 million and $ 1.9 million, and unamortized deferred financing costs of $ 0.6 million and $ 0.7 million as of June 30, 2023 and December 31, 2022, respectively.

(2) Carrying value is net of unamortized purchase discount of $ 3.8 million and $ 4.3 million as of June 30, 2023 and December 31, 2022, respectively.

Revolving Line of Credit

9 unchanged sentences

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

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

As of June 30, 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.

2 unchanged sentences

The occurrence of an event of default may result in termination of the Revolving Line of Credit and acceleration of amounts due under the Revolving Line of Credit.

Notes to Unaudited Consolidated Financial Statements

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 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.

As of June 30, 2023 and December 31, 2022, borrowings under the Revolving Line of Credit were $ 105.4 million and $ 90.1 million, respectively, collateralized by $ 165.6 million and $ 177.4 million of eligible assets, respectively.

For the six months ended June 30, 2023 and 2022, the Company received proceeds from the Revolving Line of Credit of $ 57.0 million and $ 41.2 million, respectively, and made repayments of $ 41.7 million and $ 30.9 million, respectively.

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.

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and (v) a total indebtedness to tangible net worth ratio of not more than 3.50 to 1.00.

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

In March 2022, the Company amended the UBS Guarantee Agreement to reduce the EBITDA to interest expense ratio of not less than 1.25 to 1.00, and as of June 30, 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

June 30, 2023

Collateral Borrowings Under Master Repurchase Agreement

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Value Borrowing Date Principal Amount Interest

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 %)

Grandview’s Madison Place, LLC 17,000,000 17,107,426 17,130,108 3/7/2022 13,600,000 Term SOFR + 1.965 %

NB Factory TIC 1, LLC $ 28,000,000 $ 28,842,742 $ 28,917,484 11/8/2021 $ 18,970,000 Term SOFR+ 1.75 %

Grandview’s Remington Place,

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$ 51,100,000 $ 52,046,332 $ 52,153,637 $ 37,450,000

Notes to Unaudited Consolidated Financial Statements

December 31, 2022

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$ 68,100,000 $ 69,163,440 $ 69,211,505 $ 51,050,000

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.

For the six months ended June 30, 2023, the Company had no additional borrowings and made a repayment of $ 13.6 million under the UBS Master Repurchase Agreement.

For the six months ended June 30, 2022, the Company borrowed $ 29.7 million and did not make any repayments under the UBS Master Repurchase Agreement.

Goldman Master Repurchase Agreement

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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

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

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

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

As of June 30, 2023 and December 31, 2022, the Company was in compliance with these covenants.

Notes to Unaudited Consolidated Financial Statements

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

March 31, 2023

June 30, 2023

Collateral Borrowings Under Repurchase Agreement

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Value Borrowing Date Principal Amount Interest

330 Tryon DE LLC $ 22,800,000 $ 22,903,981 $ 22,743,319 2/18/2022 $ 16,514,712 Term SOFR + 2.015 % ( 0.01 % floor)

1389 Peachtree St, LP;

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$ 120,088,373 $ 121,025,396 $ 116,562,901 $ 85,382,682

Notes to Unaudited Consolidated Financial Statements

December 31, 2022

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

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.

For the six months ended June 30, 2023 and 2022 the Company borrowed $ 1.3 million and $ 118.3 million, respectively, under the Repurchase Agreement and made repayments of $ 35.7 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”).

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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;

The Term Loan bore 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.

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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.

Notes to Unaudited Consolidated Financial Statements

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;

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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

On June 30, 2023, the Company, Eagle Point and the Lenders entered into an amendment to the Credit Agreement, pursuant to which the Credit Agreement was amended to, among other things, (i) extend the scheduled maturity date to March 31, 2024, and (ii) increase the rate on which the loans bear interest from a fixed rate of 5.625 % per annum to a floating rate based on SOFR plus 7.375 % with a SOFR floor of 5.0 %.

In connection with the amendment, the Company paid Eagle Point a loan origination fee of $ 150,000 , to be amortized to interest expense over the remaining term of the Term Loan.

As of June 30, 2023 and December 31, 2022, the principal amount outstanding under the Term Loan was $ 15.0 million and $ 25.0 million, respectively.

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.

As of June 30, 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.

Mortgage Loan Financing Activities

2023 — During the six months ended June 30, 2023, the Company entered into the following financing arrangements:

• A mortgage loan with total commitment of $ 37.0 million for the acquisition of three industrial buildings in March 2023.

As of June 30, 2023, total amount funded was $ 32.4 million;

• A mortgage loan of $ 40.3 million to finance the acquisition of five industrial buildings in May 2023.

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Lender Current

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April 9, 2027 32,368,367 31,581,757 48,498,431 — — —

GSF Lender, LLC (3)

June 6, 2028 40,250,000 39,235,822 83,205,033 — — —

$ 100,221,485 $ 98,687,185 $ 159,306,582 $ 29,252,308 $ 29,488,326 $ 40,581,847

___________________

Notes to Unaudited Consolidated Financial Statements

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

This loan is currently in maturity default.

The Company has sought to convey its interest in the office building and ground lease in lieu of foreclosure.

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

(3) This loan is collateralized by five industrial buildings that the Company acquired in May 2023.

Scheduled Debt Principal Payments

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

Scheduled debt principal payments for each of the five calendar years following June 30, 2023 are as follows:

Years Ending December 31, Total

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

2023 (July 1 through December 31) $ 42,603,118

2024 228,280,702

1 unchanged sentence

2027 32,368,368

Thereafter 40,250,000

Unamortized deferred financing costs ( 8,700,440 )

Total $ 458,301,748

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

At June 30, 2023 and December 31, 2022, the unamortized deferred debt issuance costs were $ 8.7 million and $ 8.6 million, respectively.

Obligations Under Participation Agreements

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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.

As of June 30, 2023 and December 31, 2022, obligations under participation agreements had a carrying value of approximately $ 13.8 million and $ 12.7 million, respectively, and the carrying value of the loans that are associated with these obligations under participation agreements was approximately $ 20.4 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 17.1 % and 16.4 % as of June 30, 2023 and December 31, 2022, respectively.

Commitments and Contingencies

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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 $ 71.0 million and $ 47.3 million as of March 31, 2023 and December 31, 2022, respectively.

These fundings amounted to approximately $ 53.2 million and $ 47.3 million as of June 30, 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.

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

As of June 30, 2023 and December 31, 2022, the unfunded investment commitment was $ 37.4 million and $ 22.4 million, respectively.

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

The Company’s maximum exposure under these arrangements is unknown;

however, the Company has not had prior claims or losses pursuant to these contracts.

however, the Company has not had prior claims or losses pursuant to these

Notes to Unaudited Consolidated Financial Statements

The Manager has reviewed the Company’s existing contracts and expects the risk of loss to the Company to be remote.

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Additionally, as described above under “ Note 6 .

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.

Real Estate Owned, Net—Real Estate Operating Revenue and Expenses,” as of June 30, 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.

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

On July 7, 2023, Centennial Bank filed a complaint for breach of guaranty against the Company in the United States District Court, Southern District of New York (SDNY).

The complaint relates to a loan made by Centennial Bank to Terra Ocean Ave., LLC (“Terra Ocean”), and alleges that Centennial Bank allegedly made a mistake in July 2021, in demanding a prepayment of $ 11.3 million instead of $ 28.5 million with respect to the loan, and that the Company, as guarantor in certain limited respects, must now pay the difference (i.e.

$ 17.2 million) plus interest and attorneys’ fees and costs.

Centennial Bank’s now alleges that its mistake in determining the prepayment amount was caused by the wrongful failure to disclose the then-current status of the Lease Litigation by Terra Ocean and/or the Company.

On July 24, 2023, the Company, through counsel appeared in the action.

Although the action is in its initial stages, the Company is seeking a dismissal of the complaint at the pleading stage and, if not successful, is prepared to vigorously defend itself through trial.

The Company believes the claim by Centennial Bank is without merit.

Also on July 17, 2023, Centennial Bank filed a complaint against Terra Ocean for:

(i) Breach of Contract;

(ii) Judicial Foreclosure and Deficiency Judgment;

and (iii) Specific Performance and Appointment of Receiver in the Superior Court of the State of California, County of Los Angeles.

Centennial Bank seeks to foreclose on the deed of trust encumbering the tenant’s interest in the above-mentioned multi-tenant office building and ground lease.

In the complaint, Centennial Bank alleges that its loan to Terra Ocean is in default and the outstanding principal amount of the loan is $ 27.6 million as of the filing of the complaint.

Prior to Centennial Bank filing its complaints against the Company and Terra Ocean, Terra Ocean sought to convey its interest in the ground lease in lieu of foreclosure.

Terra Ocean is in the process of preparing an appropriate response to Centennial Bank’s claims in this action.

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:

Three Months Ended March 31,

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

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

2023 2022 2023 2022

Net (loss) income $ ( 19,237,065 ) $ 1,292,434 $ ( 18,689,586 ) $ 534,547

Series A preferred stock dividend declared — ( 3,906 ) ( 3,907 ) ( 7,812 )

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

Net (loss) income allocable to common stock $ ( 19,237,065 ) $ 1,288,528 $ ( 18,693,493 ) $ 526,735

Weighted-average shares outstanding - basic and diluted 24,335,430 19,487,460 24,335,402 19,487,460

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

(Loss) income per share - basic and diluted $ ( 0.79 ) $ 0.07 $ ( 0.77 ) $ 0.03

Notes to Unaudited Consolidated Financial Statements

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

As of June 30, 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.

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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.

As of June 30, 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.

1 unchanged sentence

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.

Notes to Unaudited Consolidated Financial Statements

Distributions

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

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

Additionally, for the three and six months ended June 30, 2023 and 2022, the Company made distributions to preferred stockholders of none and $ 3,906 , respectively, and $ 3,907 and $ 7,812 , 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.

For the six months ended June 30, 2023, the Company issued 143 shares of Class B Common Stock for a total of $ 1,988 pursuant to the Plan.

Subsequent Events

1 unchanged sentence

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.

Termination of WMC Merger Agreement

On June 28, 2023, the Company announced it entered into an Agreement and Plan of Merger, dated as of June 27, 2023 (the “WMC Merger Agreement”), with Western Asset Mortgage Capital Corporation, a Delaware corporation (“WMC”).

On July 27, 2023, WMC notified the Company that its board of directors determined that a proposal from AG Mortgage Investment Trust, Inc.

(“MITT”) to acquire WMC was a “Parent Superior Proposal” under the WMC Merger Agreement and that WMC’s board of directors intended to terminate the WMC Merger Agreement unless WMC received a revised proposal from the Company by a specified deadline such that WMC’s board of directors determined that MITT’s proposal was no longer a “Parent Superior Proposal.”

On August 8, 2023, WMC terminated the WMC Merger Agreement pursuant to its terms (the “Termination”), and the Company was paid a termination fee of $ 3.0 million.

Upon the Termination, the amended and restated management agreement the Company entered into with WMC and the Manager on June 27, 2023, terminated in accordance with its terms.

The Company continues to be managed by the Manager pursuant to the terms of the existing Management Agreement between the Company and the Manager.

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

59 unchanged sentences

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

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.

As of June 30, 2023, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 23 loans in nine states with an aggregate net principal balance of $528.2 million, a weighted average coupon rate of 12.7% and a weighted average remaining term to maturity of 0.7 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 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.

As of June 30, 2023, our portfolio included underlying properties located in 23 markets, across nine 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.

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;

Following the consummation of the BDC Merger (as defined below) and as of June 30, 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.

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Portfolio Summary

Net Loan Portfolio

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

March 31, 2023

June 30, 2023

Fixed Rate Floating

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_______________

(1) These loans pay a coupon rate of London Interbank Offered Rate (“LIBOR”) or Secured Overnight Financing Rate (“SOFR”) plus a fixed spread.

Coupon rate shown was determined using LIBOR of 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.

(1) These loans pay a coupon rate of London Interbank Offered Rate (“LIBOR”), Secured Overnight Financing Rate (“SOFR”), or forward-looking term rate SOFR (“Term SOFR”) plus a fixed spread.

Coupon rates shown were determined using LIBOR of 5.22%, average SOFR of 5.07% and Term SOFR of 5.14% as of June 30, 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 June 30, 2023 and December 31, 2022, amount included $336.8 million and $413.1 million of senior mortgages used as collateral for $228.3 million and $261.0 million of borrowings under credit facilities, respectively.

(3) As of June 30, 2023 and December 31, 2022, 16 and 21 loans, respectively, are subject to a LIBOR, SOFR, or Term SOFR floor, as applicable.

Real Estate Ownership

In addition to our net loan portfolio, as of June 30, 2023, we owned eight 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 $159.3 million and $40.6 million as of June 30, 2023 and December 31, 2022, respectively.

As of June 30, 2023, the mortgage loans payable encumbering the industrial buildings and the multi-tenant office building had an outstanding principal amount of $100.2 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.

Equity Investments

Additionally, as of June 30, 2023 and December 31, 2022, we owned 14.9% 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.

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

1 unchanged sentence

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.

In May 2023, we purchased the underlying assets and the $10.0 million mezzanine loan was settled in connection with the purchase.

As of June 30, 2023 and December 31, 2022, these equity investments had total carrying value of $32.6 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.

Our book value per share of Class B Stock Common Stock as of June 30, 2023 and December 31, 2022 was $11.88 and $13.23, respectively.

Portfolio Investment Activity

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

For the three months ended June 30, 2023 and 2022, we invested $7.5 million and $0.3 million in new and add-on investments and had $6.4 million and $10.6 million of repayments, resulting in net investments of $1.1 million and net repayment of investments of $10.9 million, respectively.

Amounts are net of obligations under participation agreements,

secured borrowing, borrowings under the master repurchase agreement, the term loan, the repurchase agreements and the revolving line of credit.

For the six months ended June 30, 2023 and 2022, we invested $33.2 million and $25.7 million in new and add-on investments and had $46.3 million and $11.9 million of repayments, resulting in net repayments of $13.1 million and net investments of $13.7 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.

Real Estate Ownership

Additionally, in the first quarter of 2023, we purchased three industrial buildings in Texas for total capitalized costs of $48.8 million.

In the second quarter of 2023, we purchased another five industrial buildings in Texas and the related mezzanine loan that was accounted for as an equity investment and five senior loans that were accounted as loans held for investment were settled in connection with the acquisition.

The five industrial buildings have total capitalized costs of $83.3 million.

In connection with these acquisitions, we obtained mortgage financing totaling $72.6 million.

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 as of:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Loan Structure Principal Balance Carrying

7 unchanged sentences

Total $ 528,176,623 $ 500,029,437 100.0 % $ 633,210,501 $ 613,810,173 100.0 %

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Property Type Principal Balance Carrying

2 unchanged sentences

Office $ 151,158,617 $ 151,538,052 30.2 % $ 171,611,750 $ 172,042,063 27.9 %

Industrial 127,399,590 128,361,229 21.5 % 147,796,164 148,891,742 24.3 %

Multifamily 103,427,397 104,222,850 20.8 % 104,589,464 105,570,432 17.2 %

Industrial 64,340,667 64,865,942 13.0 % 147,796,164 148,891,742 24.3 %

Mixed-use 62,746,351 63,257,099 12.7 % 64,880,450 65,838,965 10.7 %

5 unchanged sentences

Total $ 528,176,623 $ 500,029,437 100.0 % $ 633,210,501 $ 613,810,173 100.0 %

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Geographic Location Principal Balance Carrying

4 unchanged sentences

New York 88,336,078 88,336,079 17.7 % 91,845,479 91,877,084 14.9 %

Georgia 72,983,863 73,647,905 12.3 % 72,401,718 73,101,964 11.9 %

New Jersey 77,371,876 78,691,851 15.7 % 62,228,622 62,958,482 10.3 %

Texas 68,160,964 68,687,384 11.5 % 67,625,000 68,142,046 11.1 %

Georgia 75,205,257 75,840,968 15.2 % 72,401,718 73,101,964 11.9 %

Washington 52,969,210 53,070,927 10.6 % 56,671,267 57,027,639 9.3 %

Utah 49,250,000 50,399,536 10.1 % 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 31,296,394 6.3 % 31,000,000 31,276,468 5.1 %

North Carolina 21,476,465 21,578,080 4.3 % 43,520,028 44,041,162 7.2 %

Massachusetts 7,000,000 7,000,000 1.4 % 7,000,000 7,000,000 1.1 %

Texas — — — % 67,625,000 68,142,046 11.1 %

Allowance for loan losses — (33,128,796) (6.6) % — (25,471,890) (4.1) %

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The following table presents the comparative results of our operations:

Three Months Ended March 31,

2023 2022 Change

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

2023 2022 Change 2023 2022 Change

Interest income $ 15,878,453 $ 10,274,051 $ 5,604,402 $ 31,494,260 $ 19,156,202 $ 12,338,058

Real estate operating revenue 2,803,934 2,991,321 (187,387) 4,136,903 5,970,775 (1,833,872)

Prepayment fee income — 1,174,760 (1,174,760) — 1,174,760 (1,174,760)

Other operating income 100,068 247,981 (147,913) 153,463 498,646 (345,183)

1 unchanged sentence

Operating expenses

Operating expenses reimbursed to Manager 2,177,004 1,928,563 248,441

Operating expenses reimbursed to

Manager 2,120,029 2,140,635 (20,606) 4,297,033 4,069,198 227,835

Asset management fee 2,105,049 1,640,628 464,421 4,102,476 3,128,723 973,753

Asset servicing fee 496,374 395,718 100,656 966,899 745,047 221,852

(Reversal of) provision for credit losses (850,051) 50,296 (900,347)

Provision for credit losses 4,652,644 25,633 4,627,011 3,802,593 75,929 3,726,664

Real estate operating expenses 1,864,212 1,247,328 616,884 3,074,124 2,465,291 608,833

7 unchanged sentences

Other income and expenses —

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)

Interest expense from obligations

under participation agreements (576,915) (1,238,655) 661,740 (1,109,061) (2,313,764) 1,204,703

Interest expense on repurchase

agreements payable (2,946,797) (1,665,283) (1,281,514) (6,003,303) (2,421,109) (3,582,194)

Interest expense on mortgage loans

payable (1,640,972) (520,829) (1,120,143) (2,387,100) (1,039,446) (1,347,654)

Interest expense on revolving line

of credit (2,540,047) (700,737) (1,839,310) (4,505,581) (1,225,031) (3,280,550)

Interest expense on term loan

payable (355,468) — (355,468) (707,031) (164,969) (542,062)

Interest expense on unsecured

notes payable (2,405,267) (1,432,877) (972,390) (4,799,573) (2,863,060) (1,936,513)

Interest expense on secured

borrowing — (556,855) 556,855 — (1,109,640) 1,109,640

Unrealized gains (losses) on

investments, net 51,224 (34,950) 86,174 57,808 (133,994) 191,802

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

(Loss) income from equity

investment in unconsolidated

investments (1,759,934) 1,364,332 (3,124,266) (2,196,794) 2,783,667 (4,980,461)

Realized (losses) gains on

investments, net (25,024) 32,278 (57,302) (25,024) 83,411 (108,435)

(12,199,200) (4,805,560) (7,393,640) (21,675,659) (8,455,919) (13,219,740)

Net income (loss) $ 547,479 $ (757,887) $ 1,305,366

Net (loss) income $ (19,237,065) $ 1,292,434 $ (20,529,499) $ (18,689,586) $ 534,547 $ (19,224,133)

Net Loan Portfolio

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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

Three Months Ended June 30, 2023 Three Months Ended June 30, 2022

Weighted Average Principal Amount (1)

7 unchanged sentences

Repurchase agreement payable (147,054,763) 7.0 % (186,274,094) 3.5 %

Revolving line of credit (117,050,294) 8.5 % (61,522,134) 4.0 %

Net loans (3)

$ 329,196,600 16.0 % $ 224,068,834 13.0 %

Gross loans $ 481,108,382 11.8 % 417,597,220 7.2 %

Obligations under participation agreements

and secured borrowing — — % (37,883,729) 8.1 %

Repurchase agreement payable (147,054,763) 7.0 % (186,274,094) 3.5 %

Revolving line of credit (117,050,294) 8.5 % (61,522,134) 4.0 %

Net loans (3)

$ 217,003,325 16.8 % $ 131,917,263 13.5 %

Subordinated loans (4)

Gross loans 125,652,861 14.3 % 139,744,351 12.3 %

Obligations under participation agreements (13,459,586) 17.1 % (47,592,780) 12.5 %

Net loans (3)

$ 112,193,275 14.0 % $ 92,151,571 12.2 %

Six Months Ended June 30, 2023 Six Months Ended June 30, 2022

Weighted Average Principal Amount (1)

Weighted Average Coupon Rate (2)

Weighted Average Principal Amount (1)

Weighted Average Coupon Rate (2)

Total portfolio

Gross loans $ 620,485,639 12.3 % $ 531,915,282 8.4 %

Obligations under participation agreements

and secured borrowing (13,181,738) 17.1 % (82,267,911) 10.5 %

Repurchase agreement payable (157,207,602) 7.0 % (144,128,510) 3.5 %

Term loan payable — — % (20,836,327) 5.3 %

21 unchanged sentences

Interest Income

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.

For the three and six months ended June 30, 2023 as compared to the same periods in 2022, interest income increased by $5.6 million and $12.3 million, respectively, 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 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.

For the three and six months ended June 30, 2023 as compared to the same periods in 2022, real estate operating revenue decreased by $0.2 million and $1.8 million, respectively, as a result of a decrease in rental income and lease termination income recognized in 2022 (there was no such lease termination income recognized in 2022), all of which were attributable to a lease termination in 2022.

Prepayment Fee Income

For the three and six months ended June 30, 2023, there was no early repayment of loans and we did not recognize any prepayment fee income.

For both the three and six months ended June 30, 2022, we recognized prepayment fee income of $1.2 million on the early repayment of two loans.

Other Operating Income

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.

For the three and six months ended June 30, 2023 as compared to the same periods in 2022, other operating income decreased by $0.1 million and $0.3 million, respectively, 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 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.

For the three and six months ended June 30, 2023 as compared to the same periods in 2022, operating expenses reimbursed to our Manager decreased by $0.02 million and increased by $0.2 million.

The increase in the six-month period was primarily 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 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.

For the three and six months ended June 30, 2023 as compared to the same periods in 2022, asset management fees increased by $0.5 million and $1.0 million, respectively, 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 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):

For the three and six months ended June 30, 2023 as compared to the same periods in 2022, asset servicing fees increased by $0.1 million and $0.2 million, respectively, primarily due to an increase in total assets under management primarily resulting from loans acquired in connection with the BDC Merger.

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.

For the three and six months ended June 30, 2023, we recorded a provision for credit losses of $4.7 million and $3.8 million, respectively, primarily due to a decline in the fair value of the collateral on a loan.

For the three and six months ended June 30, 2022, we recorded provision for credit losses of $0.03 million and $0.1 million, respectively.

Depreciation and Amortization

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.

For the three months ended June 30, 2023 as compared to the same period in 2022, depreciation and amortization increased by $0.04 million as compared to the same period in 2022.

For the six months ended June 30, 2023 as compared to the same period in 2022, depreciation and amortization decreased by $1.0 million, primarily due to a decrease in unamortized intangible assets as a result of 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 six months ended June 30, 2023.

Impairment Charge

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.

For both the three and six months ended June 30, 2023, we recognized an impairment charge of $11.8 million on the multi-tenant office building located in California in order to reduce the carrying value of the building to its estimated fair value.

For the six months ended June 30, 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 the three months ended June 30, 2022.

Professional Fees

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.

For the three months ended June 30, 2023, as compared to the same period in 2022, professional fees decreased by $0.2 million, primarily due to higher legal costs incurred in 2022 in connection with the ground lease litigation.

For the six months ended June 30, 2023 as compared to the same period in 2022, professional fees remained substantially the same.

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 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.

For the three and six months ended June 30, 2023 as compared to the same periods in 2022, directors’ fees increased by $0.05 million and $0.1 million, respectively, as a result of an increase in the size of our Board due to the BDC Merger.

For the three and six months ended June 30, 2023 as compared to the same periods in 2022, other expense decreased by $0.2 million and $0.1 million, respectively, as a result of a fee paid to a third-party in connection with the sale of a parcel of land in June 2022.

Interest from Obligations under Participation Agreements

For the three and six months ended June 30, 2023 as compared to the same periods in 2022, interest expense from obligations under participation agreements decreased by $0.7 million and $1.2 million, respectively, 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

1 unchanged sentence

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 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.

For the three and six months ended June 30, 2023, as compared to the same periods in 2022, interest expense on repurchase agreement payable increased by $1.3 million and $3.6 million, respectively, 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.

For the three and six months ended June 30, 2023, as compared to the same periods in 2022, interest expense on mortgage loan payable increased by $1.1 million and $1.3 million, respectively, 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 acquisitions of real estate in 2023, as well as in increase in the index rate on the existing mortgage loan payable.

Interest Expense on Revolving Line of Credit

1 unchanged sentence

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

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

For the three and six months ended June 30, 2023, as compared to the same periods in 2022, interest expense on revolving line of credit increased by $1.8 million and $3.3 million, respectively, 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

1 unchanged sentence

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.

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.

In June 2023, the term loan was amended to extend the maturity date to March 31, 2024 and to increase the rate to a floating rate based on SOFR plus 7.375% with a SOFR floor of 5.0%.

In connection with the amendment, we made a repayment of $10.0 million on the term loan.

As of June 30, 2023, the term loan had an outstanding principal balance of $15.0 million.

For the three and six months ended June 30, 2023, as compared to the same periods in 2022, interest expense on term loan payable increased by $0.4 million and $0.5 million, respectively, 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

1 unchanged sentence

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.

For the three and six months ended June 30, 2023, as compared to the same periods in 2022, interest expense on unsecured notes payable increased by $1.0 million and $1.9 million, respectively, 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

3 unchanged sentences

The secured borrowing was repaid in August 2022.

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.

For the three and six months ended June 30, 2023, there was no interest expense on secured borrowing as the secured borrowing was repaid in August 2022.

For the three and six months ended June 30, 2022, interest expense on secured borrowing was $0.6 million and $1.1 million, respectively.

Loss on Sale of Real Estate

In June 2022, we sold the 4.9 acres of adjacent land located in Pennsylvania for net proceeds of $8.6 million, and recognized a net loss on sale of $0.1 million for three and six months ended June 30, 2022, excluding impairment charges of $1.6 million recognized in March 2022 and $3.4 million recognized in December 2021.

(Loss) Income from Equity Investment in Unconsolidated Investments

2 unchanged sentences

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

As of June 30, 2023 and 2022, we owned 14.9% 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.

1 unchanged sentence

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.

In May 2023, the mezzanine loan that was accounted for as an equity investment and five senior loans that were held for investment were settled and exchanged for five industrial buildings.

For the three and six months ended June 30, 2023, we recognized a loss from equity investment in unconsolidated investments of $1.8 million and $2.2 million, respectively, which consisted of equity loss from RESOF of $1.2 million and $0.9 million, respectively, and net equity loss from the joint ventures and the mezzanine loan of $0.6 million and $1.3 million, respectively.

The equity loss from RESOF was a result of adjustments to equity income due to the dilution of our ownership interest in RESOF as new investors were admitted in 2022 and 2023.

The equity loss from the joint ventures was result of depreciation and amortization and interest expense recognized by the joint ventures.

For the three and six months ended June 30, 2022, we recognized income from equity investment in unconsolidated investments of $1.4 million and $2.8 million, which consisted of equity income from RESOF of $1.6 million and $2.9 million and equity loss from the joint ventures of $0.2 million and $0.1 million, respectively.

Net (Loss) Income

For the three and six months ended June 30, 2023, net loss was $19.2 million and $18.7 million, respectively, compared to net income of $1.3 million and $0.5 million, respectively, for the same periods in 2022.

Financial Condition, Liquidity and Capital Resources

1 unchanged sentence

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

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

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

capacity under our financing sources.

We deploy moderate amounts of leverage as part of our operating strategy and use a number of sources to finance our target assets, including our senior notes, term loan, repurchase agreement and revolving line of credit.

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Additionally, we had $27.6 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.

The mortgage loan payable matured on May 31, 2023.

We have sought to convey our interest in the office building and ground lease in lieu of foreclosure.

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.

This term loan bore interest at an annual rate of 5.625% and was to mature on July 1, 2023.

In June 2023, the term loan was amended to extend the maturity date to March 31, 2024 and to increase the rate to a floating rate based on SOFR plus 7.375% with a SOFR floor of 5.0%.

As of June 30, 2023, the term loan had an outstanding principal balance of $15.0 million.

We expect to either maintain sufficient liquidity to repay the facility or refinance the facility.

Our line of credit with outstanding principal balance of $105.4 million matures on March 12, 2024 and our GS repurchase agreement with outstanding principal balance of $85.4 million matures on February 18, 2024 (see Summary of Financing below).

We expect to extend the maturity of both facilities by another year.

Summary of Financing

The table below summarizes our debt financing as of March 31, 2023:

The table below summarizes our debt financing as of June 30, 2023:

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

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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

Mortgage loan payable N/A 40,250,000 N/A 6.254% 6/6/2028

$ 163,750,000

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Mortgage loan payable N/A $ 27,603,118 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

Mortgage loan payable N/A 32,368,367 N/A Term SOFR +3.5% (Term SOFR

Floor of 3.75%) 4/9/2027

Term loan N/A 15,000,000 N/A SOFR plus 7.375% with a

SOFR floor of 5.0% 3/31/2024

Line of credit $ 125,000,000 105,448,019 $ 19,551,981 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%

UBS repurchase agreement 195,000,000 37,450,000 157,550,000 Term SOFR plus a spread ranging from 1.60% to 2.25%

GS repurchase agreement 200,000,000 85,382,682 114,617,318 Term SOFR (subject to underlying loan floors on a case-by-case basis) plus a spread ranging from 1.75% to 3.00%

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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.

For the six months ended June 30, 2023, as compared to the same period in 2022, cash flows provided by operating activities increased by $8.6 million, primarily due to an increase in net contractual interest income.

Cash Flows Used in Investing Activities

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.

For the six months ended June 30, 2023, cash flows used in investing activities were $6.8 million, primarily related to origination and purchase of loans of $63.8 million, purchase of real estate properties of $52.3 million, and purchase of debt securities of $21.1 million, partially offset by proceeds from repayments of loans of $99.0 million, proceeds from sale of debt securities of $20.0 million and return of capital on unconsolidated investments of $10.7 million.

For the six months ended June 30, 2022, cash flows used in investing activities were $74.4 million, primarily related to origination and purchase of loans of $120.4 million and purchase of equity interests in unconsolidated investments of $20.9 million, partially offset by proceeds from repayments of loans of $56.6 million, proceeds from sale of real estate of $8.6 million

and proceeds from sale of marketable securities of $1.3 million.

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.

For the six months ended June 30, 2023, cash flows provided by financing activities were $16.4 million, primarily due to proceeds from mortgage loan payable of $72.6 million, and borrowings under the revolving line of credit of $57.0 million, partially offset by repayments of borrowings under repurchase agreements of $49.3 million, repayments of borrowings under revolving line of credit of $41.7 million, repayments of borrowings under the term loan of $10.0 million, and distributions paid of $9.3 million.

For the six months ended June 30, 2022, cash flows from financing activities were $60.7 million, primarily due to proceeds from borrowings under the repurchase agreements of $148.1 million and proceeds from obligations under participation agreements and secured borrowing of $20.2 million.

These cash inflows were partially offset by repayments on borrowings under the term loan of $93.8 million, repayments of obligations under participation agreements of $15.0 million and distributions paid of $7.7 million.

Additionally, for the six months ended June 30, 2022, we received proceeds from borrowings under the revolving line of credit of $41.2 million and made repayments on borrowings under the revolving line of credit of $30.9 million.

Distribution Reinvestment Plan

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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 March 31,

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

2023 2022 2023 2022

Origination and extension fee expense (1)(2)

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Disposition fee (3)

917,750 479,500 1,208,563 479,500

Total $ 5,982,361 $ 5,038,428 $ 11,389,578 $ 9,490,780

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

(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.

(2) Amount for the six months ended June 30, 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 six months ended June 30, 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.

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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.

As of June 30, 2023, the principal balance of our participation obligation was $13.7 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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As such, the investments remain on our combined consolidated balance sheets and the proceeds are recorded as obligations under participation agreements.

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

For the 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.

Similarly, interest earned on the entire loan balance is recorded within “Interest income” and the

interest related to the participation interest is recorded within “Interest expense from obligations under participation agreements” in the consolidated statements of operations.

For the three and six months ended June 30, 2023, the weighted average outstanding principal balance on obligations under participation agreements was approximately $13.5 million and $13.2 million, respectively, and for both periods, the weighted average interest rate was approximately 17.1% , compared to the weighted average outstanding principal balance on obligations under participation agreements and secured borrowing of approximately 85.5 million and $82.3 million, respectively, and the weighted average interest rate was approximately 10.5% and 10.5%, respectively.

The secured borrowing was repaid in August 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