What changed in this filing

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Item 1. Financial Statements

2023-11-14 compared with 2023-08-11 · 448 added, 372 removed, 1707 unchanged (32% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Cash and cash equivalents $ 19,242,370 $ 28,567,825

1 unchanged sentence

Cash held in escrow by lender 4,894,546 3,268,563

Marketable securities 7,054,491 147,960

Loans held for investment, net of allowance for credit losses of $ 60,163,319

14 unchanged sentences

Liabilities and Equity

Term loan payable $ 14,850,000 $ 25,000,000

Unsecured notes payable, net of debt issuance cost $ 117,901,452 $ 116,530,673

Repurchase agreements payable, net of deferred financing fees 112,392,727 169,304,710

Obligations under participation agreements ( Note 8 )

13,789,070 12,680,594

Mortgage loans payable, net of deferred financing fees and other 99,434,309 29,488,326

Revolving line of credit payable, net of deferred financing fees 50,251,912 89,807,448

Note payable, net of deferred financing costs 36,562,785 —

Term loan payable, net of deferred financing costs 14,898,434 25,000,000

Obligations under participation agreements ( Note 8 )

Interest reserve and other deposits held on investments 5,418,932 4,633,204

13 unchanged sentences

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

June 30, 2023 and December 31, 2022, respectively

September 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 June 30, 2023 and December 31, 2022

shares issued, at both September 30, 2023 and December 31, 2022

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

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

December 31, 2022, respectively

24,335,711 and 24,335,370 shares issued and outstanding at September 30, 2023

and December 31, 2022, respectively

243,357 243,354

3 unchanged sentences

Total liabilities and equity $ 756,371,180 $ 813,336,892

See notes to consolidated financial statements .

See notes to unaudited consolidated financial statements .

Terra Property Trust, Inc.

Consolidated Statements of Operations

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

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

2023 2022 2023 2022

11 unchanged sentences

Depreciation and amortization 2,551,323 1,718,374 4,989,800 5,155,119

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

Impairment charges — — 11,765,540 1,604,989

Professional fees 1,081,803 594,318 2,849,125 2,348,190

12 unchanged sentences

Interest expense on unsecured notes payable ( 2,416,518 ) ( 1,436,107 ) ( 7,216,091 ) ( 4,299,167 )

Interest expense on note payable ( 107,702 ) — ( 107,702 )

Interest expense on secured borrowing — ( 397,932 ) — ( 1,507,572 )

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

Gain on extinguishment of debt 14,079,379 — 14,079,379 —

Unrealized losses on investments, net ( 1,040,192 ) — ( 982,384 ) ( 133,994 )

Income (loss) from equity investment in

unconsolidated investments 41,839 1,483,846 ( 2,154,955 ) 4,267,513

Gain on sale of interests in unconsolidated

investments — 799,827 — 799,827

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

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

3,175,765 ( 3,689,392 ) ( 18,499,894 ) ( 12,145,311 )

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

Net loss $ ( 17,477,698 ) $ ( 6,891,942 ) $ ( 36,167,284 ) $ ( 6,357,395 )

Series A preferred stock dividend declared $ — $ ( 3,906 ) $ ( 3,907 ) $ ( 11,718 )

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

Net loss allocable to common stock $ ( 17,477,698 ) $ ( 6,895,848 ) $ ( 36,171,191 ) $ ( 6,369,113 )

Loss per share — basic and diluted

$ ( 0.72 ) $ ( 0.35 ) $ ( 1.49 ) $ ( 0.33 )

2 unchanged sentences

Distributions declared per common share $ 0.19 $ 0.19 $ 0.57 $ 0.58

See notes to consolidated financial statements.

See notes to unaudited consolidated financial statements.

Terra Property Trust, Inc.

29 unchanged sentences

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.

Shares issued from reinvestment of

shareholder distributions — — — — — 198 3 2,572 — 2,575

Distributions declared on common

shares ($ 0.19 per share)

— — — — — — — — ( 4,650,531 ) ( 4,650,531 )

Net loss — — — — — — — — ( 17,477,698 ) ( 17,477,698 )

Balance at September 30, 2023 $ — — $ — — $ — 24,335,711 $ 243,357 $ 444,454,373 $ ( 177,678,431 ) $ 267,019,299

See notes to unaudited consolidated financial statements.

Terra Property Trust, Inc.

16 unchanged sentences

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 .

Distributions declared on common shares ($ 0.19 per share)

— — — — — — ( 3,724,053 ) ( 3,724,053 )

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

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

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

See notes to unaudited consolidated financial statements .

Terra Property Trust, Inc.

Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

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

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

Net loss $ ( 36,167,284 ) $ ( 6,357,395 )

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

Depreciation and amortization 4,989,800 5,155,119

Provision for credit losses 30,899,434 9,264,058

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

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

Amortization of net purchase premiums on loans 1,023,275 122,783

5 unchanged sentences

Amortization of above-market rent ground lease ( 97,761 ) ( 97,761 )

Gain on extinguishment of debt ( 14,079,379 ) —

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

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

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

Unrealized losses on investments, net 982,384 133,994

Loss on sale of real estate — 51,984

11 unchanged sentences

Other liabilities ( 522,258 ) ( 3,221,639 )

Net cash provided by operating activities 12,005,837 3,371,932

Net cash provided by (used in) operating activities 5,957,953 ( 3,733,199 )

Cash flows from investing activities:

2 unchanged sentences

Purchase of real estate properties ( 52,508,252 ) —

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

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

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

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

Purchase of marketable securities ( 7,905,211 ) —

2 unchanged sentences

Cash acquired in purchase of real estate 712,608 —

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

Purchase of equity interests in unconsolidated investments ( 1,218,449 ) ( 18,207,679 )

1 unchanged sentence

Distributions in excess equity income — 742,651

Net cash used in investing activities ( 6,824,828 ) ( 74,382,993 )

Net cash provided by (used in) investing activities 604,319 ( 3,045,141 )

Terra Property Trust, Inc.

Consolidated Statements of Cash Flows (Continued)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from financing activities:

Proceeds from borrowings under repurchase agreements 1,300,858 148,089,549

Proceeds from borrowings under revolving line of credit 57,032,155 41,169,295

Proceeds from mortgage loan payable 73,249,135 —

Proceeds from obligations under participation agreements 1,093,862 16,522,472

Repayments of borrowings under repurchase agreements ( 72,160,282 ) —

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

Repayments of borrowings under revolving line of credit ( 96,798,815 ) ( 55,609,325 )

Proceeds from borrowings under revolving line of credit 57,032,155 41,169,295

Proceeds from borrowing under note payable 36,556,125 —

Proceeds from borrowings under repurchase agreements 14,189,300 150,706,606

Distributions paid ( 13,950,868 ) ( 11,406,028 )

Repayment of borrowings under the term loan ( 10,000,000 ) ( 93,763,471 )

Proceeds from secured borrowing — 3,629,034

Payment of financing costs ( 2,098,725 ) ( 989,032 )

Repayment of mortgage principal ( 1,649,191 ) ( 624,342 )

Proceeds from obligations under participation agreements 1,494,422 17,023,011

Change in interest reserve and other deposits held on investments 785,728 ( 1,890,731 )

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

Net increase (decrease) in cash, cash equivalents and restricted cash 21,627,314 ( 10,345,252 )

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

Repayments of obligations under participation agreements — ( 22,239,670 )

Proceeds from secured borrowing — 4,151,186

Net cash used in financing activities ( 13,476,016 ) ( 12,144,792 )

Net decrease in cash, cash equivalents and restricted cash ( 6,913,744 ) ( 18,923,132 )

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

1 unchanged sentence

$ 29,555,848 $ 32,175,515

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental Disclosure of Cash Flows Information:

20 unchanged sentences

Accounts payable and accrued expenses ( 912,771 )

See notes to consolidated financial statements .

See notes to unaudited consolidated financial statements .

Terra Property Trust, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2023

September 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 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.

As of September 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

4 unchanged sentences

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

The Company is required to first apply the VIE model to determine whether it holds a variable interest in an entity, and if so, whether the entity is a VIE.

If the Company determines it does not hold a variable

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

Notes to Unaudited Consolidated Financial Statements

interest in a VIE, it then applies the voting interest model.

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

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

Under the voting interest model, the Company consolidates an entity when it holds a majority voting interest in an entity.

23 unchanged sentences

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

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

The Company provides specific loan-level inputs which include loan-to-value and debt service coverage ratio metrics, as well as principal balances, property type, location,

Notes to Unaudited Consolidated Financial Statements

coupon rate, coupon rate type, original or remaining term, expected repayment dates and contractual future funding commitments.

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

70 unchanged sentences

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

The Company holds loans in its portfolio that contain paid-in-kind (“PIK”) interest provisions.

The Company holds loans in its portfolio that may contain paid-in-kind (“PIK”) interest provisions.

The PIK interest, which represents contractually deferred interest that is added to the principal balance that is due at maturity, is recorded on the accrual basis.

18 unchanged sentences

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:

September 30,

Cash and cash equivalents $ 19,242,370 $ 21,957,216

23 unchanged sentences

The Company has not elected the fair value option for its financial instruments, including loans held for investment, loans held for investment acquired through participation, obligations under participation agreements, secured borrowing, unsecured notes, mortgage loan payable, term loan payable, repurchase agreement payment and revolving line of credit.

Such financial instruments are carried at cost, less impairment, where applicable.

Such financial instruments are carried at amortized cost, less impairment, where applicable.

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

10 unchanged sentences

federal and state income taxes at regular corporate rates.

As of June 30, 2023, the Company has satisfied all the requirements for a REIT.

As of September 30, 2023, the Company has satisfied all the requirements for a REIT.

Notes to Unaudited Consolidated Financial Statements

1 unchanged sentence

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

For the three and six months ended June 30, 2023 and 2022, the Company did not incur any interest or penalties.

For the three and nine months ended September 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 June 30, 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 September 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.

21 unchanged sentences

In July 2017, the U.K.

Financial Conduct Authority, which regulates the LIBOR administrator, ICE Benchmark Administration Limited (“IBA”), announced that it would cease to compel banks to participate in setting LIBOR as a benchmark by the end of 2021, which has subsequently been delayed to June 30, 2023.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) — Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”).

4 unchanged sentences

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

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

As of September 30, 2023, all of the Company’s floating rate loans and related

Notes to Unaudited Consolidated Financial Statements

December 31, 2024.

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

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

financings have transitioned to the applicable replacement benchmark rate, or reference a benchmark rate that is not expected to be replaced.

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

50 unchanged sentences

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

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 July 25, 2023, the Company disclosed that it acquired approximately 5.2 % of the outstanding shares of common stock of MITT as of July 24, 2023.

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.

The termination fee was used to pay the professional fees incurred in connection with contemplated merger.

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.

Loans Held for Investment

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

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.

As of September 30, 2023 and December 31, 2022, accrued interest receivable of $ 4.3 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:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Fixed Rate Floating

10 unchanged sentences

_______________

(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

(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 5.43 %, average SOFR of 5.32 % and Term SOFR of 5.32 % as of September 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 September 30, 2023 and December 31, 2022, amount included $ 339.9 million and $ 413.1 million of senior mortgages used as collateral for $ 200.3 million and $ 261.0 million of borrowings under credit facilities, respectively ( Note 9 ).

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

Lending Activities

13 unchanged sentences

Provision for credit losses ( 30,568,286 ) ( 288,359 ) ( 30,856,645 )

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

Balance, September 30, 2023 $ 432,327,832 $ 38,354,459 $ 470,682,291

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

6 unchanged sentences

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

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

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

Notes to Unaudited Consolidated Financial Statements

Portfolio Information

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

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

5 unchanged sentences

Total $ 526,796,770 $ 470,682,291 100.0 % $ 645,795,459 $ 626,490,767 100.0 %

Notes to Unaudited Consolidated Financial Statements

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

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

9 unchanged sentences

Total $ 526,796,770 $ 470,682,291 100.0 % $ 645,795,459 $ 626,490,767 100.0 %

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

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

4 unchanged sentences

Georgia 75,632,491 75,938,028 16.1 % 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 50,300,532 10.7 % 49,250,000 50,698,251 8.1 %

Washington 31,224,966 31,111,001 6.6 % 56,671,267 57,027,639 9.1 %

Arizona 31,000,000 31,283,132 6.6 % 31,000,000 31,276,468 5.0 %

6 unchanged sentences

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

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

The adoption of ASU

Notes to Unaudited Consolidated Financial Statements

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

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

Six Months Ended June 30,

Nine Months Ended September 30,

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

6 unchanged sentences

Allowance for credit losses, end of period $ 60,578,587 $ 22,922,539

Notes to Unaudited Consolidated Financial Statements

_______________

1 unchanged sentence

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 $ 53.2 million and $ 47.3 million as of June 30, 2023 and December 31, 2022, respectively.

These unfunded commitments amounted to approximately $ 44.4 million and $ 47.3 million as of September 30, 2023 and December 31, 2022, respectively.

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

Six Months Ended June 30, 2023

Nine Months Ended September 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 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.

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

As of September 30, 2023 and 2022, the Company had five and three loans that were in default, and suspended interest income accrual of $ 5.4 million and $ 2.8 million for the three months ended September 30, 2023 and 2022, respectively, because recovery of such income was doubtful.

For the nine months ended September 30, 2023 and 2022, the Company suspended interest income accrual of $ 12.6 million and $ 5.1 million on three and three loans, respectively, because recovery of such income was doubtful.

As of September 30, 2023 and December 31, 2022, there was no interest receivable recognized 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 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.

As of September 30, 2023 and December 31, 2022, the Company had six and four non-performing loans with total carrying value of $ 171.3 million and $ 89.9 million, respectively.

The allowance for credit losses for these non-performing loans were $ 58.9 million and $ 25.5 million as of September 30, 2023 and December 31, 2022, respectively.

Loan Risk Rating

3 unchanged sentences

(iii) quality and stability of collateral cash flows and/or reserve balances;

and (iv) loan to value.

Notes to Unaudited Consolidated Financial Statements

(iv) loan to value.

Based on a 5-point scale, the Company’s loans are rated “1” through “5”, from less risk to greater risk, as follows:

4 unchanged sentences

5 Highest risk

Notes to Unaudited Consolidated Financial Statements

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

June 30, 2023

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

September 30, 2023

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

26 unchanged sentences

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

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

The remaining $ 1.4 million was converted to subordinated equity that accrues dividends at 8.0 % and the

Notes to Unaudited Consolidated Financial Statements

Company is entitled to receive waterfall profit upon a sale.

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

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

Notes to Unaudited Consolidated Financial Statements

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

3 unchanged sentences

_______________

(1) As of June 30, 2023 and December 31, 2022, the principal balance of this loan was the same as the carrying value.

(1) As of September 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 June 30, 2023.

There was no income from this investment from the date of modification on December 28, 2022 through September 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 June 30, 2023 and December 31, 2022, the unfunded commitment was $ 37.4 million and $ 22.4 million, respectively.

As of September 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 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.

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

As of September 30, 2023 and December 31, 2022, the carrying value of the Company ’ s investment in RESOF was $ 18.3 million and $ 36.8 million, respectively.

For the three and nine months ended September 30, 2023, the Company recorded equity income from RESOF of $ 0.9 million and $ 0.05 million, respectively.

The equity income for the nine months ended September 30, 2023 included the negative adjustments made 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 nine months ended September 30, 2023, the Company received distributions from RESOF of $ 0.7 million and $ 5.4 million, respectively.

For the three and nine months ended September 30, 2022, the Company recorded equity income from RESOF of $ 2.1 million and $ 5.0 million, respectively, and 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:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

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

9 unchanged sentences

Partners’ capital $ 120,388,538 $ 128,322,894

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

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

2023 2022 2023 2022

2 unchanged sentences

Net investment income 5,522,775 9,146,729 14,904,307 16,827,634

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

Unrealized appreciation (depreciation)

on investments 533,266 ( 644,446 ) ( 350,676 ) 917,745

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

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

Net increase in partners’ capital resulting

from operations $ 6,056,041 $ 8,502,283 $ 14,414,687 $ 17,745,379

Equity Investment in Joint Ventures

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.

As of September 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.

7 unchanged sentences

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Entity Co-owner (1)

17 unchanged sentences

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Net investments in real estate $ 191,498,145 $ 192,616,298

5 unchanged sentences

Members’ capital $ 49,703,743 $ 54,588,417

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

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

2023 2022 2023 2022

4 unchanged sentences

Unrealized (losses) gains ( 995,658 ) 1,617,548 ( 2,245,640 ) 3,023,925

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

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.

Net loss $ ( 2,873,932 ) $ ( 78,683 ) $ ( 9,129,669 ) $ ( 150,185 )

For the three and nine months ended September 30, 2023, the Company recorded net equity loss from the joint ventures and the mezzanine loan of $ 0.9 million and $ 2.2 million, respectively, and did not receive any distributions from the joint ventures.

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

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.

2 unchanged sentences

Real Estate Activities

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:

2023 — During the nine months ended September 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.

In October 2023, the Company conveyed its interest in the office building to the lender by deed-in-lieu of foreclosure.

Accordingly, the Company no longer owns the multi-tenant office building.

Additionally, during the nine months ended September 30, 2023, the Company entered into the following investments:

Location Number of

29 unchanged sentences

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

June 30, 2023 December 31, 2022

September 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 June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

11 unchanged sentences

Total $ 1,912,322 $ 1,274,849 $ 4,986,446 $ 3,740,140

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 September 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

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

The ground lease had a remaining lease term of 63.1 years as of September 30, 2023,

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.

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.

4 unchanged sentences

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

The Company intends vigorously to pursue the litigation.

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

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

On October 19, 2023, the Company conveyed its interest in the property to a subsidiary of Centennial Bank by deed in lieu of foreclosure.

Accordingly, the Company is no longer a party to the ground lease and will promptly take the technical steps necessary to terminate its involvement in the litigation.

Scheduled Future Minimum Rent Income

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

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

Years Ending December 31, Total

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

2023 (October 1 through December 31) $ 2,338,114

2024 9,456,610

5 unchanged sentences

Scheduled Annual Net Amortization of Intangibles

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:

Based on the intangible assets and liabilities recorded at September 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 (July 1 through December 31) $ ( 1,567,274 ) $ 2,757,572 $ ( 65,174 ) $ 1,125,124

2023 (October 1 through December 31) $ ( 783,637 ) $ 1,378,786 $ ( 65,174 ) $ 529,975

2024 ( 3,090,247 ) 5,423,504 ( 130,348 ) 2,202,909

11 unchanged sentences

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

June 30, 2023 December 31, 2022

September 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 June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

1 unchanged sentence

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

Six Months Ended June 30,

Nine Months Ended September 30,

Amounts included in the measurement of lease liability:

2 unchanged sentences

Operating lease $ 1,559,250 $ 1,559,250

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

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

Years Ending December 31, Operating Lease

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

2023 (October 1 through December 31) $ 519,750

2024 2,079,000

11 unchanged sentences

Investments with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

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

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

Notes to Unaudited Consolidated Financial Statements

for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

Investments measured and reported at fair value are classified and disclosed into one of the following categories based on the inputs as follows:

2 unchanged sentences

Level 3 — Significant unobservable inputs are based on the best information available in the circumstances, to the extent observable inputs are not available, including the Company’s own assumptions used in determining the fair value of investments.

Fair value for these investments are determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, and financing transactions subsequent to the acquisition of the investment.

Fair value for these investments is determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, and financing transactions subsequent to the acquisition of the investment.

The inputs into the determination of fair value require significant management judgment.

2 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 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.

As of September 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.

9 unchanged sentences

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

June 30, 2023

September 30, 2023

Fair Value Measurements

3 unchanged sentences

Marketable securities - debt securities 1,241,993 — — 1,241,993

1,203,973 — — 1,203,973

Marketable securities - equity securities 5,812,498 — — 5,812,498

Derivative - interest rate cap (2)

12 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

Marketable Securities Derivatives Marketable Securities

1 unchanged sentence

Purchases (1)

7,905,211 258,500 —

Proceeds from sale — — ( 1,259,417 )

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 and derivatives 4,259 53,549 ( 133,994 )

Unrealized losses on marketable securities and derivatives ( 998,680 ) ( 45,746 ) ( 133,994 )

Ending balance $ 7,054,491 $ 212,754 $ —

_______________

(1) On July 25, 2023, the Company disclosed that it acquired approximately 5.2 % of the outstanding shares of common stock of MITT as of July 24, 2023.

Financial Instruments Not Carried at Fair Value

2 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

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:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

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

14 unchanged sentences

payable 3 50,369,205 50,251,912 50,369,205 90,135,865 89,807,448 90,135,865

Note payable 3 37,000,000 36,562,785 37,000,000 — — —

Total liabilities $ 439,627,083 $ 431,441,619 $ 419,372,921 $ 451,349,737 $ 442,811,751 $ 431,569,684

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 June 30, 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 September 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,

There were no impairment charges for the three months ended September 30, 2023 and 2022.

The following table presents information about assets for which the Company recorded impairment charges and that were measured at fair value on a non-recurring basis for the nine months ended September 30, 2023 and 2022:

Nine Months Ended September 30,

Fair Value Impairment Charges Fair Value Impairment Charges

2 unchanged sentences

$ 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:

Impairment charges, and their related triggering events and fair value measurements 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.

For the nine months ended September 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.

In October 2023, the Company

Notes to Unaudited Consolidated Financial Statements

conveyed its interest in the office building to the lender by deed in lieu of foreclosure.

Accordingly, the Company no longer owns the multi-tenant office building.

For the nine months September 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

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

a discounted cash flow methodology to arrive at an estimate of the fair value of each respective investment in the portfolio using an estimated market yield.

Market quotations are not readily available for the Company’s real estate-related loan investments, all of which are included in Level 3 of the fair value hierarchy, and therefore these investments are valued utilizing a yield approach, i.e., a discounted cash flow methodology to arrive at an estimate of the fair value of each respective investment in the portfolio using an estimated market yield.

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

market credit

Notes to Unaudited Consolidated Financial Statements

spreads and yield curves;

market credit 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 June 30, 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 September 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 June 30, 2023 Primary Valuation Technique Unobservable Inputs June 30, 2023

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

Asset Category Minimum Maximum Weighted Average

4 unchanged sentences

Repurchase agreement payable 112,905,625 Discounted cash flow Discount rate 6.18 % 10.32 % 7.38 %

Obligations under participation agreements 13,789,071 Discounted cash flow Discount rate 17.14 % 17.14 % 17.14 %

Mortgage loan payable 101,118,741 Discounted cash flow Discount rate 6.25 % 9.17 % 7.89 %

1 unchanged sentence

Revolving line of credit 50,369,205 Discounted cash flow Discount rate 8.67 % 8.67 % 8.67 %

Note payable 37,000,000 Discounted cash flow Discount rate 10.92 % 10.92 % 10.92 %

Total Level 3 Liabilities $ 316,393,571

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 June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

10 unchanged sentences

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

(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.

(2) Amount for the nine months ended September 30, 2023 excluded $ 0.5 million of origination fee paid to the Manager in connection with the acquisition of the industrial buildings in 2023.

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

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

Notes to Unaudited Consolidated Financial Statements

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

Operating Expenses

8 unchanged sentences

Distributions Paid

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 ).

For the three months ended September 30, 2023 and 2022, the Company made distributions to investors totaling $ 4.7 million and $ 3.7 million, respectively, of which $ 4.7 million and none were returns of capital, respectively.

For the nine months ended September 30, 2023 and 2022, the Company made distributions to investors totaling $ 14.0 million and $ 11.4 million, respectively, of which $ 13.5 million and $ 5.4 million were returns of capital, respectively ( Note 11 ).

Due to Manager

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.

As of September 30, 2023 and December 31, 2022, approximately $ 3.2 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.

Notes to Unaudited Consolidated Financial Statements

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:

June 30, 2023

September 30, 2023

Participating Interests Principal Balance Carrying Value

17 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

June 30, 2023

Principal Balance Carrying Value

% Transferred Principal Balance Carrying Value

610 Walnut Investors LLC (1)

$ 20,244,654 $ 20,401,547 67.57 % $ 13,678,820 $ 13,789,070

$ 20,244,654 $ 20,401,547 $ 13,678,820 $ 13,789,070

Transfers Treated as Obligations Under Participation Agreements as of

December 31, 2022

6 unchanged sentences

(1) Participant was a third party.

In September 2023, the participant conveyed its interest in the obligation under participation agreements to the Company and the Company recognized a gain on debt extinguishment of $ 14.1 million.

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

1 unchanged sentence

, 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

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.

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).

11 unchanged sentences

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.

As of September 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

As previously reported by Terra BDC, on February 10, 2021, Terra BDC issued $ 34.8 million in aggregate principal amount of 7.00 % fixed-rate notes due 2026, for net proceeds of $ 33.7 million after deducting underwriting commissions of $ 1.1 million and on February 26, 2021, the underwriters exercised the option to purchase an additional $ 3.6 million of the notes for net proceeds of $ 3.5 million, after deducting underwriting commissions of $ 0.1 million (collectively the “ 7.00 % Senior Notes Due 2026”).

Notes to Unaudited Consolidated Financial Statements

for net proceeds of $ 3.5 million, after deducting underwriting commissions of $ 0.1 million (collectively the “ 7.00 % Senior Notes Due 2026”).

Pursuant to the Merger Agreement, Terra LLC agreed to take all necessary action to assume the payment of the principal of and interest on all of the 7.00 % Senior Notes Due 2026 outstanding as of the Effective Time and the performance of every covenant of the Indenture, dated February 10, 2021 (the “TIF6 Indenture”), between Terra BDC and the Trustee, as supplemented by the First Supplemental Indenture, dated February 10, 2021, by and between Terra BDC and the Trustee (the “First Supplemental Indenture”), to be performed or observed by Terra BDC, including, without limitation, the execution and delivery to the Trustee of a supplement to the TIF6 Indenture in form satisfactory to the Trustee.

5 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

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.

Terra LLC may redeem the 7.00 % Senior Notes Due 2026 in whole or in part at any time on or after February 10, 2023, at a redemption price equal to 100 % of the outstanding principal amount thereof, plus accrued and unpaid interest.

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

2 unchanged sentences

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

June 30, 2023 December 31, 2022

September 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 $ 1.7 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.

(1) Carrying value is net of unamortized issue discount of $ 1.6 million and $ 1.9 million, and unamortized deferred financing costs of $ 0.6 million and $ 0.7 million as of September 30, 2023 and December 31, 2022, respectively.

(2) Carrying value is net of unamortized purchase discount of $ 3.5 million and $ 4.3 million as of September 30, 2023 and December 31, 2022, respectively.

Revolving Line of Credit

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

On January 4, 2022, the Company amended the Revolving Line of Credit to increase the maximum amount available to $ 125.0 million and extended the maturity date of the facility to March 12, 2024 with an annual 12-month extension available at the Company’s option, which are subject to certain conditions.

On January 4, 2022, the Company amended the Revolving Line of Credit to increase the maximum amount available to $ 125.0 million and extended the maturity date of the

Notes to Unaudited Consolidated Financial Statements

facility to March 12, 2024 with an annual 12-month extension available at the Company’s option, which are subject to certain conditions.

On August 3, 2022, the Company further amended the Revolving Line of Credit to increase the borrowing sub-limit in New York City and to allow for loans acquired through participation agreements as eligible assets.

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

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

As of September 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 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.

As of September 30, 2023 and December 31, 2022, borrowings under the Revolving Line of Credit were $ 50.4 million and $ 90.1 million, respectively, collateralized by $ 87.5 million and $ 177.4 million of eligible assets, respectively.

For the nine months ended September 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 $ 96.8 million and $ 55.6 million, respectively.

Repurchase Agreements

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

In connection with the UBS Master Repurchase Agreement, the Company entered into a Guarantee Agreement in favor of the Buyer (the “UBS Guarantee Agreement”), pursuant to which the Company will guarantee the payment of up to 25 % of the amount outstanding under the UBS Master Repurchase Agreement.

In connection with the UBS Master Repurchase Agreement, the Company entered into a Guarantee Agreement in favor of the Buyer (as amended, the “UBS Guarantee Agreement”), pursuant to which the Company will guarantee the payment of up to 25 % of the amount outstanding under the UBS Master Repurchase Agreement.

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

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

(ii) total liquidity of at least the greater of $ 15 million or 10 % of the then-current outstanding amount under the UBS Master Repurchase Agreement (iii) tangible net worth at an amount equal to or greater than $ 215.7 million plus 75 % of new capital contributions thereafter;

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

(ii) total liquidity of at least the

Notes to Unaudited Consolidated Financial Statements

greater of $ 15 million or 10 % of the then-current outstanding amount under the UBS Master Repurchase Agreement (iii) tangible net worth at an amount equal to or greater than $ 215.7 million plus 75 % of new capital contributions thereafter;

(iv) an EBITDA to interest expense ratio (the “interest coverage ratio”) of not less than 1.25 to 1.00;

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

In March 2022, the Company amended the UBS Guarantee Agreement to reduce the EBITDA to interest expense ratio of not less than 1.25 to 1.00, and as of June 30, 2023 and December 31, 2022, the Company was in compliance with these covenants.

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

As of September 30, 2023, the Company obtained a modification from the Buyer reducing the minimum interest coverage ratio to 1.10 to 1.00 (from 1.25 to 1.00) for the quarter ending September 30, 2023.

Absent any further modifications or waivers from the Buyer after September 30, 2023, the interest coverage ratio threshold will revert to 1.25 to 1.00 for the quarters ending December 31, 2023 and thereafter.

The modification also reduces the minimum tangible net worth to $ 225 million plus 75 % of new capital contributions thereafter (from $ 269 million plus 75 % of new capital contributions) for the quarter ending September 30, 2023 and all subsequent quarters.

Accordingly, the Company was in compliance with all the financial covenants (as so modified) for the quarter ending September 30, 2023.

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

June 30, 2023

September 30, 2023

Collateral Borrowings Under Master Repurchase Agreement

5 unchanged sentences

$ 51,100,000 $ 52,070,287 $ 52,153,393 $ 37,450,000

Notes to Unaudited Consolidated Financial Statements

December 31, 2022

7 unchanged sentences

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

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.

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

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

Goldman Master Repurchase Agreement

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In connection with the Repurchase Agreement, the Company incurred financing costs of $ 0.6 million, which are being amortized to interest expense over the term of the facility.

Notes to Unaudited Consolidated Financial Statements

Additionally, because the Repurchase Agreement was accounted for as a loan modification of the term loan, the remaining unamortized deferred financing fees of $ 1.7 million under the term loan were carried over to the Repurchase Agreement to be amortized over the life of the Repurchase Agreement.

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

Notes to Unaudited Consolidated Financial Statements

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

Based on current projections, it appears likely that the Company will not satisfy the interest coverage ratio as of December 31, 2023 (all other financial covenants are currently projected to be satisfied).

The Company has had discussions with the GS Buyer about this situation, and the GS Buyer has preliminarily indicated its willingness to modify the interest coverage ratio prospectively to a lower threshold (from 1.50 to 1.00) for the quarter ending December 31, 2023 and all subsequent quarters (consistent with analogous modifications the GS Buyer has made with other borrowers under similar repurchase facilities), so that no default would currently be expected to arise thereunder for the quarter ending December 31, 2023 or subsequent quarters.

The Company expects to modify the Guarantee Agreement prior to December 31, 2023.

However, in the event such modification does not occur, the GS Buyer would have remedies under the Repurchase Agreement including, among others, the right to accelerate all amounts due to the GS Buyer under the Repurchase Agreement, to charge interest at a default rate (equal to 5.0 % per annum above the non-default rate), to retain all cash flow from the loans originated by the Company which are subject to the Repurchase Agreement, and/or sell such loans in a private sale on terms possibly unfavorable to the Company.

The consequences of an exercise of such remedies could be materially adverse to the Company resulting in a potential loss in net asset value equal to the difference between the carrying value of collateral and the carrying value of borrowings under the Repurchase Agreement as well as maximum recourse exposure of up to 25 % of the total principal amount outstanding under the Repurchase Agreement.

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

June 30, 2023

September 30, 2023

Collateral Borrowings Under Repurchase Agreement

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AGRE DCP Palm Springs, LLC 43,222,382 43,861,312 43,549,187 2/18/2022 28,094,548 Term SOFR + 1.315 % ( 1.8 % floor)

Patrick Henry Recovery Acquisition, LLC 18,000,000 18,043,198 17,923,436 2/18/2022 14,400,000 Term SOFR + 0.865 % ( 1.5 % floor)

Patrick Henry Recovery Acquisition,

LLC 18,000,000 18,044,070 17,980,843 2/18/2022 14,400,000 Term SOFR + 0.865 % ( 1.5 % floor)

Hillsborough Owners LLC 21,826,479 21,926,266 21,977,570 7/14/2023 12,888,441 Term SOFR +

5 % ( 0.25 % Floor)

$ 141,744,174 $ 142,526,961 $ 134,407,600 $ 75,455,625

Notes to Unaudited Consolidated Financial Statements

December 31, 2022

7 unchanged sentences

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

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

Patrick Henry Recovery

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

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

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

For the 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.

For the nine months ended September 30, 2023 and 2022 the Company borrowed $ 14.2 million and $ 119.8 million, respectively, under the Repurchase Agreement and made repayments of $ 58.6 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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Terra BDC also paid, with respect to any unused portion of the Term Loan, a commitment fee of 0.75 % per annum.

Terra BDC could prepay any loan, in whole or in part, together with all accrued but unpaid interest thereon, upon at least

30 but not more than 60 days’ prior notice to the Agent.

If Terra BDC elected to make such prepayments prior to October 9, 2023, Terra BDC would also be required to pay a make whole premium, being the present value at such date of (1) the principal

amount being prepaid of such loan, plus (2) all remaining required interest payments due on the principal amount being prepaid of such loan through the maturity date (excluding accrued but unpaid interest to the date on which the make whole premium

Notes to Unaudited Consolidated Financial Statements

becomes owed), computed using a discount rate equal to the applicable U.S.

Terra BDC could prepay any loan, in whole or in part, together with all accrued but unpaid interest thereon, upon at least 30 but not more than 60 days’ prior notice to the Agent.

If Terra BDC elected to make such prepayments prior to October 9, 2023, Terra BDC would also be required to pay a make whole premium, being the present value at such date of (1) the principal amount being prepaid of such loan, plus (2) all remaining required interest payments due on the principal amount being prepaid of such loan through the maturity date (excluding accrued but unpaid interest to the date on which the make whole premium becomes owed), computed using a discount rate equal to the applicable U.S.

Treasury rate (as set forth in the Credit Agreement) plus 50 basis points, over (B) the principal amount being prepaid of such loan;

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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.

As of September 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 June 30, 2023 and December 31, 2022 , Terra LLC was in compliance with these covenants.

As of September 30, 2023 and December 31, 2022, Terra LLC was in compliance with these covenants.

Mortgage Loans Payable

Mortgage Loan Financing Activities

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

2023 — During the nine months ended September 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;

As of September 30, 2023, total amount funded was $ 33.0 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:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Lender Current

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April 9, 2027 32,999,135 32,285,757 48,387,162 — — —

GSF Lender, LLC (3)

June 6, 2028 40,250,000 39,278,946 82,363,391 — — —

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___________________

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.

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

In October 2023, the Company conveyed its interest in the office building to the lender by deed-in-lieu of foreclosure and the mortgage loan payable is effectively extinguished.

(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.

In September 2023, the Company borrowed $ 37.0 million under a promissory note that is collateralized by the underlying property of a $ 59.6 million senior loan.

The promissory note bears interest at an annual rate of Term SOFR plus 5.6 % with a combined floor of 10.9 % and matures on March 22, 2025.

Scheduled Debt Principal Payments

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

Notes to Unaudited Consolidated Financial Statements

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

Years Ending December 31, Total

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

2023 (October 1 through December 31) $ 27,603,118

2024 178,274,831

1 unchanged sentence

2026 123,500,000

2027 32,999,136

Thereafter 40,250,000

1 unchanged sentence

Total $ 431,441,619

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

At September 30, 2023 and December 31, 2022, the unamortized deferred debt issuance costs were $ 8.2 million and $ 8.6 million, respectively.

Obligations Under Participation Agreements

2 unchanged sentences

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 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.

As of September 30, 2023, there were no obligations under participation agreements.

As of December 31, 2022, obligations under participation agreements had a carrying value of $ 12.7 million, and the carrying value of the loans that are associated with these obligations under participation agreements was $ 18.7 million, (see “ Participation Agreements ” in Note 8 ).

The weighted-average interest rate on the obligations under participation agreements was 16.4 % as of December 31, 2022.

Commitments and Contingencies

1 unchanged sentence

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 $ 53.2 million and $ 47.3 million as of June 30, 2023 and December 31, 2022, respectively.

These fundings amounted to approximately $ 44.4 million and $ 47.3 million as of September 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.

1 unchanged sentence

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

As of September 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

Notes to Unaudited Consolidated Financial Statements

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

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

1 unchanged sentence

Additionally, as described above under “ Note 6 .

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.

Real Estate Owned, Net—Real Estate Operating Revenue and Expenses,” as of September 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

Notes to Unaudited Consolidated Financial Statements

the prior lease year or 9 % of the fair market value of the land.

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

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The Company intends vigorously to pursue the litigation.

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

On October 19, 2023, the Company conveyed its interest in the property to a subsidiary of Centennial Bank by deed-in-lieu of foreclosure.

Accordingly, the Company is no longer a party to the ground lease and will promptly take the technical steps necessary to terminate its involvement in the litigation.

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.

The complaint was related to a loan made by Centennial Bank to Terra Ocean Ave., LLC (“Terra Ocean”), and alleged 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.

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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:

2 unchanged sentences

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.

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

On October 19, 2023, Terra Ocean conveyed to Centennial Bank, by deed-in-lieu-of-foreclosure, the leasehold interest that is the subject of the Lease Litigation.

In connection with that conveyance, the Company and Terra Ocean were released by Centennial Bank from all liability and obligations in connection with the loan originally made by Centennial Bank to Terra Ocean that was secured by its leasehold interest.

Accordingly, the complaints described above have been irrevocably and permanently dismissed, and the Company and Terra Ocean have no further obligation or potential liability in connection therewith.

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

1 unchanged sentence

The following table presents earnings per share:

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

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

2023 2022 2023 2022

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

Net loss $ ( 17,477,698 ) $ ( 6,891,942 ) $ ( 36,167,284 ) $ ( 6,357,395 )

Series A preferred stock dividend declared — ( 3,906 ) ( 3,907 ) ( 11,718 )

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

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

Notes to Unaudited Consolidated Financial Statements

Net loss allocable to common stock $ ( 17,477,698 ) $ ( 6,895,848 ) $ ( 36,171,191 ) $ ( 6,369,113 )

Weighted-average shares outstanding - basic

and diluted 24,335,576 19,487,460 24,335,460 19,487,460

Loss per share - basic and diluted $ ( 0.72 ) $ ( 0.35 ) $ ( 1.49 ) $ ( 0.33 )

Preferred Stock Classes

2 unchanged sentences

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 June 30, 2023, there were no Preferred Stock issued or outstanding.

As of September 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.

Notes to Unaudited Consolidated Financial Statements

Series A Preferred Stock

13 unchanged sentences

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 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.

As of September 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.

2 unchanged sentences

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 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.

Notes to Unaudited Consolidated Financial Statements

Additionally, for the three and nine months ended September 30, 2023 and 2022, the Company made distributions to preferred stockholders of none and $ 3,906 , respectively, and $ 3,907 and $ 11,718 , 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 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.

For the nine months ended September 30, 2023, the Company issued 341 shares of Class B Common Stock for a total of $ 4,563 pursuant to the Plan.

Subsequent Events

Management has evaluated subsequent events through the date the consolidated financial statements were available to be issued.

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

Termination of WMC Merger Agreement

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

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 has determined that there are no material events other than the deed-in-lieu of foreclosure transaction discussed in Note 6.

Real Estate Owned, Net and Note 9.

Debt that would require adjustment to, or disclosure in, the Company’s consolidated financial statements.

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

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

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

• liquidity transactions that may be available to us in the future, including a liquidation of our assets, a sale of our company, a listing of our shares of common stock on a national securities exchange, an amendment of our charter to incorporate certain provisions generally required by state securities regulators in interpreting and applying the terms of

the Statement of Policy Regarding Real Estate Investment Trusts published by the North American Securities Administrators Association to allow us to publicly sell unlisted shares (provided that such NASAA REIT Guidelines-based provisions would only take effect when a registration statement related to the publicly offered unlisted shares is declared effective), an adoption of a share repurchase plan or a strategic business combination, in each case, which may include the distribution of our common stock indirectly owned by certain of our affiliate funds (the “Terra Funds”) to the ultimate investors in the Terra Funds, and the timing of any such transactions;

• actions and initiatives of the U.S.

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

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.

As of September 30, 2023, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 22 loans in nine states with an aggregate net principal balance of $526.8 million, a weighted average coupon rate of 13.0% and a weighted average remaining term to maturity of 0.6 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 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.

As of September 30, 2023, our portfolio included underlying properties located in 22 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.

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

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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 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;

Following the consummation of the BDC Merger (as defined below) and as of September 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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Recent Developments

Merger Agreements

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

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

On June 28, 2023, we announced we 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 August 8, 2023, WMC terminated the WMC Merger Agreement pursuant to its terms (the “Termination”), and we were paid a termination fee of $3.0 million.

For more information about the Termination, refer to Note 3 included in Part I, Item 1 of this quarterly report on Form 10-Q.

Portfolio Summary

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

June 30, 2023

September 30, 2023

Fixed Rate Floating

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(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.

Coupon rates shown were determined using LIBOR of 5.43%, average SOFR of 5.32% and Term SOFR of 5.32% as of September 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 September 30, 2023 and December 31, 2022, amount included $339.9 million and $413.1 million of senior mortgages used as collateral for $200.3 million and $261.0 million of borrowings under credit facilities, respectively.

(3) As of September 30, 2023 and December 31, 2022, 15 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;

In addition to our net loan portfolio, as of September 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.

The real estate and related lease intangible assets and liabilities had a net carrying value of $157.8 million and $40.6 million as of September 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023, the mortgage loans payable encumbering the industrial buildings and the multi-tenant office building had an outstanding principal amount of $100.9 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.

Additionally, as of September 30, 2023 and December 31, 2022, we owned 14.9% and 27.9%, 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.

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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.

As of September 30, 2023 and December 31, 2022, these equity investments had total carrying value of $32.5 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 June 30, 2023 and December 31, 2022 was $11.88 and $13.23, respectively.

Our book value per share of Class B Stock Common Stock as of September 30, 2023 and December 31, 2022 was $10.97 and $13.23, respectively.

Portfolio Investment Activity

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.

For the three months ended September 30, 2023 and 2022, we invested $3.9 million and $94.8 million in new and add-on investments and had $16.5 million and $31.6 million of repayments, resulting in net investments of $20.4 million and $63.2 million, respectively.

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

For the nine months ended September 30, 2023 and 2022, we invested $37.1 million and $120.5 million in new and add-on investments and had $29.8 million and $43.5 million of repayments, resulting in net investments of $7.3 million and $77.0 million, respectively.

Real Estate Ownership

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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:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Loan Structure Principal Balance Carrying

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Credit facility — — — % 28,802,833 29,080,183 4.7 %

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

Allowance for credit losses — (60,578,587) (12.9) % — (25,471,890) (4.1) %

Total $ 526,796,770 $ 470,682,291 100.0 % $ 633,210,501 $ 613,810,173 100.0 %

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Property Type Principal Balance Carrying

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Infrastructure 21,250,000 21,436,716 4.6 % 21,250,000 21,840,359 3.6 %

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

Allowance for credit losses — (60,578,587) (12.9) % — (25,471,890) (4.1) %

Total $ 526,796,770 $ 470,682,291 100.0 % $ 633,210,501 $ 613,810,173 100.0 %

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Geographic Location Principal Balance Carrying

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Georgia 75,632,491 75,938,028 16.1 % 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 50,300,532 10.7 % 49,250,000 50,698,251 8.3 %

Washington 31,224,966 31,111,001 6.6 % 56,671,267 57,027,639 9.3 %

Arizona 31,000,000 31,283,132 6.6 % 31,000,000 31,276,468 5.1 %

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

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

Allowance for credit losses — (60,578,587) (12.9) % — (25,471,890) (4.1) %

Total $ 526,796,770 $ 470,682,291 100.0 % $ 633,210,501 $ 613,810,173 100.0 %

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The following table presents the comparative results of our operations:

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

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

2023 2022 Change 2023 2022 Change

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Depreciation and amortization 2,551,323 1,718,374 832,949 4,989,800 5,155,119 (165,319)

Impairment charge 11,765,540 — 11,765,540 11,765,540 1,604,989 10,160,551

Impairment charges — — — 11,765,540 1,604,989 10,160,551

Professional fees 1,081,803 594,318 487,485 2,849,125 2,348,190 500,935

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37,763,034 16,865,716 20,897,318 70,561,587 34,675,633 35,885,954

Operating income (7,037,865) 6,097,994 (13,135,859) 2,986,073 8,990,466 (6,004,393)

Operating (loss) income (20,653,463) (3,202,550) (17,450,913) (17,667,390) 5,787,916 (23,455,306)

Other income and expenses —

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notes payable (2,416,518) (1,436,107) (980,411) (7,216,091) (4,299,167) (2,916,924)

Interest expense on note payable (107,702) — (107,702) (107,702) (107,702)

Interest expense on secured

borrowing — (397,932) 397,932 — (1,507,572) 1,507,572

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

Gain on extinguishment of debt 14,079,379 — 14,079,379 14,079,379 — 14,079,379 14,079,379

Unrealized losses on investments,

net (1,040,192) — (1,040,192) (982,384) (133,994) (848,390)

Income (loss) from equity

investment in unconsolidated

investments 41,839 1,483,846 (1,442,007) (2,154,955) 4,267,513 (6,422,468)

Gain on sale of interests in

unconsolidated investments — 799,827 (799,827) — 799,827 (799,827)

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

Realized (losses) gains on

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3,175,765 (3,689,392) 6,865,157 (18,499,894) (12,145,311) (6,354,583)

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

Net loss $ (17,477,698) $ (6,891,942) $ (10,585,756) $ (36,167,284) $ (6,357,395) $ (29,809,889)

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 June 30, 2023 Three Months Ended June 30, 2022

Three Months Ended September 30, 2023 Three Months Ended September 30, 2022

Weighted Average Principal Amount (1)

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and secured borrowing (13,690,945) 17.3 % (68,210,457) 10.5 %

Promissory note payable (3,700,000) 10.9 % — —

Repurchase agreement payable (117,134,447) 7.4 % (193,403,018) 4.8 %

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and secured borrowing (13,690,945) 17.3 % (25,547,563) 8.1 %

Promissory note payable (3,700,000) 10.9 % — —

Repurchase agreement payable (117,134,447) 7.4 % (193,403,018) 4.8 %

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$ 126,662,325 14.5 % $ 95,880,160 13.1 %

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

Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022

Weighted Average Principal Amount (1)

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and secured borrowing (13,353,339) 17.3 % (77,530,600) 10.6 %

Promissory note payable (912,329) 10.9 % — — %

Repurchase agreement payable (143,304,056) 7.4 % (209,832,900) 4.8 %

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and secured borrowing (13,353,339) 17.3 % (33,158,284) 8.1 %

Promissory note payable (912,329) 10.9 % — — %

Repurchase agreement payable (143,304,056) 7.4 % (209,832,900) 4.8 %

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Interest Income

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.

For the three months ended September 30, 2023 as compared to the same period in 2022, interest income increased by $2.9 million, primarily due to an increase in contractual interest income as a result of an increase in the weighted average coupon rate due to increases in the underlying index rates, partially offset by a decrease in the weighted average principal balance of gross loans.

For the nine months ended September 30, 2023 as compared to the same period in 2022, interest income increased by $15.2 million, primarily due to an increase in contractual interest income as a result of an increase in the weighted average principal balance of gross loans due to new loans we originated in 2022 and loans we acquired in connection with the BDC Merger, as well as an increase in the weighted average coupon rate due to increases in the underlying index rates.

Real Estate Operating Revenue

For the three and 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.

For the three months ended September 30, 2023 as compared to the same period in 2022, real estate operating revenue increased by $1.2 million, primarily due to rental income contributed by the industrial buildings that we acquired in 2023.

For the nine months ended September 30, 2023 as compared to the same period in 2022, real estate operating revenue decreased by $0.7 million, primarily due to lease termination income recognized in 2022 (there was no such lease termination income recognized in 2023), partially offset by rental income contributed by the industrial buildings acquired in 2023.

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.

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

For the three and nine months ended September 30, 2022, we recognized prepayment fee income of $0.8 million and $2.0 million, respectively, on loans with minimum yield provisions repaid before maturity.

Other Operating Income

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.

For the three months ended September 30, 2023 as compared to the same period in 2022, other operating income increased by $0.2 million, primarily due to dividend income recognized on marketable securities (there was no such dividend income recognized in 2022).

For the nine months ended September 30, 2023 as compared to the same period in 2022, other operating income decreased by $0.1 million, primarily due to a decrease in application fees income on deals under application, partially offset by an increase in dividend income recognized on marketable securities.

Operating Expenses Reimbursed to Manager

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

For the three and 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.

For the three and nine months ended September 30, 2023 as compared to the same periods in 2022, operating expenses reimbursed to our Manager increased by $0.4 million and $0.6 million, respectively, primarily due to an increase in the allocation ratio resulting from an increase in total assets under management primarily due to loans acquired in connection with the BDC Merger.

Asset Management Fee

Under the terms of the Management Agreement with our Manager, we paid our Manager a monthly asset management fee at an annual rate of 1% of the aggregate funds under management, which included the aggregate gross acquisition price, net of participation interest sold to affiliates, for each real estate-related investment and cash held by us.

For the three and 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.

For the three and nine months ended September 30, 2023 as compared to the same periods in 2022, asset management fees increased by $0.4 million and $1.4 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 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.

For the three and nine months ended September 30, 2023 as compared to the same periods in 2022, asset servicing fees increased by $0.1 million and $0.3 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

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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 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.

For the three and nine months ended September 30, 2023, provision for credit losses increased by $17.9 million and $21.6 million, respectively, primarily related to the decline in fair value of three loans in the portfolio.

Depreciation and Amortization

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 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.

For the three months ended September 30, 2023 as compared to the same period in 2022, depreciation and amortization increased by $0.8 million, as a result of the industrial buildings that we acquired in 2023.

For the nine months ended September 30, 2023 as compared to the same period in 2022, depreciation and amortization decreased by $0.2 million, primarily due to the accelerated amortization of lease intangibles through November 2022 in connection with a lease termination with no corresponding accelerated amortization recognized in nine months ended September 30, 2023, partially offset by an increase in depreciation and amortization driven by the industrial buildings that we acquired in 2023.

Impairment Charges

For the three months ended September 30, 2023 and 2022, there were no impairment charges.

For the nine months ended September 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.

In October 2023, we conveyed our interest in the office building to the lender by deed-in-lieu of foreclosure and accordingly, we no longer own the office building.

For the nine months ended September 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 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.

For both the three and nine months ended September 30, 2023, as compared to the same periods in 2022, professional fees increased by $0.5 million, primarily due to legal fees incurred in connection with a review of strategic alternatives for our company in 2023.

Directors’ Fees

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.

For the three and nine months ended September 30, 2023 as compared to the same periods in 2022, directors’ fees increased by $0.0 million and $0.2 million, respectively, as a result of an increase in the size of our Board due to the BDC Merger.

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.

For the three and nine months ended September 30, 2023 as compared to the same periods in 2022, interest expense from obligations under participation agreements decreased by $0.3 million and $1.5 million, respectively, as a result of a decrease in the weighted average principal amount outstanding, primarily due to the release of obligations under participation agreements with Terra BDC in connection with the BDC Merger, partially offset by an increase in the index rate on the outstanding obligations under participation agreements.

Interest Expense on Repurchase Agreements Payable

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

For the three and 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.

For the three and nine months ended September 30, 2023, as compared to the same periods in 2022, interest expense on repurchase agreement payable increased by $0.1 million and $3.7 million, respectively, as a result of an increase in the weighted average coupon rate, partially offset by a decrease in the weighted average principal amount outstanding on repurchase agreements payable.

Interest Expense on Mortgage Loans 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.

For the three and nine months ended September 30, 2023, as compared to the same periods in 2022, interest expense on mortgage loan payable increased by $1.6 million and $2.9 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 an increase in the index rate on the existing mortgage loan payable.

Interest Expense on Revolving Line of Credit

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

For the three and 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.

For the three and nine months ended September 30, 2023, as compared to the same periods in 2022, interest expense on revolving line of credit increased by $1.3 million and $4.6 million, respectively, as a result of 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

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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.

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

For the three and nine months ended September 30, 2023, as compared to the same periods in 2022, interest expense on term loan payable increased by $0.5 million and $1.1 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

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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 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.

For the three and nine months ended September 30, 2023, as compared to the same periods in 2022, interest expense on unsecured notes payable increased by $1.0 million and $2.9 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 Note Payable

In September 2023, we borrowed $37.0 million under a promissory note that is collateralized by the underlying property of a $59.6 million senior loan.

The promissory note bears interest at an annual rate of Term SOFR plus 5.6% with a combined floor of 10.9% and matures on March 22, 2025.

For both the three and nine months ended September 30, 2023, interest expense on note payable was $0.1 million.

There was no such interest expense on notes payable in the same periods in 2022.

Interest Expense on Secured Borrowing

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The secured borrowing was repaid in August 2022.

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

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

For the three and nine months ended September 30, 2022, interest expense on secured borrowing was $0.4 million and $1.5 million, respectively.

Gain on Extinguishment of Debt

In September 2023, the counterparty to a participation agreement conveyed its interest in the obligation under participation agreement to us and we recognized a gain on debt extinguishment of $14.1 million.

There was no such gain for the three and nine months ended September 30, 2022.

Unrealized Losses on Investments, Net

For the three and nine months ended September 30, 2023, as compared to the same periods in 2022, unrealized losses on investments, net increased by $1.0 million and $0.8 million, respectively, primarily due to a decrease in the fair value of our marketable securities at period end.

Income (Loss) from Equity Investment in Unconsolidated Investments

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

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

As of 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.

As of September 30, 2023 and 2022, we owned 14.9% and 27.9% of the equity interest in RESOF, respectively.

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

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

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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.

For the three and nine months ended September 30, 2023, we recognized income (loss) from equity investment in unconsolidated investments of $0.04 million and $(2.2) million, respectively, which consisted of equity income from RESOF of $0.9 million and $0.05 million, respectively, and net equity loss from the joint ventures and the mezzanine loan of $0.9 million and $2.2 million, respectively.

The equity income (loss) from RESOF included adjustments made 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 the result of depreciation and amortization and interest expense recognized by the joint ventures.

For the three and nine months ended September 30, 2022, we recognized income from equity investment in unconsolidated investments of $1.5 million and $4.3 million, respectively, which consisted of equity income from RESOF of $2.1 million and $5.0 million, respectively, and equity loss from the joint ventures of $0.6 million and $0.7 million, respectively.

Gain on Sale of Interests in Unconsolidated Investments

In September 2022, we sold a 53% effective interest in two joint ventures and 59% effective interest in another joint venture for a total of $33.7 million and recognized a gain on sale of $0.8 million for the three and nine months ended September 30, 2022.

There was no such gain for the three and nine months ended September 30, 2023.

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 nine months ended September 30, 2022, excluding impairment charges of $1.6 million recognized in March 2022 and $3.4 million recognized in December 2021.

For the three and nine months ended September 30, 2023 as compared to the same periods in 2022, the resulting net loss increased by $10.6 million and $29.8 million, respectively.

Financial Condition, Liquidity and Capital Resources

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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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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 October 2023, we conveyed our interest in the office building to the lender by deed in lieu of foreclosure and the mortgage loan payable

was effectively extinguished.

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

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.

The term loan currently bears interest at an annual rate of SOFR plus 7.375% with a SOFR floor of 5.0% and matures on March 31, 2024.

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

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Summary of Financing

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

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

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

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Variable Rate:

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

Mortgage loan payable N/A $ 27,603,118 N/A Term SOFR + 3.85% (Term SOFR floor of 2.23%)

Mortgage loan payable $37,000,000 32,999,135 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 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%

Term loan N/A 15,000,000 N/A SOFR + 7.375% (SOFR floor of 5.0%) 3/31/2024

Note payable N/A 37,000,000 N/A Term SOFR + 5.60% (Combined floor of 10.90% 3/22/2025

Line of credit 125,000,000 50,369,205 $74,630,795 LIBOR + 3.25% (Combined Floor of 4.0%) 3/12/2024

UBS repurchase

agreement (1)

195,000,000 37,450,000 157,550,000 LIBOR or Term SOFR if LIBOR is not available plus a spread ranging from 1.60% to 2.25% 11/7/2024

GS repurchase

agreement (2)

200,000,000 75,455,625 124,544,375 Term SOFR (subject to underlying loan floors on a case-by-case basis) plus a spread ranging from 1.75% to 3.00%) 2/18/2024

$557,000,000 $ 275,877,083 $356,725,170

Cash Flows Provided by Operating Activities

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 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 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.

_______________

(1) The credit agreement contains financial covenants, which require us to maintain certain minimum or maximum amounts and ratios.

As of September 30, 2023, we obtained a modification from the lender reducing the minimum interest coverage ratio to 1.10 to 1.00 (from 1.25 to 1.00) for the quarter ending September 30, 2023.

Absent any further modifications or waivers from the lender after September 30, 2023, the interest coverage ratio threshold will revert to 1.25 to 1.00 for the quarters ending December 31, 2023 and thereafter.

The modification also reduces the minimum tangible net worth to $225 million plus 75% of new capital contributions thereafter (from $269 million plus 75% of new capital contributions) for the quarter ending September 30, 2023 and all subsequent quarters.

Accordingly, we were in compliance with all the financial covenants (as so modified) for the quarter ending September 30, 2023.

(2) The credit agreement contains financial covenants, which require us to maintain certain minimum or maximum amounts and ratios.

Based on current projections, it appears likely that we will not satisfy the interest coverage ratio as of December 31, 2023 (all other financial covenants are currently projected to be satisfied).

We have had discussions with the lender about this situation, and the lender has preliminarily indicated its willingness to modify the interest coverage ratio prospectively to a lower threshold (from 1.50 to 1.00) for the quarter ending December 31, 2023 and all subsequent quarters (consistent with analogous modifications the lender made with other borrowers under similar repurchase facilities), so that no default would currently be expected to arise thereunder for the quarter ending December 31, 2023 or subsequent quarters.

We expect so to modify the credit agreement prior to December 31, 2023.

However, in the event such modification does not occur, the lender would have remedies under the credit agreement including, among others, the right to accelerate all amounts due to the lender under the facility, to charge interest at a default rate (equal to 5.0% per annum above the non-default rate), to retain all cash flow from the loans originated by us which are subject to the facility agreement, and/or sell such loans in a private sale on terms possibly unfavorable to us.

The consequences of an exercise of such remedies could be materially adverse to us resulting in a potential loss in net asset value equal to the difference between the carrying value of collateral and the carrying value of borrowings under the credit agreement as well as

maximum recourse exposure of up to 25% of the total principal amount outstanding under the credit agreement.

Cash Flows Provided by (Used in) Operating Activities

For the nine months ended September 30, 2023, as compared to the same period in 2022, cash flows provided by operating activities increased by $9.7 million, primarily due to an increase in net contractual interest income.

Cash Flows Provided by (Used in) Investing Activities

For the nine months ended September 30, 2023, cash flows provided by investing activities were $0.6 million, primarily related to proceeds from repayments of loans of $123.4 million, proceeds from sale of debt securities of $20.0 million and return of capital on unconsolidated investments of $11.3 million, partially offset by origination and purchase of loans of $73.1 million, purchase of real estate properties of $52.5 million, and purchase of debt securities of $20.0 million and purchase of marketable securities of $7.9 million.

For the nine months ended September 30, 2022, cash flows used in investing activities were $3.0 million, primarily related

to origination and purchase of loans of $187.9 million and purchase of equity interests in unconsolidated investments of $18.2 million, partially offset by proceeds from repayments of loans of $158.8 million, proceeds from sale of interests in joint ventures of $33.7 million, proceeds from sale of real estate of $8.6 million and proceeds from sale of marketable securities of $1.3 million.

Cash Flows Used in Financing Activities

For the nine months ended September 30, 2023, cash flows used in financing activities were $13.5 million, primarily due to repayment of borrowing under the repurchase agreements of $72.2 million, repayment of borrowing under the revolving line of credit of $96.8 million, distributions paid of $14.0 million and repayment of borrowing under the term loan of $10.0 million, partially offset by proceeds from mortgage loan payable of $73.2 million, proceeds from borrowing under the revolving line of credit of $57.0 million, proceeds from borrowing under a note payable of $36.6 million, proceeds from borrowing under the repurchase agreements of $14.2 million and proceeds from obligations under participation agreements of $1.5 million.

For the nine months ended September 30, 2022, cash flows used in financing activities were $12.1 million, primarily due to

repayments on borrowings under the term loan of $93.8 million, repayments of obligations under participation agreements and secured borrowing of $60.9 million and distributions paid of $11.4 million, offset by proceeds from borrowings under the repurchase agreements of $150.7 million and proceeds from obligations under participation agreements and secured borrowing of $21.2 million.

Additionally, we received proceeds from borrowings under the revolving line of credit of $41.2 million and made repayments on borrowings under the revolving line of credit of $55.6 million.

Distribution Reinvestment Plan

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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 June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

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

(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.

(2) Amount for the nine months ended September 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 nine months ended September 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.

7 unchanged sentences

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

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.

As of September 30, 2023, there was no participation obligation.

The loans that are subject to participation agreements are held in our name, but each of the participant’s rights and obligations, including with respect to interest income and other income (e.g., exit fee, prepayment income) and related fees/expenses (e.g., disposition fees, asset management and asset servicing fees), are based upon their respective pro rata participation interest in such participated investments, as specified in the respective participation agreements.

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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.

For the three and nine months ended September 30, 2023, the weighted average outstanding principal balance on obligations under participation agreements was approximately $13.7 million and $13.4 million, respectively, and for both periods, the weighted average interest rate was approximately 17.3% , compared to the weighted average outstanding principal balance on obligations under participation agreements and secured borrowing of approximately $68.2 million and $77.5 million, respectively, and the weighted average interest rate was approximately 10.5% and 10.6%, 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