Terra Property Trust, Inc. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including both our Chief Executive Officer and Chief Investment Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2023. Based on that evaluation, our management concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we would meet our disclosure obligations. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports. Evaluation of Internal Controls over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our Manager, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements in our consolidated financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of our management, including both our Chief Executive Officer and Chief Investment Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on its evaluation, our management concluded that our internal control over financial reporting was effective as of the end of the fiscal year covered by this Annual Report on Form 10-K. This Annual Report on Form 10-K does not include an attestation report of our independent registered accounting firm due to a transition period established by the rules of the SEC for “emerging growth companies.” 55 Changes in Internal Control Over Financial Reporting During the most recent fiscal quarter, there was no change in our internal controls over financial reporting, as defined under Rule 13a-15(f) under the Exchange Act, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. Item 9B. Other Information. Management Agreement Amendment On March 11, 2024, we and our Manager entered into an amendment to the Management Agreement, effective as of January 1, 2024, in order to extend the term of the Management Agreement and modify the terms upon which the Management Agreement may be terminated. For additional information on the Amendment, see “ Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Management Agreement Amendment ” in this Annual Report on Form 10‑K. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. PART III Item 10. Directors, Executive Officers and Corporate Governance. The information regarding our executive officers required by Item 401 of Regulation S-K is located under Part I, Item 1 within the caption “Information About our Executive Officers” of this annual report on Form 10-K. The information regarding our directors and certain other matters required by Item 401 of Regulation S-K is incorporated herein by reference to our definitive proxy statement relating to our 2024 annual meeting of stockholders (the “Proxy Statement”), to be filed with the SEC within 120 days after December 31, 2023. The information regarding compliance with Section 16(a) of the Exchange Act required by Item 405 of Regulation S-K is incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2023. The information regarding our Code of Business Conduct and Ethics required by Item 406 of Regulation S-K is incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2023. The information regarding certain matters pertaining to our corporate governance required by Items 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is incorporated by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2023. Item 11. Executive Compensation. The information regarding executive compensation and other compensation related matters required by Items 402 and 407(e)(4) and(e)(5) of Regulation S-K is incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2023. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The tables on our equity compensation plan information and beneficial ownership required by Items 201(d) and 403 of Regulation S-K are incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2023. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information regarding transactions with related persons, promoters and certain control persons and director independence required by Items 404 and 407(a) of Regulation S-K is incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2023. 56 Item 14. Principal Accounting Fees and Services. The information concerning principal accounting fees and services and the Audit Committee’s pre-approval policies and procedures required by Item 14 is incorporated herein by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2023. PART IV Item 15. Exhibits and Financial Statement Schedules. The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K: (1) Financial Statements The index to our financial statements is on page F-1 of this Annual Report on Form 10-K. (2) Financial Statement Schedule The index to our financial schedules is on page F-1 of this Annual Report on Form 10-K. (3) Exhibits The following exhibits are filed with this report. Documents other than those designated as being filed herewith are incorporated herein by reference. Exhibit No. Description and Method of Filing 2.1 Contribution Agreement by and among Terra Secured Income Fund, LLC, Terra Secured Income Fund 2, LLC, Terra Secured Income Fund 3, LLC, Terra Secured Income Fund 4, LLC, the registrant, and Terra Property Trust, Inc., dated January 1, 2016 (incorporated by reference to Exhibit 2.1 to the Registration Statement on Form 10 (File No. 000-56117) filed with the SEC on November 6, 2019). 2.2 Amendment No. 1 to the Contribution Agreement by and among Terra Secured Income Fund, LLC, Terra Secured Income Fund 2, LLC, Terra Secured Income Fund 3, LLC, Terra Secured Income Fund 4, LLC, the registrant, and Terra Property Trust, Inc., dated December 31, 2016 (incorporated by reference to Exhibit 2.2 to the Registration Statement on Form 10 (File No. 000-56117) filed with the SEC on November 6, 2019). 2.3 Agreement and Plan of Merger, dated February 28, 2020, by and among Terra Property Trust, Inc., Terra Property Trust 2, Inc. and Terra Secured Income Fund 7, LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 000-56117) filed with the SEC on March 5, 2020). 2.4 Agreement and Plan of Merger, dated as of May 2, 2022, by and among Terra Property Trust, Inc., Terra Income Fund 6, Inc., Terra Merger Sub, LLC, Terra Income Advisors, LLC and Terra REIT Advisors, LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by Terra Income Fund 6, Inc. with the SEC on May 5, 2022). 3.1 Amended and Restated Bylaws of Terra Property Trust, Inc. (incorporated by reference to Exhibit 3.1 to the Registration Statement on Amendment No.1 to Form 10 (File No. 000-56117) filed with the SEC on December 16, 2019). 3.2 Second Articles of Amendment and Restatement of Terra Property Trust, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K with the SEC on December 5, 2023). 3.3 Articles of Supplementary of Terra Property Trust, Inc. Designating 12.5% Services A Redeemable Cumulative Preferred Stock (incorporated by reference to Exhibit 3.3 to the Registration Statement on Amendment No.1 to Form 10 (File No. 000-56117) filed with the SEC on December 16, 2019). 4.1* Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934. 4.2 Indenture, dated June 10, 2021, by and between Terra Property Trust, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A (File No. 001-40496) filed with the SEC on June 14, 2021). 4.3 First Supplemental Indenture, dated June 10, 2021, by and between Terra Property Trust, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form 8-A (File No. 001-40496) filed with the SEC on June 14, 2021). 57 Exhibit No. Description and Method of Filing 4.4 Form of Global Note representing the notes (included in Exhibit 4.2). 4.5 Indenture, dated February 10, 2021, by and between Terra Income Fund 6, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on February 10, 2021.) 4.6 First Supplemental Indenture, dated February 10, 2021, by and between Terra Income Fund 6, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 of Terra Income Fund 6, Inc.’s Current Report on Form 8-K filed with the SEC on February 10, 2021). 4.7 Second Supplemental Indenture, dated October 1, 2022, by and among Terra Income Fund 6, Inc., Terra Merger Sub, LLC and U.S. Bank National Association, as trustee (incorporated by reference to exhibit 4.4 of Terra Income Fund 6, LLC’s Current Report on Form 8-K filed with the SEC on October 3, 2022). 10.1 Amended and Restated Management Agreement between Terra Property Trust, Inc., and Terra REIT Advisors, LLC, dated February 8, 2018 (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form 10 (File No. 000-56117) filed with the SEC on November 6, 2019). 10.2 Amended and Restated Voting Agreement by and among Terra Property Trust, Inc., Terra Secured Income Fund 5, LLC, Terra JV, LLC and Terra REIT Advisors, LLC, dated March 2, 2020 (incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed with the SEC on May 15, 2020). 10.3 Contribution Agreement by and among Terra Property Trust, Terra International Fund 3 REIT, LLC and Terra Income Fund International, dated March 2, 2020 (incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q (File No. 000-56117) filed with the SEC on May 15, 2020). 10.4 Contribution Agreement by and among Terra Property Trust, Terra International Fund 3 REIT, LLC and Terra Secured Income Fund 5 International, dated March 2, 2020 (incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-Q (File No. 000-56117) filed with the SEC on May 15, 2020). 10.5 Indenture and Credit Agreement, dated as of September 3, 2020, by and among Terra Mortgage Capital I, LLC, as Issuer, Goldman Sachs Bank USA, as initial Class A lender, and Wells Fargo Bank, National Association, as trustee, custodian, collateral agent, loan agent and note administrator (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K (File No. 000-56117) filed with the SEC on September 17, 2020). 10.6 Guaranty, dated as of September 3, 2020, by and among Terra Property Trust, Inc., as guarantor, for the benefit of Goldman Sachs Bank USA (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K (File No. 000-56117) filed with the SEC on September 17, 2020). 10.7 Business Loan and Security Agreement, dated as of March 12, 2021, by and among Terra Mortgage Portfolio II, LLC, as the Borrower, and Western Alliance Bank, as the Lender (incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K filed with the SEC on March 18, 2021). 10.8 Limited Guaranty, dated as of March 12, 2021, by and among Terra Property Trust, Inc., as Guarantor, for the benefit of Western Alliance Bank (incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K filed with the SEC on March 18, 2021). 10.9 First Amendment to Loan Documents dated as of June 9, 2021, by and among Terra Mortgage Portfolio II, LLC, as Borrower, Terra Property Trust, Inc., as Guarantor, and Western Alliance Bank, as Lender (incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K filed with the SEC on March 11, 2022). 10.1 Uncommitted Master Repurchase Agreement dated as of November 8, 2021, by and between Terra Mortgage Capital III, LLC, as Seller, UBS AG, as Buyer (incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K filed with the SEC on March 11, 2022). 10.11* Amendment No. 1 to Uncommitted Master Repurchase Agreement, dated as of May 24, 2022, between Terra Mortgage Capital III, LLC, as Seller, and UBS AG, as Buyer. 10.12 Guarantee Agreement dated as of November 8, 2021, by and between Terra Property Trust, Inc., as Guarantor, in favor of UBS AG, as Buyer (incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K filed with the SEC on March 11, 2022). 10.13* Amendment No. 1 to Guarantee Agreement, dated as of March 10, 2022, between Terra Property Trust, Inc., as Guarantor, and UBS AG, as Buyer. 10.14* Amendment No. 2 to Guarantee Agreement, dated as of November 14, 2023, between Terra Property Trust, Inc., as Guarantor, and UBS AG, as Buyer. 10.15 Second Amendment to Loan Documents dated as of January 4, 2022, by and among Terra Mortgage Portfolio II, LLC, as Borrower, Terra Property Trust, Inc., as Guarantor, and Western Alliance Bank, as Lender (incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K filed with the SEC on March 11, 2022). 58 Exhibit No. Description and Method of Filing 10.16 Uncommitted Master Repurchase and Securities Contract Agreement dated as of February 18, 2022, by and between Terra Mortgage Capital I, LLC, as Seller, Goldman Sachs Bank USA, as Buyer (incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K filed with the SEC on March 11, 2022). 10.17 Guarantee Agreement dated as of February 18, 2022, by and between Terra Property Trust, Inc., as Guarantor, in favor of Goldman Sachs Bank USA, as Buyer (incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K filed with the SEC on March 11, 2022). 10.18 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-40496) filed with the SEC on October 3, 2022). 10.19 Consent and Amendment Letter, dated as of September 27, 2022, by and among Terra Income Fund 6, Inc., Terra Merger Sub, LLC, Eagle Point Credit Management LLC, and certain lenders on the signature pages thereto (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed with the SEC on November 14, 2022). 10.20 Waiver and Amendment No. 2 to Credit Agreement, dated June 30, 2023, among Terra Income Fund 6, LLC, Eagle Point Credit Management, LLC, and the Lenders party thereto (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed with the SEC on August 11, 2023). 21.1 * Subsidiaries 31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Chief Financial Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32** Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS** Inline XBRL Instance Document - t he instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document 101.SCH** Inline XBRL Taxonomy Extension Schema Document 101.CAL** Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.LAB** Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE** Inline XBRL Taxonomy Extension Presentation Linkbase Document 101.DEF** Inline XBRL Taxonomy Extension Definition Linkbase Document 104 Cover Page Interactive Data File Included as Exhibit 101 (embedded within the Inline XBRL document) ______________ * Filed herewith. ** Furnished herewith. Item 16. Form 10-K Summary. None. 59 Terra Property Trust, Inc. Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm KPMG LLP New York, NY PCAOB ID: 185 F- 2 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 202 3 and 202 2 F- 4 Consolidated Statements of Operations for the years ended December 31, 202 3 and 20 22 F- 5 Consolidated Statements of Cash Flows for the years ended December 31, 202 3 and 20 22 F- 6 Consolidated Statements of Changes in Equity for the years ended December 31, 202 3 and 20 22 F- 7 Notes to Consolidated Financial Statements F- 10 Schedule III — Real Estate and Accumulated Depreciation as of December 31, 20 23 F- 45 Schedule IV — Mortgage Loans on Real Estate as of December 31, 202 3 F- 46 Schedules other than those listed are omitted as they are not applicable for the required or equivalent information has been included in the consolidated financial statements or notes thereto. F-1 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Terra Property Trust, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Terra Property Trust, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, changes in equity, and cash flows for the years then ended, and the related notes and financial statement schedules III and IV (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Change in Accounting Principle As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for credit losses as of January 1, 2023 due to the adoption of FASB Accounting Standard Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by F-2 management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP We have served as the Company’s auditor since 2016. New York, New York March 15, 2024 F-3 Terra Property Trust, Inc. Consolidated Balance Sheets December 31, 2023 2022 Assets Cash and cash equivalents $ 10,674,475 $ 28,567,825 Restricted cash 3,954,986 4,633,204 Cash held in escrow by lender 4,907,316 3,268,563 Marketable securities 4,961,879 147,960 Loans held for investment, net of allowance for credit losses of $ 56,749,498 and $ 25,471,890 417,913,773 584,417,939 Loans held for investment acquired through participation, net of allowance for credit losses of $ 226,527 and none 38,558,485 42,072,828 Equity investment in unconsolidated investments 37,171,326 62,498,340 Real estate owned, net ( Note 6 ) Land, building and building improvements, net 126,724,333 46,660,226 Lease intangible assets, net 9,869,364 2,568,461 Operating lease right-of-use asset — 27,378,786 Deal deposit — 4,241,892 Interest receivable 6,537,368 4,100,501 Other assets 9,466,846 2,780,367 Total assets $ 670,740,151 $ 813,336,892 Liabilities and Equity Liabilities: Unsecured notes payable, net $ 118,380,897 $ 116,530,673 Secured financing agreements, net 290,525,313 313,600,484 Obligations under participation agreements ( Note 8 ) — 12,680,594 Interest reserve and other deposits held on investments 3,954,986 4,633,204 Operating lease liability — 27,378,786 Lease intangible liabilities, net ( Note 6 ) 6,838,875 8,646,840 Due to Manager ( Note 8 ) 4,183,293 3,935,997 Interest payable 1,575,463 1,058,001 Accounts payable and accrued expenses 2,405,749 1,452,236 Unearned income 314,260 378,018 Other liabilities 907,507 1,159,885 Total liabilities 429,086,343 491,454,718 Commitments and contingencies ( Note 10 ) Equity: Preferred stock, $ 0.01 par value, 50,000,000 shares authorized and none issued — — 12.5 % Series A Cumulative Non-Voting Preferred Stock at liquidation preference, 125 shares authorized and no shares and 125 shares issued and outstanding at December 31, 2023 and 2022, respectively — 125,000 Class A Common Stock, $ 0.01 par value, 450,000,000 shares authorized and no shares issued, at both December 31, 2023 and 2022 — — Class B Common Stock, $ 0.01 par value, 450,000,000 shares authorized and 24,336,033 and 24,335,370 shares issued and outstanding at December 31, 2023 and 2022, respectively 243,360 243,354 Additional paid-in capital 444,458,206 444,449,813 Accumulated deficit ( 203,047,758 ) ( 122,935,993 ) Total equity 241,653,808 321,882,174 Total liabilities and equity $ 670,740,151 $ 813,336,892 See notes to consolidated financial statements . F-4 Terra Property Trust, Inc. Consolidated Statements of Operations Years Ended December 31, 2023 2022 Revenues Interest income $ 56,140,437 $ 42,591,972 Real estate operating revenue 11,050,716 11,451,914 Prepayment fee income — 1,984,061 Other operating income 722,881 586,499 67,914,034 56,614,446 Operating expenses Operating expenses reimbursed to Manager 9,234,357 8,076,321 Asset management fee 7,807,198 6,556,492 Asset servicing fee 1,857,765 1,560,044 Provision for credit losses 45,548,803 11,813,409 Real estate operating expenses 4,586,245 5,005,551 Depreciation and amortization 6,968,985 6,530,595 Impairment charge 11,765,540 1,604,989 Professional fees 3,741,720 3,697,792 Directors’ fees 347,714 192,497 Other 539,957 747,535 92,398,284 45,785,225 Operating (loss) income ( 24,484,250 ) 10,829,221 Other income and expenses Interest expense on secured financing ( 28,113,245 ) ( 14,793,540 ) Interest expense on unsecured notes payable ( 9,643,974 ) ( 6,682,937 ) Interest expense on obligations under participation agreements ( 1,353,006 ) ( 3,180,771 ) Gain on extinguishment of participation liability 14,079,379 3,435,902 Unrealized losses on investments, net ( 316,573 ) ( 122,299 ) (Loss) income from equity investment in unconsolidated investments ( 2,383,938 ) 2,731,477 Gain on sale of interests in unconsolidated investments — 799,827 Loss on disposal of real estate ( 4,211,153 ) ( 51,984 ) Realized (losses) gains on investments, net ( 459,279 ) 83,411 ( 32,401,789 ) ( 17,780,914 ) Net loss $ ( 56,886,039 ) $ ( 6,951,693 ) Series A preferred stock dividend declared $ ( 3,907 ) $ ( 15,624 ) Net loss allocable to common stock $ ( 56,889,946 ) $ ( 6,967,317 ) Loss per share — basic and diluted $ ( 2.34 ) $ ( 0.34 ) Weighted-average shares — basic and diluted 24,335,545 20,709,400 Distributions declared per common share $ 0.76 $ 0.78 See notes to consolidated financial statements. F-5 Terra Property Trust, Inc. Consolidated Statements of Changes in Equity Preferred Stock 12.5 % Series A Cumulative Non-Voting Preferred Stock Class A Common Stock Class B Common Stock Additional Paid-in Capital Accumulated Deficit $ 0.01 Par Value $ 0.01 Par Value Shares Amount Shares Amount Shares Amount Total equity Balance at January 1, 2023 $ — 125 $ 125,000 — $ — 24,335,370 $ 243,354 $ 444,449,813 $ ( 122,935,993 ) $ 321,882,174 Cumulative effect of credit loss accounting standard effective January 1, 2023 ( Note 2 ) — — — — — — — — ( 4,619,723 ) ( 4,619,723 ) Shares issued from reinvestment of shareholder distributions — — — — — 663 6 8,393 — 8,399 Redemption of Series A Preferred Stock — ( 125 ) ( 125,000 ) — — — — — — ( 125,000 ) Distributions declared on common shares ($ 0.76 per share) — — — — — — — — ( 18,602,096 ) ( 18,602,096 ) Distributions declared on preferred shares — — — — — — — — ( 3,907 ) ( 3,907 ) Net loss — — — — — — — — ( 56,886,039 ) ( 56,886,039 ) Balance at December 31, 2023 $ — — $ — — $ — 24,336,033 $ 243,360 $ 444,458,206 $ ( 203,047,758 ) $ 241,653,808 Preferred Stock 12.5 % Series A Cumulative Non-Voting Preferred Stock Common Stock Class A Common Stock Class B Common Stock Additional Paid-in Capital Accumulated Deficit $ 0.01 Par Value $ 0.01 Par Value $ 0.01 Par Value Shares Amount Shares Amount Shares Amount Shares Amount Total equity Balance at January 1, 2022 $ — 125 $ 125,000 19,487,460 $ 194,875 — $ — — $ — $ 373,443,672 $ ( 99,919,969 ) $ 273,843,578 Common stock converted into newly authorized Class B Common Stock prior to the BDC Merger ( Note 11 ) — — — ( 19,487,460 ) ( 194,875 ) — — 19,487,460 194,875 — — — Shares issued in connection with the BDC Merger ( Note 3 ) — — — — — — — 4,847,910 48,479 71,006,141 — 71,054,620 Distributions declared on common shares ($ 0.78 per share) — — — — — — — — — — ( 16,048,707 ) ( 16,048,707 ) Distributions declared on preferred shares — — — — — — — — — — ( 15,624 ) ( 15,624 ) Net loss — — — — — — — — — — ( 6,951,693 ) ( 6,951,693 ) Balance at December 31, 2022 $ — 125 $ 125,000 — $ — — $ — 24,335,370 $ 243,354 $ 444,449,813 $ ( 122,935,993 ) $ 321,882,174 See notes to consolidated financial statements . F-6 Terra Property Trust, Inc. Consolidated Statements of Cash Flows Years Ended December 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 56,886,039 ) $ ( 6,951,693 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 6,968,985 6,530,595 Provision for credit losses 45,548,803 11,813,409 Impairment charges 11,765,540 1,604,989 Amortization of net purchase premiums on loans 1,124,157 557,012 Straight-line rent adjustments ( 63,974 ) 1,357,247 Amortization of deferred financing costs 2,485,026 2,271,556 Amortization of discount on unsecured notes payable 1,672,197 738,583 Amortization of above- and below-market rent intangibles ( 2,135,162 ) ( 914,965 ) Amortization and accretion of investment-related fees, net ( 896,615 ) ( 1,210,524 ) Amortization of above-market rent ground lease ( 103,017 ) ( 130,348 ) Gain on extinguishment of participation liability ( 14,079,379 ) ( 3,435,902 ) Gain on sale of interests in unconsolidated investments — ( 799,827 ) Realized loss (gain) on investments, net 459,279 ( 83,411 ) Unrealized losses on investments, net 316,573 122,299 Loss on sale of real estate 4,211,153 51,984 Distributions received from equity investment in unconsolidated investments 7,008,461 180,549 Loss (income) from equity investment in unconsolidated investments 4,188,976 ( 1,271,921 ) Changes in operating assets and liabilities: Deal deposits 4,241,892 ( 4,241,892 ) Interest receivable ( 2,893,517 ) ( 323,606 ) Due from related party — 2,421,388 Other assets ( 6,860,178 ) ( 2,918,189 ) Due to Manager 1,509,673 — Unearned income ( 63,758 ) ( 71,672 ) Interest payable 517,462 ( 821,625 ) Accounts payable and accrued expenses 1,121,931 ( 552,728 ) Other liabilities ( 548,471 ) ( 3,517,540 ) Net cash provided by operating activities 8,609,998 403,768 Cash flows from investing activities: Proceeds from repayments of loans 126,142,565 197,484,239 Origination and purchase of loans ( 78,883,295 ) ( 290,005,676 ) Purchase of real estate properties ( 52,508,252 ) — Purchase of held-to-maturity securities ( 20,025,024 ) — Proceeds from redemption of held-to-maturity securities 20,000,000 — Return of capital on equity interests in unconsolidated investments 11,287,839 — Purchase of marketable securities ( 7,905,211 ) ( 136,265 ) Purchase of equity interests in unconsolidated investments ( 7,307,806 ) ( 25,504,979 ) Funding for promissory note receivable ( 3,844,797 ) ( 386,395 ) Proceeds from sale of marketable securities 2,422,095 1,259,417 Cash acquired in purchase of real estate 712,608 — Capital expenditures on real estate ( 132,506 ) — Proceeds from sale of interests in unconsolidated investments — 33,688,430 Cash and restricted cash acquired in connection with the BDC Merger — 24,582,565 Proceeds from sale of real estate — 8,585,500 Distributions in excess of equity income — 923,200 Proceeds from repayment of promissory note receivable — 386,395 Cash paid to stockholders of Terra BDC in connection with the BDC Merger — ( 12,920 ) Net cash used in investing activities ( 10,041,784 ) ( 49,136,489 ) F-7 Terra Property Trust, Inc. Consolidated Statements of Cash Flows (Continued) Years Ended December 31, 2023 2022 Cash flows from financing activities: Proceeds from secured financing 211,017,859 286,577,087 Principal repayments on secured financing ( 205,265,764 ) ( 239,705,071 ) Distributions paid ( 18,597,604 ) ( 16,064,331 ) Payment of financing costs ( 3,346,724 ) ( 1,033,097 ) Proceeds from obligations under participation agreements 1,494,422 29,607,969 Change in interest reserve and other deposits held on investments ( 678,218 ) ( 3,039,221 ) Redemption of Series A Preferred Stock ( 125,000 ) — Repayments of obligations under participation agreements — ( 22,239,670 ) Net cash (used in) provided by financing activities ( 15,501,029 ) 34,103,666 Net decrease in cash, cash equivalents and restricted cash ( 16,932,815 ) ( 14,629,055 ) Cash, cash equivalents and restricted cash at beginning of period 36,469,592 51,098,647 Cash, cash equivalents and restricted cash at end of period ( Note 2 ) $ 19,536,777 $ 36,469,592 Years Ended December 31, 2023 2022 Supplemental Disclosure of Cash Flows Information: Cash paid for interest $ 34,435,541 $ 22,569,976 Supplemental non-cash information: Reinvestment of shareholder distributions $ 8,399 $ — Supplemental Non-Cash Investing Activities: In May 2023, the Company acquired five industrial buildings for a $ 3.5 million cash payment and the settlement of a mezzanine loan that was accounted for as an equity investment and five senior loans that were held for investment. The following table presents a summary of the total capitalized costs and the values of the net assets acquired: Total Capitalized Costs: Cash and cash equivalents $ 3,515,466 Loans held for investment 68,737,877 Equity investment in unconsolidated investment 10,149,642 Interest receivable 456,650 Other assets 429,326 $ 83,288,961 Net Assets Acquired Cash and cash equivalents $ 712,608 Other assets 33,802 Land 14,457,149 Buildings and Improvements 65,365,376 Intangible asset and liability: In-please lease 8,403,667 Below-market rent ( 4,770,870 ) Accounts payable and accrued expenses ( 912,771 ) $ 83,288,961 F-8 BDC Merger On October 1, 2022, pursuant to that certain Agreement and Plan of Merger, dated as of May 2, 2022 (the “Merger Agreement”), Terra Income Fund 6, Inc. merged with and into Terra Income Fund 6, LLC, a wholly owned subsidiary of Terra Property Trust, Inc. with Terra Income Fund 6, LLC continuing as the surviving entity of the merger and as a wholly owned subsidiary of the Company ( Note 3 ). The following table presents a summary of the consideration exchanged and assets acquired and liabilities assumed as a result of the merger: Total Consideration Fair value of Terra Property Trust, Inc. shares of common stock issued $ 71,054,620 Cash paid for fractional shares 12,920 Transaction costs 2,283,785 73,351,325 Assets Acquired and Liabilities Assumed at Fair Value Loans held for investment 77,562,528 Loans held for investment acquired through participation 36,793,313 Interest receivable 1,367,044 Other assets 55,465 Term loan payable ( 25,000,000 ) Unsecured notes payable ( 33,770,000 ) Obligations under participation agreements ( 6,114,979 ) Interest reserve and other deposits held on investments ( 260,614 ) Due to manager ( 682,541 ) Interest payable ( 53,186 ) Accounts payable and accrued expenses ( 740,824 ) Other liabilities ( 387,446 ) Net assets acquired excluding cash and restricted cash 48,768,760 Cash and restricted cash acquired $ 24,582,565 See notes to consolidated financial statements . F-9 Terra Property Trust, Inc. Notes to Consolidated Financial Statements December 31, 2023 Note 1. Business Terra Property Trust, Inc. ( and, together with its consolidated subsidiaries, the “Company” or “Terra Property Trust”) is a real estate investment trust (“REIT”) that originates, invests in and manages a diverse portfolio of real estate and real estate-related assets. The Company was incorporated under the Maryland General Corporation Law on December 31, 2015. The Company focuses primarily on commercial real estate credit investments, including first mortgage loans, subordinated loans (including B-notes, mezzanine and preferred equity) and credit facilities throughout the United States. The Company’s loans finance the acquisition, development or recapitalization of high-quality commercial real estate in the United States . The Company focuses on middle market loans in the approximately $ 10 million to $ 50 million range, which it believes are subject to less competition, offer higher risk-adjusted returns than larger loans with similar risk metrics and facilitate portfolio diversification . The Company may also make strategic real estate equity and non-real estate-related investments that align with its investment objectives and criteria . On January 1, 2016, Terra Secured Income Fund 5, LLC (“Terra Fund 5”), the Company’s then parent, contributed its consolidated portfolio of net assets to the Company pursuant to a contribution agreement in exchange for shares of the Company’s common stock. Upon receipt of the contribution of the consolidated portfolio of net assets from Terra Fund 5, the Company commenced its operations on January 1, 2016. On March 2, 2020, the Company engaged in a series of transactions pursuant to which the Company issued an aggregate of 4,574,470.35 shares of its common stock in exchange for the settlement of an aggregate of $ 49.8 million of participation interests in loans held by the Company, cash of $ 25.5 million and other working capital. The Company has elected to be taxed, and to qualify annually thereafter, as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), commencing with the taxable year ended December 31, 2016. As a REIT, the Company is not subject to federal income taxes on income and gains distributed to the stockholders as long as certain requirements are satisfied, principally relating to the nature of income and the level of distributions, as well as other factors. The Company also operates its business in a manner that permits it to maintain its exemption from registration as an “investment company” under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company’s investment activities are externally managed by Terra REIT Advisors, LLC (“Terra REIT Advisors” or the “Manager”), a subsidiary of the Company’s sponsor, Terra Capital Partners, LLC (“Terra Capital Partners”), pursuant to a management agreement (the “Management Agreement”), under the oversight of the Company’s board of directors (the “Board”) ( Note 8 ). The Company does not currently have any employees and does not expect to have any employees. Services necessary for the Company’s business are provided by individuals who are employees of the Manager or by individuals who were contracted by the Company or by the Manager to work on behalf of the Company pursuant to the terms of the Management Agreement. On October 1, 2022, pursuant to that certain Agreement and Plan of Merger, dated as of May 2, 2022 (the “Merger Agreement”), Terra Income Fund 6, Inc. (“Terra BDC”), merged with and into Terra Income Fund 6, LLC (“Terra LLC”), a wholly owned subsidiary of the Company, with Terra LLC continuing as the surviving entity of the merger (the “BDC Merger”) and as a wholly owned subsidiary of the Company ( Note 3 ). On December 20, 2023, Terra Fund 5 announced that effective December 29, 2023 (the “Distribution Date”), Terra Fund 5 would distribute all of its shares of the Company’s Class B Common Stock to its members as part of the winding up of Terra Fund 5. On the Distribution Date, each member of Terra Fund 5 received 2,252.02 shares of the Company’s Class B Common Stock for each unit of membership interest in Terra Fund 5 held by such member. Because Terra Fund 5 previously owned its interests in the shares of Class B Common Stock indirectly through its ownership of interests in Terra JV, LLC (“Terra JV”), prior to the Distribution Date, Terra JV first distributed the shares of Class B Common Stock to Terra Fund 5 and Terra Secured Income Fund 7, LLC (“Terra Fund 7”), and Terra Fund 5 then distributed those shares to its members on the Distribution Date and Terra Fund 7 became a direct stockholder of the Company’s Class B Common Stock. As of December 31, 2023, Terra Fund 7 and Terra Offshore Funds REIT, LLC (“Terra Offshore REIT”) held 8.7 % and 10.1 %, respectively, of the issued and outstanding shares of the Company’s common stock. F-10 Notes to Consolidated Financial Statements As previously disclosed, the Company continues to explore alternative liquidity transactions on an opportunistic basis to maximize stockholder value. Examples of the alternative liquidity transactions that, depending on market conditions, may be available to the Company include a listing of the Company’s shares of common stock on a national securities exchange, adoption of a share repurchase plan, a liquidation of the Company’s assets, a sale of the Company or a strategic business combination, in each case, which may include the further in-kind distribution of the Company’s shares of common stock indirectly owned by certain of its affiliate funds to the ultimate investors in such affiliate funds. The Company cannot provide any assurance that any alternative liquidity transaction will be available or, if available, that the Company will pursue or be successful in completing any such alternative liquidity transaction. One of the potential future liquidity transactions that the Company continues to evaluate is a “direct listing” of the Class A Common Stock on a national securities exchange (i.e., a listing not involving a concurrent public offering of newly issued shares). If market conditions are not supportive of a direct listing that would in the Company’s view lead to a constructive trading environment for the Class A Common Stock, the Company will explore alternative paths to pursue its investment strategy and provide liquidity to its investors, including converting the Company into a traditional “non-traded REIT.” As part of a potential conversion to a non-traded REIT, the Company would adopt a customary share repurchase plan pursuant to which its investors could request to have their shares of its common stock redeemed for cash. Note 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include all of the Company’s accounts and those of its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current period presentation. The Company consolidates entities in which it has a controlling financial interest based on either the variable interest entity (“VIE”) or voting interest model. The Company is required to first apply the VIE model to determine whether it holds a variable interest in an entity, and if so, whether the entity is a VIE. If the Company determines it does not hold a variable interest in a VIE, it then applies the voting interest model. Under the voting interest model, the Company consolidates an entity when it holds a majority voting interest in an entity. The Company accounts for investments in which it has significant influence but not a controlling financial interest using the equity method of accounting (see Note 5 ). VIE Model An entity is considered to be a VIE if any of the following conditions exist: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) the holders of the equity investment at risk, as a group, lack either the direct or indirect ability through voting rights or similar rights to make decisions that have a significant effect on the success of the entity or the obligation to absorb the entity’s expected losses or right to receive the entity’s expected residual returns, or (c) the voting rights of some equity investors are disproportionate to their obligation to absorb losses of the entity, their rights to receive returns from an entity, or both and substantially all of the entity’s activities either involve or are conducted on behalf of an investor with disproportionately few voting rights. Under the VIE model, limited partnerships are considered VIEs unless a limited partner holds substantive kick-out or participating rights over a general partner. The Company consolidates entities that are VIEs when the Company determines it is the primary beneficiary. Generally, the primary beneficiary of a VIE is a reporting entity that has (a) the power to direct the activities that most significantly affect the VIE’s economic performance, and (b) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. Loans Held for Investment The Company originates, acquires, and structures, or acquires through participations, real estate-related loans generally to be held to maturity (collectively the “loans”). Loans held for investment are carried at the principal amount outstanding, adjusted for the accretion of discounts on investments and exit fees, and the amortization of premiums on investments and origination fees. The Company’s preferred equity investments, which are economically similar to mezzanine loans and subordinate to any loans but senior to common equity, are accounted for as loans held for investment. Loans are carried at amortized cost less allowance for credit losses. Amortized cost is the amount at which a financing receivable or a loan is F-11 Notes to Consolidated Financial Statements originated or acquired, adjusted for accretion, or amortization of premium, discount, and net deferred fees or costs, collection of cash and write-offs. Allowance for Credit Losses On January 1, 2023, the Company adopted the provisions of Accounting Standards Codification (“ASC”) 326, Financial Instruments – Credit Losses . ASC 326 mandates the use of a current expected credit loss (“CECL”) methodology for estimating future credit losses of certain financial instruments measured at amortized cost, instead of the “incurred loss” methodology previously required under United States generally accepted accounting principles (“U.S. GAAP”). The CECL methodology requires the consideration of possible credit losses over the life of an instrument as opposed to estimating credit losses upon the occurrence of an actual loss event under the previous “incurred loss” methodology. As permitted by ASC 326, the Company elected not to measure an allowance for credit losses on accrued interest receivable (which is presented separately on the consolidated balance sheet), but rather write off in a timely manner by reversing interest income that would likely be uncollectible. The Company’s adoption of the ASC 326 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 member’s capital as of January 1, 2023. Subsequent to the adoption of the CECL methodology, any increase or decrease to the allowance for credit losses is recorded in earnings on the consolidated statement of operations. Performing Loans The Company uses a model based approach for estimating the allowance for credit losses on performing loans on a collective basis, including future funding commitments for which the Company does not have the unconditional right to cancel, as these loans share similar risk characteristics. The Company utilizes information obtained from internal and external sources relating to past events, current economic conditions and reasonable and supportable forecasts about the future to determine the expected credit losses for its loan portfolio. The Company utilizes a commercial mortgage based, third-party loan loss model and because the Company does not have a meaningful history of realized credit losses on its loan portfolio, it subscribes to a database service to provide historical proxy loan loss information. The Company 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 has chosen to incorporate a weighted average macroeconomic forecast that encompasses baseline, optimistic and pessimistic scenarios, into its allowance for credit losses on performing loans estimate during the reasonable and supportable forecast period which is currently eight quarters. The Company selects certain economics variables from a group of independent variables such as Commercial Real Estate Price Index, unemployment and interest rate which are included in the model as part of macroeconomic forecast and updated regularly based on current economic trends. For the year ended December 31, 2023, adjustments to the weights ascribed to the multiple macroeconomic forecast scenarios were made in response to changes in expectations of macroeconomic conditions such as inflation and interest rates. The specific loan level information input into the model includes loan-to-value and debt service coverage ratio metrics, as well as principal balances, property type, location, coupon rate, coupon rate type, original or remaining term, expected repayment dates and contractual future funding commitments. Based on the inputs, the loan loss model determines a loan loss rate through the generation of a probability of default (PD) and loss given default (LGD) for each loan. The allowance for credit losses on performing loans is then calculated by applying the loan loss rate to the total outstanding loan balance of each loan. These results require a significant amount of judgment applied in selecting inputs and analyzing the results produced by the models to determine the allowance for credit losses. Changes in such estimates can significantly affect the expected credit losses. Beyond the Company’s reasonable and supportable forecast period, the Company reverts to historical loss information on a straight-line basis over the remaining contractual loan term, taken from a period that most accurately reflects the expectation of conditions expected to exist during the period of reversion. The Company may adjust historical loss information for differences in risk that may not reflect the characteristics of its current portfolio, including but not limited to, loan-to-value and debt service coverage ratios, among other relevant factors. The method of reversion selected represents the best estimate of the collectability of the investments and is reevaluated each reporting period. The determination of the performing loans credit loss estimate considers historical loss information and current economic conditions for each loan, reversion period and reasonable and supportable forecasts about the future. The reasonable and supportable forecast period is determined based on the Company’s assessment of the most likely scenario of assumptions and plausible outcomes for the U.S. economy. The Company regularly evaluates the reasonable and supportable forecast period to determine if a change is needed. The Company also performs a qualitative assessment and applies qualitative adjustments as necessary, usually due to limitations of the loan loss model. The Company’s qualitative analysis includes a review of data that may directly impact its estimates including internal and external information about the loan or property including current market conditions, asset specific conditions, property operations or borrower/sponsor details (i.e., refinance, sale, bankruptcy) which allows the F-12 Notes to Consolidated Financial Statements Company to determine the amount of the expected loss more accurately and reasonably for these investments. The Company also evaluates the contractual life of its loans to determine if changes are needed for certain contractual extension options, renewals, modifications, and prepayments. Unfunded Commitments Some of the Company’s performing loans include commitments to fund incremental proceeds to the borrowers over the life of the loan and these unfunded commitments are also subject to the CECL methodology because the Company does not have an unconditional right to cancel such commitments. The allowance for credit losses related to unfunded commitments is recorded as a component of other liabilities on the Company’s consolidated balance sheets. This allowance for credit losses is estimated using the same method outlined above for the Company’s outstanding performing loan balances and increases or decreases are also recorded in earnings on the consolidated statements of operations. Non-Performing Loans During the loan review process, if the Company determines that it is not able to collect all amounts due for both principal and interest according to the contractual terms of a loan, the Company considers that loan non-performing. For all non- performing loans, such as those in default, collateral-dependent or modified loans, including historical troubled debt restructurings, the Company removes these loans from the industry loss rate approach described above and analyzes them separately. The credit loss reserve for these loans is calculated as any excess of the amortized cost of the loan over (i) the present value of expected future cash flows discounted at the appropriate discount rate or (ii) the fair value of collateral, if repayment is expected solely from the collateral. As discussed below in Recent Accounting Pronouncements, the Company adopted the provisions of Accounting Standards Update (“ASU”) 2022-02 Financial Instruments—Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) concurrently with the adoption of CECL on January 1, 2023, prospectively. Loans Not Secured by Real Estate The Company has two loans that are not secured by real estate. These loans, which are included in other assets on the consolidated balance sheets, are recorded at amortized cost. The Company performs a separate analysis based on recoverability to determine the allowance for credit losses on these loans. As of December 31, 2023, the Company did not record any allowance for credit losses on these two loans because the Company believes that it will be able to collect all outstanding interest and principal on or before the maturity date. Allowance for Loan Losses Prior to 2023 Prior to the adoption of the CECL methodology on January 1, 2023, the Company recorded an allowance for loan losses using the incurred loss methodology equal to (i) 1.5 % of the aggregate carrying amount of loans rated as a “4”, plus (ii) 5 % of the aggregate carrying amount of loans rated as a “5”, plus (iii) non-performing loan reserves, if any. The Company assesses the risk factors of each loan and assigns each loan a risk rating between 1 and 5, which is an average of the numerical ratings in the following categories: (i) sponsor capability and financial condition; (ii) loan and collateral performance relative to underwriting; (iii) quality and stability of collateral cash flows and/or reserve balances; and (iv) loan to value. Based on a 5-point scale, the Company’s loans are rated “1” through “5”, from less risk to greater risk, as follows: Risk Rating Description 1 Very low risk 2 Low risk 3 Moderate/average risk 4 Higher risk 5 Highest risk Equity Investment in Unconsolidated Investments The Company accounts for its equity interests in unconsolidated investments under the equity method of accounting, i.e., at cost, increased or decreased by its share of earnings or losses, less distributions, plus contributions and other adjustments required by equity method accounting. F-13 Notes to Consolidated Financial Statements The Company evaluates its equity investment unconsolidated investments on a periodic basis to determine if there are any indicators that the value of its equity investments may be impaired and whether or not that impairment is other-than-temporary. To the extent an impairment has occurred and is determined to be other-than-temporary, the Company measures the charge as the excess of the carrying value of its investment over its estimated fair value, which is determined by calculating its share of the estimated fair market value of the underlying net assets based on the terms of the applicable partnership or joint venture agreements. Held-to-Maturity Debt Securities The Company classifies debt securities for which it has both the positive intent and ability to hold until maturity of the security as held-to-maturity debt securities. These securities are recorded at amortized cost with changes in amortized cost recognized in earnings until realized. Held-to-maturity debt securities are subject to the allowance for credit losses described above. Marketable Securities From time to time, the Company may invest in short term debt. These securities are classified as available-for-sale securities and are carried at fair value. Changes in the fair value of debt securities are reported in other comprehensive income until a gain or loss on the securities is realized. The Company may also invest in short term equity securities. Changes in the fair value of equity securities are recognized in earnings. Real Estate Owned, Net Real estate acquired is recorded at its estimated fair value at acquisition and is shown net of accumulated depreciation and impairment charges. Acquisition of properties generally are accounted for as asset acquisitions. Under asset acquisition accounting, the costs to acquire real estate, including transaction costs, are accumulated and then allocated to individual assets and liabilities acquired based upon their relative fair value. The Company allocates the purchase price of its real estate acquisitions to land, building, tenant improvements, acquired in-place leases, intangibles for the value of any above or below market leases at fair value and to any other identified intangible assets or liabilities. The Company amortizes the value allocated to in-place leases over the remaining lease term, which is reported in depreciation and amortization expense on its consolidated statements of operations. The value allocated to above or below market leases are amortized over the remaining lease term as an adjustment to rental income. Real estate assets are depreciated using the straight-line method over their estimated useful lives: buildings and improvements - not to exceed 40 years, and tenant improvements - shorter of the lease term or life of the asset. Ordinary repairs and maintenance which are not reimbursed by the tenants are expensed as incurred. Major replacements and betterments which improve or extend the life of the asset are capitalized and depreciated over their estimated useful life. Management reviews the Company’s real estate for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The review of recoverability is based on estimated future cash flows and the estimated liquidation value of such real estate assets, and provides for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the real estate assets. If impaired, the real estate asset will be written down to its estimated fair value. Leases The Company determines if an arrangement is a lease at inception. Operating leases in which the Company is the lessee are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s lease typically does not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made in advance and excludes lease incentives if there were any. The Company’s lease term may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. F-14 Notes to Consolidated Financial Statements On October 19, 2023, in connection with the deed in lieu of foreclosure discussed in Note 6 , the Company is no longer a party to the ground lease and the related ROU assets and liabilities were written off. Revenue Recognition Revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Interest Income: Interest income is accrued based upon the outstanding principal amount and contractual terms of the loans and preferred equity investments that the Company expects to collect, and it is accrued and recorded on a daily basis. Discounts and premiums on investments purchased are accreted or amortized over the expected life of the respective loan using the effective yield method, and are included in interest income in the consolidated statements of operations. Loan origination fees and exit fees, net of portions attributable to obligations under participation agreements, are capitalized and amortized or accreted to interest income over the life of the investment using the effective yield method. Outstanding interest receivable is assessed for recoverability. The Company generally reverses the accrued and unpaid interest against interest income and no longer accrues for the interest when, in the opinion of the Manager, recovery of income and principal becomes doubtful. Interest is then recorded on the basis of cash received until accrual is resumed when the loan becomes contractually current and performance is demonstrated. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. 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. Real Estate Operating Revenues: Real estate operating revenue is derived from leasing of space to various types of tenants. The leases are for fixed terms of varying length and generally provide for annual rent increases and expense reimbursements to be paid in monthly installments. Lease revenue, or rental income from leases, is recognized on a straight-line basis over the term of the respective leases. Additionally, the Company recorded above- and below-market lease intangibles, which are included in real estate owned, net, in connection with the acquisition of the real estate properties. These intangible assets and liabilities are amortized to lease revenue over the remaining contractual lease term. Other Revenues: Prepayment fee income is recognized as prepayments occur. All other income is recognized when earned. Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid investments, with original maturities of ninety days or less when purchased, as cash equivalents. Cash and cash equivalents are exposed to concentrations of credit risk. The Company maintains all of its cash at financial institutions which, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation. Restricted cash represents cash held as additional collateral by the Company on behalf of the borrowers related to the investments in loans or preferred equity instruments for the purpose of such borrowers making interest and property-related operating payments. Restricted cash is not available for general corporate purposes. The related liability is recorded in “ Interest reserve and other deposits held on investments ” on the consolidated balance sheets. Cash held in escrow by lender represents amounts funded to an escrow account for debt services and tenant improvements. Cash held in escrow is restricted and is not available for general corporate purposes. The following table provides a reconciliation of cash, cash equivalents and restricted cash in the Company’s consolidated balance sheets to the total amount shown in its consolidated statements of cash flows as of: December 31, 2023 2022 Cash and cash equivalents $ 10,674,475 $ 28,567,825 Restricted cash 3,954,986 4,633,204 Cash held in escrow by lender 4,907,316 3,268,563 Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows $ 19,536,777 $ 36,469,592 F-15 Notes to Consolidated Financial Statements Participation Interests Loan participations from the Company which do not qualify for sale treatment remain on the Company’s consolidated balance sheets and the proceeds are recorded as obligations under participation agreements. For the investments for which participation has been granted, the interest earned on the entire loan balance is recorded within “ Interest income ” and the interest related to the participation interest is recorded within “ Interest expense from obligations under participation agreements ” in the consolidated statements of operations. Interest expense from obligations under participation agreement is reversed when recovery of interest income on the related loan becomes doubtful. See “ Obligations Under Participation Agreements ” in Note 9 for additional information. Secured Financing Agreements, Net The Company's secured financing agreements include two master repurchase agreements, a revolving line of credit, non-recourse property mortgages, note-on-note financing arrangements and a term loan. The Company accounts for borrowings under these financing arrangements as secured transactions, which are carried at their contractual amounts (cost), net of unamortized deferred financing fees. See “ Secured Financing Arrangements ” in Note 9 for additional information. Fair Value Measurements U.S. GAAP establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The Company has not elected the fair value option for its financial instruments, including loans held for investment, loans held for investment acquired through participation, obligations under participation agreements, secured borrowing, unsecured notes, mortgage loan payable, term loan payable, repurchase agreement payment and revolving line of credit. Such financial instruments are carried at amortized cost, less impairment, where applicable. Marketable securities are financial instruments that are reported at fair value. Deferred Financing Costs Deferred financing costs represent fees and expenses incurred in connection with obtaining financing for investments. These costs are presented in the consolidated balance sheets as a direct deduction of the debt liability to which the costs pertain. These costs are amortized using the effective interest method and are included in interest expense on the applicable borrowings in the consolidated statements of operations over the life of the borrowings. Income Taxes The Company has elected to be taxed as a REIT under the Internal Revenue Code commencing with the taxable year ended December 31, 2016. In order to qualify as a REIT, the Company is required, among other things, to distribute dividends equal to at least 90% of its REIT net taxable income to the stockholders and meet certain tests regarding the nature of its income and assets. As a REIT, the Company is not subject to federal income taxes on income and gains distributed to the stockholders as long as certain requirements are satisfied, principally relating to the nature of income and the level of distributions, as well as other factors. If the Company fails to continue to qualify as a REIT in any taxable year and does not qualify for certain statutory relief provisions, the Company will be subject to U.S. federal and state income taxes at regular corporate rates (including any applicable alternative minimum tax) beginning with the year in which it fails to qualify and may be precluded from being able to elect to be treated as a REIT for the Company’s four subsequent taxable years. Any gains from the sale of foreclosed properties within two years are subject to U.S. federal and state income taxes at regular corporate rates. As of December 31, 2023, the Company has satisfied all the requirements for a REIT. The Company did not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10-25, Income Taxes , nor did the Company have any unrecognized tax benefits as of the periods presented herein. The Company recognizes interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in its consolidated statements of operations. For the years ended December 31, 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. The Company’s 2020-2023 federal tax returns remain subject to examination by the Internal Revenue Service. F-16 Notes to Consolidated Financial Statements Earnings Per Share The Company has a simple equity capital structure with only common stock outstanding as of December 31, 2023 and common stock and preferred stock outstanding as of December 31, 2022. As a result, earnings per share, as presented, represent both basic and dilutive per-share amounts for the periods presented in the consolidated financial statements. Income per basic share of common stock is calculated by dividing net income allocable to common stock by the weighted-average number of shares of common stock issued and outstanding during such period. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may ultimately differ from those estimates, and those differences could be material. Segment Information The Company’s primary business is originating, acquiring and structuring real estate-related loans related to high quality commercial real estate. From time to time, the Company may acquire real estate encumbering the senior loans through foreclosure, may invest in real estate related joint ventures and may directly acquire real estate properties. The Company operates in a single segment focused on mezzanine loans, other loans and preferred equity investments, and to a lesser extent, owning and managing real estate. Recent Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. In April 2019, the FASB issued additional amendments to clarify the scope of ASU 2016-13 and address issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. In May 2019, the FASB issued ASU 2019-05 — Targeted Transition Relief, which provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. In October 2019, the FASB decided that for smaller reporting companies, ASU 2016-13 and related amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company meets the definition of a smaller reporting company under the regulation of the Securities and Exchange Commission. The Company adopted this ASU and related amendments on January 1, 2023. The adoption of ASU 2016-13 resulted in an incremental reserve of approximately $ 4.6 million, which included a reserve on future loan funding commitments. The Company recorded the cumulative effect of initially applying this guidance as an adjustment to Accumulated deficit using the modified retrospective method of adoption. London Interbank Offered Rate (“LIBOR”) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. In July 2017, the U.K. Financial Conduct Authority, which regulates the LIBOR administrator, ICE Benchmark Administration Limited (“IBA”), announced that it would cease to compel banks to participate in setting LIBOR as a benchmark by the end of 2021, which was subsequently delayed to June 30, 2023. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) — Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments in ASU 2020-04 provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), which expanded the scope of Topic 848 to include derivative instruments impacted by discounting transition (“ASU 2021-01”). As of December 31, 2023, all of the Company’s floating rate loans and related 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”). ASU 2022-02 eliminates troubled debt restructuring guidance for organizations that adopted the amendments in ASU 2016-13 while providing for additional disclosures for loan modifications. ASU 2022-02 also amends the vintage disclosure guidance for public business entities. The Company adopted the provisions of ASU 2022-02 concurrently with the adoption of ASU 2016-03. The adoption of ASU 2022-02 did not have any material impact on the Company’s financial condition and results of operations. F-17 Notes to Consolidated Financial Statements Note 3. Mergers BDC Merger On October 1, 2022 (the “Closing Date”), pursuant to the Merger Agreement, Terra BDC merged with and into Terra LLC, with Terra LLC surviving as a wholly owned subsidiary of the Company. The Certificate of Merger and Articles of Merger with respect to the BDC Merger were filed with the Secretary of State of the State of Delaware and State Department of Assessments and Taxation of Maryland (the “SDAT”), respectively, with an effective time and date of 12:02 a.m., Eastern Time, on the Closing Date (the “Effective Time”). At the Effective Time, except for any shares of common stock, par value $ 0.001 per share, of Terra BDC (“Terra BDC Common Stock”) held by the Company or any wholly owned subsidiary of the Company or Terra BDC, which shares were automatically retired and ceased to exist with no consideration paid therefor, each issued and outstanding share of Terra BDC Common Stock was automatically cancelled and retired and converted into the right to receive (i) 0.595 shares of the newly designated Class B Common Stock, par value $ 0.01 per share (“Class B Common Stock”) and (ii) cash, without interest, in lieu of any fractional shares of Class B Common Stock otherwise issuable in an amount, rounded to the nearest whole cent, determined by multiplying (x) the fraction of a share of Class B Common Stock to which such holder would otherwise be entitled by (y) $ 14.38 . Pursuant to the terms of the transactions described in the Merger Agreement, approximately 4,847,910 shares of Class B Common Stock were issued to former Terra BDC stockholders in connection with the BDC Merger, based on the number of outstanding shares of Terra BDC Common Stock as of the Closing Date. Following the consummation of the BDC Merger, former Terra BDC stockholders owned approximately 19.9 % of the common equity of the Company. The Company and Terra BDC prepared their respective financial statements in accordance with generally accepted accounting principles in the United States. The BDC Merger is accounted for using the acquisition method of accounting, with the Company being treated as the accounting acquirer. In identifying the Company as the acquiring entity for accounting purposes, the Company and Terra BDC took into account a number of factors, including the relative size of the merging companies, which entity issues additional shares in conjunction with the BDC Merger, the relative voting interests of the respective stockholders after consummation of the BDC Merger, and the composition of the Board and senior management of the combined company after consummation of the BDC Merger. The Company, as the acquirer, accounted for the BDC Merger as an asset acquisition and all direct acquisition-related costs are capitalized to the total cost of the assets acquired and liabilities assumed. Pursuant to ASC Topic 805, Business Combination , total cost is allocated to the assets acquired and liabilities assumed on a relative fair value basis. F-18 Notes to Consolidated Financial Statements The following table summarizes the total consideration and the fair values of assets acquired and liabilities assumed in the BDC Merger: Total Consideration Fair value of Terra Property Trust shares of common stock issued $ 71,054,620 Cash paid for fractional shares 12,920 Transaction costs 2,283,785 $ 73,351,325 Assets Acquired and Liabilities Assumed at Fair Value Cash and cash equivalents $ 24,321,951 Restricted cash 260,614 Loans held for investment 77,562,528 Loans held for investment acquired through participation 36,793,313 Interest receivable 1,367,044 Other assets 55,465 Term loan payable ( 25,000,000 ) Unsecured notes payable ( 33,770,000 ) Obligations under participation agreements ( 6,114,979 ) Interest reserve and other deposits held on investments ( 260,614 ) Due to manager ( 682,541 ) Interest payable ( 53,186 ) Accounts payable and accrued expenses ( 740,824 ) Other liabilities ( 387,446 ) Net assets acquired $ 73,351,325 The fair value of the 4,847,910 shares of the Class B Common Stock was determined based on the Company’s net asset value per share of $ 14.66 as of October 1, 2022. Net Gain on Extinguishment of Participation Liability As discussed in Note 8 , in the normal course of business, the Company may enter into participation agreements with related parties, primarily other affiliated funds managed by the Manager, and to a lesser extent, unrelated parties. As a result of the BDC Merger, the obligations under participation agreements with Terra BDC totaling $ 37.0 million were effectively extinguished and the Company recognized a net gain of $ 3.4 million, representing the difference between the carrying value of the Company’s obligations under participation agreements and the fair value of Terra BDC’s investments acquired through participation agreements. Appointment of Directors As of the Effective Time and in accordance with the Merger Agreement, the size of the Board was increased by three members and each of Spencer Goldenberg, Adrienne Everett and Gaurav Misra (each a “Terra BDC Designee”, and collectively, the “Terra BDC Designees”) were elected to the Board to fill the vacancies created by such increase, with each Terra BDC Designee to serve until the Company’s next annual meeting of stockholders and until his or her successor is duly elected and qualifies. Each of the other members of the Board immediately prior to the Effective Time continued as members following the Effective Time. Indemnification Agreements The Company has entered into customary indemnification agreements with each member of the Board (including each Terra BDC Designee). These agreements, among other things, require the Company to indemnify each director to the maximum F-19 Notes to Consolidated Financial Statements 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. Note 4. Loans Held for Investment The Company elected the practical expedient under ASC 326 to exclude accrued interest from amortized cost. As of December 31, 2023 and 2022, accrued interest receivable of $ 6.5 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: December 31, 2023 December 31, 2022 Fixed Rate Floating Rate (1)(2)(3) Total Fixed Rate Floating Rate (1)(2)(3) Total Number of loans 5 16 21 8 23 31 Principal balance $ 53,998,648 $ 455,462,178 $ 509,460,826 $ 90,990,183 $ 554,805,276 $ 645,795,459 Carrying value $ 54,095,173 $ 402,377,085 $ 456,472,258 $ 92,274,998 $ 534,215,769 $ 626,490,767 Fair value $ 53,435,742 $ 403,904,207 $ 457,339,949 $ 90,729,098 $ 532,416,656 $ 623,145,754 Weighted-average coupon rate 12.95 % 12.92 % 12.93 % 13.82 % 11.23 % 11.59 % Weighted-average remaining term (years) 1.18 0.70 0.77 1.35 1.10 1.14 _______________ (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 5.47 %, average SOFR of 5.34 % and Term SOFR of 5.35 % as of December 31, 2023 and LIBOR of 4.39 %, average SOFR of 4.06 % and Term SOFR of 4.36 % as of December 31, 2022. (2) As of December 31, 2023 and 2022, amount included $ 342.9 million and $ 413.1 million of senior mortgages used as collateral for $ 204.9 million and $ 261.0 million of borrowings under secured financing arrangements, respectively ( Note 9 ). (3) As of December 31, 2023 and 2022, 14 and 21 loans, respectively, were subject to a LIBOR, SOFR or Term SOFR floor, as applicable. F-20 Notes to Consolidated Financial Statements Lending Activities The following tables present the activities of the Company’s loan portfolio: Loans Held for Investment Loans Held for Investment through Participation Interests Total Balance, January 1, 2023 $ 584,417,939 $ 42,072,828 $ 626,490,767 Cumulative effect of credit loss accounting standard effective January 1, 2023 ( Note 2 ) ( 4,123,143 ) ( 126,909 ) ( 4,250,052 ) Principal repayments received ( 122,860,357 ) ( 3,282,208 ) ( 126,142,565 ) New loans made 78,883,295 — 78,883,295 Settlement of loans (1)(2) ( 70,737,874 ) — ( 70,737,874 ) Net amortization of premiums on loans ( 1,124,157 ) — ( 1,124,157 ) Accrual, payment and accretion of investment-related fees and other, net ( 1,049,981 ) ( 5,608 ) ( 1,055,589 ) Provision for credit losses ( 45,491,949 ) ( 99,618 ) ( 45,591,567 ) Balance, December 31, 2023 $ 417,913,773 $ 38,558,485 $ 456,472,258 _______________ (1) In May 2023, the Company settled $ 68.7 million of senior loans in exchange for ownership interest in the underlying real estate properties ( Note 6 ). (2) In November 2023, the Company settled a $ 20.8 million mezzanine loan and wrote off the related allowance for credit losses of $ 18.3 million in exchange for a $ 2.5 million note from the sponsor. On the date of closing, the sponsor made a payment of $ 0.5 million. The remaining $ 2.0 million is included in Other assets on the consolidated balance sheets. Loans Held for Investment Loans Held for Investment through Participation Interests Total Balance, January 1, 2022 $ 457,329,582 $ 12,343,732 $ 469,673,314 New loans made 257,780,401 32,225,275 290,005,676 Principal repayments received ( 197,484,239 ) — ( 197,484,239 ) Loans acquired and contributed in connection with the BDC Merger 77,562,529 ( 2,744,091 ) 74,818,438 Net amortization of premiums on loans ( 469,563 ) ( 87,449 ) ( 557,012 ) Accrual, payment and accretion of investment-related fees and other, net 1,512,638 335,361 1,847,999 Provision for credit losses ( 11,813,409 ) — ( 11,813,409 ) Balance, December 31, 2022 $ 584,417,939 $ 42,072,828 $ 626,490,767 F-21 Notes to Consolidated Financial Statements Portfolio Information The tables below detail the types of loans in the Company’s loan portfolio, as well as the property type and geographic location of the properties securing these loans as of: December 31, 2023 December 31, 2022 Loan Structure Principal Balance Carrying Value % of Total Principal Balance Carrying Value % of Total First mortgages $ 365,465,500 $ 368,918,890 80.9 % $ 456,408,889 $ 461,299,182 73.7 % Preferred equity investments 126,550,969 127,105,312 27.8 % 121,231,434 122,132,177 19.5 % Mezzanine loans 17,444,357 17,424,081 3.8 % 39,352,303 39,451,115 6.3 % Credit facility — — — % 28,802,833 29,080,183 4.6 % Allowance for credit losses — ( 56,976,025 ) ( 12.5 ) % — ( 25,471,890 ) ( 4.1 ) % Total $ 509,460,826 $ 456,472,258 100.0 % $ 645,795,459 $ 626,490,767 100.0 % December 31, 2023 December 31, 2022 Property Type Principal Balance Carrying Value % of Total Principal Balance Carrying Value % of Total Office $ 144,812,619 $ 144,853,769 31.7 % $ 184,196,708 $ 184,722,657 29.4 % Multifamily 85,660,082 86,210,868 18.9 % 104,589,464 105,570,432 16.9 % Industrial 67,579,869 67,612,621 14.8 % 147,796,164 148,891,742 23.8 % Mixed-use 63,096,365 63,531,806 13.9 % 64,880,450 65,838,965 10.5 % Infill land 52,839,509 54,172,663 11.9 % 48,860,291 49,565,437 7.9 % Hotel - full/select service 43,222,382 43,801,303 9.6 % 43,222,382 43,758,804 7.0 % Student housing 31,000,000 31,821,832 7.0 % 31,000,000 31,774,261 5.1 % Infrastructure 21,250,000 21,443,421 4.7 % 21,250,000 21,840,359 3.5 % Allowance for credit losses — ( 56,976,025 ) ( 12.5 ) % — ( 25,471,890 ) ( 4.1 ) % Total $ 509,460,826 $ 456,472,258 100.0 % $ 645,795,459 $ 626,490,767 100.0 % December 31, 2023 December 31, 2022 Geographic Location Principal Balance Carrying Value % of Total Principal Balance Carrying Value % of Total United States California $ 119,093,246 $ 120,296,944 26.4 % $ 164,253,345 $ 165,839,561 26.5 % New York 90,483,672 90,483,672 19.8 % 91,845,479 91,877,084 14.7 % New Jersey 82,419,378 83,489,049 18.3 % 62,228,622 62,958,482 10.0 % Georgia 74,335,828 74,602,328 16.3 % 72,401,718 73,101,964 11.7 % Utah 49,250,000 50,329,949 11.0 % 49,250,000 50,698,251 8.1 % Washington 34,052,223 34,020,449 7.5 % 56,671,267 57,027,639 9.1 % Arizona 31,000,000 31,296,235 6.9 % 31,000,000 31,276,468 5.0 % North Carolina 21,826,479 21,929,657 4.8 % 43,520,028 44,041,162 7.0 % Massachusetts 7,000,000 7,000,000 1.5 % 7,000,000 7,000,000 1.1 % Texas — — — % 67,625,000 68,142,046 10.9 % Allowance for credit losses — ( 56,976,025 ) ( 12.5 ) % — ( 25,471,890 ) ( 4.1 ) % Total $ 509,460,826 $ 456,472,258 100.0 % $ 645,795,459 $ 626,490,767 100.0 % Allowance for Credit Losses 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 F-22 Notes to 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: Years Ended December 31, 2023 2022 Allowance for credit losses, beginning of period $ 25,471,890 $ 13,658,481 Cumulative effect of credit loss accounting standard effective January 1, 2023 ( Note 2 ) 4,250,052 — Provision for credit losses (1) 45,591,567 11,813,409 Charge-offs (2) ( 18,337,484 ) — Recoveries — — Allowance for credit losses, end of period $ 56,976,025 $ 25,471,890 _______________ (1) Prior to the adoption of the CECL model on January 1, 2023, the Company recorded an allowance for credit losses equal to (i) 1.5 % of the aggregate carrying amount of loans rated as a “4”, plus (ii) 5 % of the aggregate carrying amount of loans rated as a “5”, plus (iii) non-performing loan reserves, if any. (2) Amount is related to the settlement of a mezzanine loan described in “Lending Activities” above. Certain of the Company’s performing 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 $ 35.7 million and $ 47.3 million as of December 31, 2023 and 2022, respectively. The following table presents the activity in the liability for credit losses on unfunded commitments: Year Ended December 31, 2023 Liability for credit losses on unfunded commitments, beginning of period $ — Cumulative effect of credit loss accounting standard effective January 1, 2023 ( Note 2 ) 369,671 Reversal of provision for credit losses ( 42,764 ) Liability for credit losses on unfunded commitments, end of period $ 326,907 The liability for credit losses on unfunded commitments is included in other liabilities on the consolidated balance sheets. Accrued Interest Receivable The Company elected not to measure a CECL reserve on accrued interest receivable due to the Company’s policy of writing off uncollectible accrued interest receivable balances in a timely matter. If the Company determines it has uncollectible accrued interest receivable, it generally would reverse the accrued and unpaid interest against interest income and no longer accrue for interest. For the years ended December 31, 2023 and 2022, the Company did not reverse any interest income accrual because all accrued interest income was deemed collectible. As of December 31, 2023 and 2022, the Company had four and two loans that were in default, and suspended interest income accrual of $ 18.4 million and $ 8.5 million for the years ended December 31, 2023 and 2022, respectively, because recovery of such income was doubtful. As of December 31, 2023 and 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 for recoverability. As of December 31, 2023 and 2022, the Company had six and four non-performing loans with total carrying value of $ 209.3 million and $ 89.9 million, respectively. Accordingly, the Company utilized the estimated fair value of the loan collateral or sponsor’s guarantee to estimate the total allowance for credit losses of $ 54.6 million and $ 25.5 million as of December 31, 2023 and 2022, respectively. Please see “Note 7. Fair Value Measurements – Significant Unobservable Inputs” for information on how the fair value of these loans were determined. Loan Risk Rating The Company assesses the risk factors of each loan and assigns each loan a risk rating between 1 and 5, which is an average of the numerical ratings in the following categories: (i) sponsor capability and financial condition; (ii) loan and collateral performance relative to underwriting; (iii) quality and stability of collateral cash flows and/or reserve balances; and F-23 Notes to 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: Risk Rating Description 1 Very low risk 2 Low risk 3 Moderate/average risk 4 Higher risk 5 Highest risk The following table presents the amortized cost of the Company’s loan portfolio by year of origination and loan risk rating as of December 31, 2023: December 31, 2023 Loan Risk Rating Number of Loans Amortized Cost % of Total Amortized Cost by Year Originated 2023 2022 2021 2020 2019 Prior 1 — $ — — % $ — $ — $ — $ — $ — $ — 2 1 7,000,000 1.4 % — — — — — 7,000,000 3 13 278,296,080 54.2 % 10,809,959 77,383,153 97,514,884 27,810,327 61,842,453 2,935,304 4 1 18,855,139 3.7 % — 18,855,139 — — — — 5 — — — % — — — — — — Non-performing 6 209,297,064 40.7 % — 60,612,621 — — 58,200,770 90,483,673 21 513,448,283 100.0 % $ 10,809,959 $ 156,850,913 $ 97,514,884 $ 27,810,327 $ 120,043,223 $ 100,418,977 Allowance for credit losses ( 56,976,025 ) Total, net of allowance for credit losses $ 456,472,258 The following table presents the principal balance and the amortized cost of the Company’s loans based on the loan risk rating as of December 31, 2022: December 31, 2022 Loan Risk Rating Number of Loans Principal Balance Amortized Cost % of Total 1 — $ — $ — — % 2 2 25,000,000 25,041,782 3.8 % 3 25 530,867,244 536,992,660 82.4 % 4 — — — — % 5 — — — — % Non-performing (1) 4 89,928,215 89,928,215 13.8 % 31 $ 645,795,459 651,962,657 100.0 % Allowance for credit losses ( 25,471,890 ) Total, net of allowance for credit losses $ 626,490,767 _______________ (1) Because these loans have an event of default, they were removed from the pool of loans on which a general allowance was calculated and were evaluated for collectability individually. As of December 31, 2022, the specific allowance for credit losses on these loans were $ 25.5 million, as a result of a decline in the fair value of the respective collateral. Troubled Debt Restructuring As of December 31, 2022, there was one investment that qualified as troubled debt restructuring. In December 2022, the borrower of a $ 40.1 million senior loan experienced financial difficulty and offered to repay the loan for $ 38.7 million. The remaining $ 1.4 million was converted to subordinated equity that accrues dividends at 8.0 % and the F-24 Notes to 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 December 31, 2023 and 2022. The Company classified this loan modification as a TDR as it met all the conditions to be considered a TDR pursuant to ASC 310-40. The following table summarizes the recorded investment of TDR as of the date of restructuring: Number of loans modified 1 Pre-modified recorded carrying value $ 40,072,138 Post-modified recorded carrying value (1) $ 1,364,944 _______________ (1) As of December 31, 2023 and 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 December 31, 2023. Note 5. Equity Investment in Unconsolidated Investments The Company owns interests in a limited partnership and three joint ventures. The Company accounts for its interests in these investments under the equity method of accounting ( Note 2 ). The Company classifies distributions received from equity method investments using the cumulative earnings approach. Distributions received are considered returns on the investment and classified as cash inflows from operating activities. If, however, the investor’s cumulative distributions received, less distributions received in prior periods determined to be returns of investment, exceeds cumulative equity in earnings recognized, the excess is considered a return of investment and is classified as cash inflows from investing activities. Equity Investment in a Limited Partnership On August 3, 2020, the Company entered into a subscription agreement with Mavik Real Estate Special Opportunities Fund, LP (“RESOF”) whereby the Company committed to fund up to $ 50.0 million to purchase a limited partnership interest in RESOF. RESOF ’s primary investment objective is to generate attractive risk-adjusted returns by purchasing performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets. RESOF may also opportunistically originate high-yield mortgages or loans in real estate special situations including rescue financings, bridge loans, restructurings and bankruptcies (including debtor-in-possession loans). The general partner of RESOF is Mavik Real Estate Special Opportunities Fund GP, LLC , which is a subsidiary of the Company’s sponsor, Terra Capital Partners . As of December 31, 2023 and 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 December 31, 2023 and 2022, the Company owned 14.9 % and 27.9 % of the equity interest in RESOF, respectively. As of December 31, 2023 and 2022, the carrying value of the Company ’ s investment in RESOF was $ 18.2 million and $ 36.8 million, respectively. For the year ended December 31, 2023, the Company recorded equity income from RESOF of $ 1.1 million. The equity income for the year ended December 31, 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 year ended December 31, 2023, the Company received distributions from RESOF of $ 6.6 million. For the year ended December 31, 2022, the Company recorded equity income from RESOF of $ 5.2 million and received no distributions from RESOF. In connection with the equity investment in RESOF, the Company paid origination fees to the Manager totaling $ 0.5 million, to be amortized to equity income on a straight-line basis over the life of RESOF. F-25 Notes to Consolidated Financial Statements The following tables present summarized financial information of the Company’s equity investment in RESOF. Amounts provided are the total amounts attributable to the investment and do not represent the Company’s proportionate share: As of December 31, 2023 2022 Investments at fair value (cost of $ 196,129,031 and $ 176,035,290 , respectively) $ 199,032,013 $ 178,283,703 Other assets 16,502,225 23,918,841 Total assets 215,534,238 202,202,544 Revolving line of credit, net of financing costs 44,762,534 14,795,985 Obligations under participation agreement (proceeds of $ 38,444,357 and $ 41,726,565 , respectively) 38,881,032 41,962,861 Other liabilities 13,641,742 17,120,804 Total liabilities 97,285,308 73,879,650 Partners’ capital $ 118,248,930 $ 128,322,894 Years Ended December 31, 2023 2022 Total investment income $ 33,998,655 $ 31,436,886 Total expenses 13,694,107 9,042,066 Net investment income 20,304,548 22,394,820 Unrealized appreciation (depreciation) on investments 1,137,701 ( 2,180,632 ) Provision for income tax ( 138,944 ) — Net increase in partners’ capital resulting from operations $ 21,303,305 $ 20,214,188 Equity Investment in Joint Ventures As of December 31, 2023 and 2022, the Company beneficially owned equity interests in three joint ventures that invest in real estate properties. The Company evaluated its equity interests in the joint ventures and determined it does not have a controlling financial interest and is not the primary beneficiary. Accordingly, the equity interests in the joint ventures are accounted for as equity method investments. In September 2022, the Company sold a 53 % effective interest in two joint ventures and 59 % effective interest in another joint venture for a total of $ 33.7 million and recognized a gain on sale of $ 0.8 million. In December 2022, the Company originated a $ 10.0 million mezzanine loan to a borrower to finance the acquisition of a real estate portfolio. In connection with this mezzanine loan, the Company entered into a residual profit sharing agreement with the borrower where the borrower would pay the Company an additional amount of 35.0 % of remaining net cash flow from the sale of the real estate portfolio. The Company accounted for this arrangement using the equity method of accounting. In May 2023, the Company purchased the underlying asset ( Note 8 ) and the $ 10.0 million mezzanine loan was settled in connection with the purchase. In November 2023, in connection with a loan restructuring, the Company contributed $ 5.0 million to another joint venture that owns a real estate property. The Company accounted for its investment in this joint venture as an equity method investment because it does not have a controlling financial interest in the entity. F-26 Notes to Consolidated Financial Statements The following table presents a summary of the Company’s equity investment in unconsolidated investments as of: December 31, 2023 December 31, 2022 Entity Co-owner Beneficial Ownership Interest Carrying Value Beneficial Ownership Interest Carrying Value LEL Arlington JV LLC Third party/Affiliate 27.2 % $ 7,024,245 27.2 % $ 7,271,603 LEL NW 49th JV LLC Third party/Affiliate 27.2 % 1,619,157 27.2 % 1,521,556 TCG Corinthian FL Portfolio JV LLV Third party/Affiliate 30.6 % 5,590,427 30.6 % 6,896,816 Windy Hill PV Five CM, LLC (1) Third party 42.4 % 4,740,914 N/A — SF-Dallas Industrial, LLC (2) N/A N/A — N/A 10,013,691 $ 18,974,743 $ 25,703,666 _______________ (1) This investment was acquired in November 2023. (2) This investment that meets the definition of an equity investment was entered into in December 2022. As discussed above, this investment was settled in May 2023. The following tables present estimated combined summarized financial information of the Company’s equity investment in the joint ventures. Amounts provided are the total amounts attributable to the joint ventures and do not represent the Company’s proportionate share: As of December 31, 2023 2022 Net investments in real estate $ 223,039,486 $ 192,616,298 Other assets 18,362,425 12,817,388 Total assets 241,401,911 205,433,686 Mortgage loan payable 187,269,209 147,740,645 Other liabilities 4,509,167 3,104,624 Total liabilities 191,778,376 150,845,269 Members’ capital $ 49,623,535 $ 54,588,417 Years Ended December 31, 2023 2022 Revenues $ 17,055,616 $ 15,071,626 Operating expenses ( 8,535,636 ) ( 6,710,172 ) Depreciation and amortization expense ( 7,225,448 ) ( 9,914,314 ) Interest expense ( 10,762,003 ) ( 7,572,790 ) Unrealized (losses) gains ( 3,835,179 ) 3,244,813 Net loss $ ( 13,302,650 ) $ ( 5,880,837 ) For the year ended December 31, 2023, the Company recorded net equity loss from the joint ventures and the mezzanine loan of $ 3.5 million, and did not receive any distributions from the joint ventures. For the year ended December 31, 2022, the Company recorded net equity loss from the joint ventures of $ 2.5 million, and received distributions from the joint ventures of $ 0.9 million. In connection with these investments, the Company paid origination fee to the Manager totaling $ 0.6 million, to be amortized to equity income over the life of the respective joint venture. F-27 Notes to Consolidated Financial Statements Note 6. Real Estate Owned, Net Real Estate Activities 2023 — During the year ended December 31, 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 and recognized a loss on disposal of real estate of $ 4.2 million. Accordingly, the Company no longer owns the multi-tenant office building. Additionally, during the year ended December 31, 2023, the Company entered into the following investments: Property Location Number of Properties Date of Acquisition Property Type Total Capitalized Costs Texas, United States 3 3/24/2023 Industrial $ 48,798,273 Texas, United States 5 5/25/2023 Industrial 83,288,961 $ 132,087,234 These acquisitions were deemed to be real estate asset acquisitions, and therefore total transaction costs were capitalized to the cost basis of the assets. The following table presents an allocation of the total capitalized costs: Total Capitalized Costs: Cash and cash equivalents $ 52,313,739 Loans held for investment 68,737,877 Equity investment in unconsolidated investment 10,149,642 Interest receivable 456,650 Other assets 429,326 $ 132,087,234 Net Assets Acquired Cash and cash equivalents $ 712,608 Other assets 33,802 Land 23,785,004 Buildings and Improvements 104,613,728 Intangible assets and liabilities: In-place lease (weighted-average expected life of 3.95 years) 12,719,000 Below-market rent (weighted-average expected life of 3.98 years) ( 8,864,137 ) Accounts payable and accrued expenses ( 912,771 ) $ 132,087,234 2022 — In June 2022, the Company sold the 4.9 acres of land it owned in Pennsylvania for net proceeds of $ 8.6 million and recognized a net loss on sale of $ 0.1 million, excluding impairment charges of $ 1.6 million and $ 3.4 million recognized in March 2022 and December 2021, respectively. F-28 Notes to Consolidated Financial Statements Real Estate Owned, Net Real estate owned is comprised of eight industrial buildings located in Texas and a multi-tenant office building located in California, with lease intangible assets and liabilities. The following table presents the components of real estate owned, net as of: December 31, 2023 December 31, 2022 Cost Accumulated Depreciation/Amortization Net Cost Accumulated Depreciation/Amortization Net Real estate: Land $ 23,785,004 $ — $ 23,785,004 $ — $ — $ — Building and building improvements 104,915,714 ( 1,986,016 ) 102,929,698 51,725,969 ( 5,711,468 ) 46,014,501 Tenant improvements 25,032 ( 15,401 ) 9,631 1,854,640 ( 1,224,648 ) 629,992 Furniture and fixtures — — — 236,000 ( 220,267 ) 15,733 Total real estate 128,725,750 ( 2,001,417 ) 126,724,333 53,816,609 ( 7,156,383 ) 46,660,226 Lease intangible assets: In-place lease 12,719,000 ( 2,849,636 ) 9,869,364 14,982,538 ( 12,493,079 ) 2,489,459 Above-market rent — — — 156,542 ( 77,540 ) 79,002 Total intangible assets 12,719,000 ( 2,849,636 ) 9,869,364 15,139,080 ( 12,570,619 ) 2,568,461 Lease intangible liabilities: Below-market rent ( 8,864,138 ) 2,025,263 ( 6,838,875 ) ( 2,754,922 ) 2,428,647 ( 326,275 ) Above-market ground lease — — — ( 8,896,270 ) 575,705 ( 8,320,565 ) Total intangible liabilities ( 8,864,138 ) 2,025,263 ( 6,838,875 ) ( 11,651,192 ) 3,004,352 ( 8,646,840 ) Total real estate $ 132,580,612 $ ( 2,825,790 ) $ 129,754,822 $ 57,304,497 $ ( 16,722,650 ) $ 40,581,847 Real Estate Operating Revenues and Expenses The following table presents the components of real estate operating revenues and expenses that are included in the consolidated statements of operations: Years Ended December 31, 2023 2022 Real estate operating revenues: Lease revenue $ 8,721,719 $ 6,782,778 Other operating income 2,328,997 4,669,136 Total $ 11,050,716 $ 11,451,914 Real estate operating expenses: Utilities $ 207,700 $ 235,403 Real estate taxes 692,411 1,400,519 Repairs and maintenances 696,873 728,944 Management fees 299,177 267,188 Lease expense, including amortization of above-market ground lease 1,542,858 1,948,652 Other operating expenses 1,147,226 424,845 Total $ 4,586,245 $ 5,005,551 Leases As of December 31, 2023, the Company owned eight industrial buildings that were leased to ten 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 was subject to a ground lease whereby the Company was the lessee (or a tenant) to the ground lease. The ground lease provided for a new base rent every 5 years based on the greater of the annual base rent for the prior lease year or 9 % of the fair market value of the land. The next rent reset on the ground lease is scheduled for November 1, 2025. The Company was litigating with F-29 Notes to Consolidated Financial Statements the landlord with respect to the appropriate method for determining the fair value of the land for purposes of setting the ground rent – Terra Ocean Ave., LLC v. Ocean Avenue Santa Monica Realty LLC, Superior Court of California, Los Angeles County, Case No. 20STCV34217. 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 has taken the necessary steps to terminate the associated litigation. Scheduled Future Minimum Rent Income Scheduled future minimum rents, exclusive of renewals and expenses paid by tenants, under non-cancelable operating leases at December 31, 2023 are as follows: Years Ending December 31, Total 2024 $ 5,073,177 2025 4,144,116 2026 3,779,840 2027 2,560,061 2028 2,144,996 Thereafter 1,977,416 Total $ 19,679,606 Scheduled Annual Net Amortization of Intangibles Based on the intangible assets and liabilities recorded at December 31, 2023, scheduled annual net amortization of intangibles for each of the next five calendar years and thereafter is as follows: Years Ending December 31, Net Decrease in Real Estate Operating Revenue (1) Increase in Depreciation and Amortization (1) Total 2024 $ ( 2,938,140 ) $ 4,245,729 $ 1,307,589 2025 ( 1,549,750 ) 2,052,811 503,061 2026 ( 1,175,719 ) 1,693,407 517,688 2027 ( 402,418 ) 724,688 322,270 2028 ( 278,843 ) 590,873 312,030 Thereafter ( 494,006 ) 561,856 67,850 Total $ ( 6,838,876 ) $ 9,869,364 $ 3,030,488 _______________ (1) Amortization of below-market rent and above-market rent intangibles is recorded as an adjustment to lease revenues; and amortization of in-place lease intangibles is included in depreciation and amortization. Supplemental Ground Lease Disclosures As discussed in “ Leases ” above, 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. Supplemental balance sheet information related to the ground lease was as follows as of: December 31, 2022 Operating lease Operating lease right-of-use asset $ 27,378,786 Operating lease liability $ 27,378,786 Weighted average remaining lease term — operating lease (years) 63.8 Weighted average discount rate — operating lease 7.6 % F-30 Notes to Consolidated Financial Statements The component of lease expense for the ground lease was as follows: Years Ended December 31, 2023 2022 Operating lease cost $ 1,645,875 $ 2,079,000 Supplemental non-cash information related to the ground lease was as follows: Years Ended December 31, 2023 2022 Amounts included in the measurement of lease liability: Operating cash flows from an operating lease $ 1,645,875 $ 2,079,000 Right-of-use asset obtained in exchange for lease obligations: Operating lease $ 1,645,875 $ 2,079,000 Note 7. Fair Value Measurements The Company follows the provisions of ASC 820, Fair Value Measurement (“ASC 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 established a fair value hierarchy that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the existence and transparency of transactions between market participants). Investments with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Investments measured and reported at fair value are classified and disclosed into one of the following categories based on the inputs as follows: Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities that the Company has the ability to access. Level 2 — Pricing inputs are other than quoted prices in active markets, including, but not limited to, quoted prices for similar assets and liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, rate of prepayment, loss severities, credit risks and default rates) or other market corroborated inputs. Level 3 — Significant unobservable inputs are based on the best information available in the circumstances, to the extent observable inputs are not available, including the Company’s own assumptions used in determining the fair value of investments. Fair value for these investments 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. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. As of December 31, 2023 and 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. Marketable securities and derivatives are financial instruments that are reported at fair value. F-31 Notes to Consolidated Financial Statements Financial Instruments Carried at Fair Value on a Recurring Basis From time to time, the Company may invest in short-term debt and equity securities which are classified as available-for-sale securities, which are presented at fair value and included in Other assets in the consolidated balance sheet. Changes in the fair value of equity securities are recognized in earnings. Changes in the fair value of debt securities are reported in other comprehensive income until the securities are realized. As discussed in Note 9 , in March 2023, the Company entered into a loan agreement with a lender to provide financing for the acquisition of real estate properties ( Note 6 ). In connection with the financing, the Company purchased an interest rate cap for $ 258,500 to effectively cap the related index rate at 5.0 %. The interest rate cap met all the criteria of a derivative under ASC 815, but it did not meet the criteria under ASC 815-20-25 to qualify for hedging accounting. As such, the interest rate cap is reported at fair value and is included in other assets in the consolidated balance sheet, and the change in the fair value of the interest rate cap is reported in the consolidated statements of operations. The following tables present fair value measurements of marketable securities and derivatives, by major class according to the fair value hierarchy as of: December 31, 2023 Fair Value Measurements Level 1 Level 2 Level 3 Total Money market fund (1) $ 2,244,992 $ — $ — $ 2,244,992 Marketable securities - debt securities 1,148,653 — — 1,148,653 Marketable securities - equity securities 3,813,226 — — 3,813,226 Derivative - interest rate cap (2) — 83,807 — 83,807 Total $ 7,206,871 $ 83,807 $ — $ 7,290,678 _______________ (1) Amount is included in cash and cash equivalents on the consolidated balance sheets. (2) Amount is included in other assets on the consolidated balance sheets. December 31, 2022 Fair Value Measurements Level 1 Level 2 Level 3 Total Marketable Securities: Debt securities $ 147,960 $ — $ — $ 147,960 Total $ 147,960 $ — $ — $ 147,960 The following table presents the activities of the marketable securities and derivatives: Years Ended December 31, 2023 2022 Marketable Securities Derivatives Marketable Securities Beginning balance $ 147,960 $ — $ 1,310,000 Purchases (1) 7,905,211 258,500 136,265 Proceeds from sale (2) ( 2,422,095 ) — ( 1,259,417 ) Reclassification of net realized (losses) gains on marketable securities into earnings ( 434,254 ) — 83,411 Unrealized losses on marketable securities and derivatives ( 234,943 ) ( 174,693 ) ( 122,299 ) Ending balance $ 4,961,879 $ 83,807 $ 147,960 _______________ (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. (2) During the fourth quarter of 2023, the Company sold a portion of the MITT common stock. As of December 31, 2023, the Company owned less than 3.0 % of the outstanding shares of common stock of MITT. F-32 Notes to Consolidated Financial Statements Financial Instruments Not Carried at Fair Value In the first quarter of 2023, the Company purchased $ 20.0 million of corporate bonds with a coupon rate of 6.125 % with a maturity date of May 15, 2023. The Company classified these bonds as held-to-maturity debt securities, as it had the intent and ability to hold these securities until maturity. These securities were recorded at amortized cost and were fully redeemed at par on May 15, 2023. The following table presents the carrying value and estimated fair value of the Company’s financial instruments that are not carried at fair value on the consolidated balance sheets as of: December 31, 2023 December 31, 2022 Level Principal Amount Carrying Value Fair Value Principal Amount Carrying Value Fair Value Loans: Loans held for investment 3 $ 471,016,469 $ 474,663,271 $ 418,458,916 $ 604,068,894 $ 609,889,829 $ 581,182,892 Loans held for investment acquired through participation 3 38,444,357 38,785,012 38,881,033 41,726,565 42,072,828 41,962,862 Allowance for loan losses — ( 56,976,025 ) — — ( 25,471,890 ) — Total loans $ 509,460,826 $ 456,472,258 $ 457,339,949 $ 645,795,459 $ 626,490,767 $ 623,145,754 Liabilities: Unsecured notes payable 1 $ 123,500,000 $ 118,380,897 $ 98,020,050 $ 123,500,000 $ 116,530,673 $ 103,481,748 Secured financing agreements 3 293,413,757 290,525,313 293,413,757 315,264,779 313,600,484 315,407,341 Obligations under participation agreements 3 — — — 12,584,958 12,680,594 12,680,595 Total liabilities $ 416,913,757 $ 408,906,210 $ 391,433,807 $ 451,349,737 $ 442,811,751 $ 431,569,684 The Company estimated that its other financial assets and liabilities, not included in the tables above, had fair values that approximated their carrying values at both December 31, 2023 and 2022 due to their short-term nature. Items Measured at Fair Value on a Non-Recurring Basis (Including Impairment Charge) 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 table presents information about assets for which the Company recorded impairment charge and that were measured at fair value on a non-recurring basis for the year ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 Fair Value Impairment Charge Fair Value Impairment Charge Impairment Charge Real estate and intangibles $ 27,004,389 $ 11,765,540 $ 8,395,011 $ 1,604,989 $ 11,765,540 $ 1,604,989 Impairment charge, and their related triggering events and fair value measurements were as follows: Real Estate and Intangibles The impairment charge described below are reflected within Impairment charge in the consolidated statements of operations. For the year ended December 31, 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 %). In October 2023, the Company conveyed its F-33 Notes to Consolidated Financial Statements 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 year ended December 31, 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. 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. Market quotations are not readily available for the Company’s real estate-related loan investments, all of which are included in Level 3 of the fair value hierarchy, and therefore these investments are valued utilizing a yield approach, i.e., a discounted cash flow methodology to arrive at an estimate of the fair value of each respective investment in the portfolio using an estimated market yield. In following this methodology, investments are evaluated individually, and management takes into account, in determining the risk-adjusted discount rate for each of the Company’s investments, relevant factors, which may include available current market data on applicable yields of comparable debt/preferred equity instruments; market credit spreads and yield curves; the investment’s yield; covenants of the investment, including prepayment provisions; the ability of our borrowers and investees to make payments and their net operating income and debt-service coverage ratio; construction progress reports and construction budget analysis; the nature, quality and realizable value of any collateral (and loan-to-value ratio); the forces that influence the local markets in which the asset (the collateral) is purchased and sold, such as capitalization rates, occupancy rates, rental rates and replacement costs; and the anticipated duration of each real estate-related loan investment. The Manager designates a valuation committee to oversee the entire valuation process of the Company’s Level 3 loans. The valuation committee is comprised of members of the Manager’s senior management, deal and portfolio management teams, who meet on a quarterly basis, or more frequently as needed, to review the Company investments being valued as well as the inputs used in the proprietary valuation model. Valuations determined by the valuation committee are supported by pertinent data and, in addition to a proprietary valuation model, are based on market data, industry accepted third-party valuation models and discount rates or other methods the valuation committee deems to be appropriate. Because there is no readily available market for these investments, the fair values of these investments are approved in good faith by the Company’s board of directors (which is made up exclusively of independent directors). The fair values of the Company’s mortgage loan payable, secured borrowing, term loan payable and revolving line of credit are determined by discounting the contractual cash flows at the interest rate the Company estimates such arrangements would bear if executed in the current market. The following tables summarize the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 loans as of December 31, 2023 and 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 December 31, 2023 Primary Valuation Technique Unobservable Inputs December 31, 2023 Asset Category Minimum Maximum Weighted Average Assets: Loans held for investment, net (1) $ 418,458,916 Discounted cash flow Discount rate 9.58 % 16.95 % 7.02 % Loans held for investment acquired through participation, net 38,881,033 Discounted cash flow Discount rate 15.30 % 18.35 % 17.76 % Total Level 3 Assets $ 457,339,949 Liabilities: Secured financing agreements $ 293,413,757 Discounted cash flow Discount rate 6.25 % 12.72 % 8.91 % Total Level 3 Liabilities $ 293,413,757 _______________ (1) Amount includes $ 154.6 million of non-performing loans ( Note 4 ). The fair market value estimates were determined primarily using discounted cash flow models and Level 3 inputs, which include estimates of property-specific cash flows over a specific holding period, a discount rate range of 6.75 % to 7.00 % and a terminal capitalization rate range of 5.75 % to 6.00 %. These inputs are based on the location, type and nature of the property, current sales and lease comparable, F-34 Notes to Consolidated Financial Statements anticipated real estate and capital market conditions, and managements knowledge, experience and judgment. Additionally, the Company may use sales comparables, purchase price and appraisals to corroborate the estimated value of a loan’s collateral or may use sponsor’s guarantee to estimate the value of a non-performing loan. Fair Value at December 31, 2022 Primary Valuation Technique Unobservable Inputs December 31, 2022 Asset Category Minimum Maximum Weighted Average Assets: Loans held for investment, net $ 581,182,892 Discounted cash flow Discount rate 8.71 % 19.36 % 11.46 % Loans held for investment acquired through participation, net 41,962,862 Discounted cash flow Discount rate 15.25 % 17.06 % 16.67 % Total Level 3 Assets $ 623,145,754 Liabilities: Obligations under participation agreements $ 12,680,595 Discounted cash flow Discount rate 16.36 % 16.36 % 16.36 % Secured financing agreements 315,407,341 Discounted cash flow Discount rate 5.22 % 8.24 % 7.09 % Total Level 3 Liabilities $ 328,087,936 Note 8. Related Party Transactions Management Agreement The Company entered into the Management Agreement with the Manager whereby the Manager is responsible for its day-to-day operations. The following table presents a summary of fees paid and costs reimbursed to the Manager in connection with providing services to the Company that are included on the consolidated statements of operations: Years Ended December 31, 2023 2022 Origination and extension fee expense (1) $ 2,312,656 $ 3,189,291 Asset management fee 7,807,198 6,556,492 Asset servicing fee 1,857,765 1,560,044 Operating expenses reimbursed to Manager 9,234,357 8,076,321 Disposition fee (2) 1,451,063 890,194 Total $ 22,663,039 $ 20,272,342 _______________ (1) Origination and extension fee expense is generally offset with origination and extension fee income. Any excess is deferred and amortized to interest income over the term of the loan. (2) Disposition fee is generally offset with exit fee income and included in interest income on the consolidated statements of operations. Origination and Extension Fee Expense Pursuant to the Management Agreement, the Manager or its affiliates receives an origination fee in the amount of 1 % of the amount used to originate, fund, acquire or structure real estate-related investments, including any third-party expenses related to such loans. In the event that the term of any real estate-related loan held by the Company is extended, the Manager also receives an extension fee equal to the lesser of (i) 1 % of the principal amount of the loan being extended or (ii) the amount of fee paid to the Company by the borrower in connection with such extension. Asset Management Fee Under the terms of the Management Agreement, the Manager or its affiliates provides the Company with certain investment management services in return for a management fee. The Company pays a monthly asset management fee at an annual rate of 1 % of the aggregate funds under management, which includes the loan origination price or aggregate gross acquisition price, as defined in the Management Agreement, for each real estate related loan and cash held by the Company. F-35 Notes to Consolidated Financial Statements Asset Servicing Fee The Manager or its affiliates receives from the Company a monthly servicing fee at an annual rate of 0.25 % of the aggregate gross origination price or acquisition price, as defined in the Management Agreement, for each real estate-related loan held by the Company. Transaction Breakup Fee In the event that the Company receives any “breakup fees,” “busted-deal fees,” termination fees, or similar fees or liquidated damages from a third-party in connection with the termination or non-consummation of any loan or disposition transaction, the Manager will be entitled to receive one-half of such amounts, in addition to the reimbursement of all out-of-pocket fees and expenses incurred by the Manager with respect to its evaluation and pursuit of such transactions. As of December 31, 2023 and 2022, the Company had not received any breakup fees. Operating Expenses The Company reimburses the Manager for operating expenses incurred in connection with services provided to the operations of the Company, including the Company’s allocable share of the Manager’s overhead, such as rent, employee costs, utilities, and technology costs. Disposition Fee Pursuant to the Management Agreement, the Manager or its affiliates receives a disposition fee in the amount of 1 % of the gross sale price received by the Company from the disposition of any real estate-related loan, or any portion of, or interest in, any real estate-related loan. The disposition fee is paid concurrently with the closing of any such disposition of all or any portion of any real estate-related loan or any interest therein, which is the lesser of (i) 1 % of the principal amount of the loan or debt-related loan prior to such transaction or (ii) the amount of the fee paid by the borrower in connection with such transaction. If the Company takes ownership of a property as a result of a workout or foreclosure of a loan, the Company will pay a disposition fee upon the sale of such property equal to 1 % of the sales price. Management Agreement Amendment On March 11, 2024, the Company and the Manager entered into an amendment to the Management Agreement, effective as of January 1, 2024 (the “Amendment”), in order to extend the term of the Management Agreement and modify the terms upon which the Management Agreement may be terminated. Except as discussed below, the terms of the Management Agreement remain unchanged by the Amendment. Except where the context requires otherwise, all references herein to the “Management Agreement” are to the Management Agreement as modified by the Amendment. The term of the Management Agreement will expire on December 31, 2027 (the “Initial Term”) and will automatically renew for an unlimited number of additional one-year terms upon each anniversary date of the last day of the Initial Term (each, a “Renewal Term”), unless terminated by the Company or the Manager during the Initial Term or a Renewal Term in accordance with the terms of the Management Agreement (as described below). The Management Agreement may be terminated by the Company during the Initial Term or any Renewal Term upon a finding by either (i) at least two-thirds of the independent directors on the Board or (ii) the holders of a majority of the outstanding shares of the Company’s common stock (other than those shares held by members of the Company’s senior management team or affiliates of the Manager) that either (a) there has been unsatisfactory performance by the Manager that is materially detrimental to the Company, or (b) the compensation payable to the Manager pursuant to the Management Agreement is unfair; provided, however, that the Company will not have the right to terminate the Management Agreement on the basis of unfair compensation to the Manager if the Manager agrees to continue to provide its services under the Management Agreement in exchange for reduced fees that at least two-thirds of the independent directors on the Board determine to be fair pursuant to the procedures set forth in the Management Agreement. The Company must deliver prior written notice of any such termination to the Manager at least 180 days prior to the last calendar day of the Initial Term or the then-current Renewal Term, as applicable, and the Management Agreement will terminate effective as of the last calendar day of the Initial Term or the then-current Renewal Term, as applicable. Upon any termination of the Management Agreement by the Company as discussed above, the Company will pay the Manager, on the date on which such termination is effective, a termination fee in an amount equal to three times the average annual fees of all types and expense reimbursements received by or owed to the Manager pursuant to the Management F-36 Notes to Consolidated Financial Statements Agreement during the 24-month period immediately preceding such termination (the “Termination Fee”), calculated as of the end of the most recently completed monthly prior to the date of such termination. The Company may also terminate the Management Agreement, effective upon 30 calendar days’ prior written notice from the Board to the Manager, without payment of any Termination Fees or other penalties, upon (i) the material breach of the Management Agreement by the Manager or its affiliates that continues for 30 days after written notice thereof to the Manager (or 45 days after delivery of written notice thereof if the Manager takes diligent steps to cure such breach within 30 days of delivery of the written notice), (ii) any fraud or other criminal conduct, gross negligence or breach of fiduciary duty by the Manager or its affiliates in connection with the Management Agreement, as determined by a final, non-appealable judgment of a court of competent jurisdiction, (iii) the Manager’s bankruptcy, insolvency or dissolution, or (iv) an Internalization Event (as defined in the Management Agreement). No Termination Fee or other penalty is payable upon such a termination by the Company. The Manager may terminate the Management Agreement, effective upon 60 days’ prior written from the Manager to the Company, if the Company breaches the Management Agreement and such breach continues for 30 days after written notice thereof. The Company will pay the Manager the Termination Fee upon such termination by the Manager. Due From Affiliate On December 1, 2022, the Company entered into a revolving promissory note receivable with Mavik Special Opps Co-Investments, LP, an affiliate of the Company. The promissory note receivable bears interest at the Prime Rate, as such Prime Rate is published in the Wall Street Journal, computed on the basis of the actual number of days elapsed and a year of 365 days. The promissory note was scheduled to mature on December 1, 2023. In December 2023, the promissory note was amended to extend the maturity date to June 30, 2024. During the year ended December 31, 2023 and 2022, the Company provided funding under the promissory note receivable of $ 3.8 million and $ 0.4 million, respectively. As of December 31, 2023 and 2022, amount outstanding under the promissory note receivable was $ 3.8 million and none , respectively, which is included in Other assets on the consolidated balance sheet. Cost Sharing and Reimbursement Agreement The Company and Terra LLC have entered into a cost sharing and reimbursement agreement effective October 1, 2022, pursuant to which Terra LLC is responsible for its allocable share of the Company’s expenses, including fees paid by the Company to the Manager based on relative assets under management. These fees are eliminated in consolidation and therefore have no impact on the Company’s consolidated financial statements. Distributions Paid For the years ended December 31, 2023 and 2022, the Company made distributions to investors totaling $ 18.6 million and $ 16.0 million, respectively, of which $ 18.6 million and $ 6.5 million were returns of capital, respectively ( Note 11 ). Due to Manager As of December 31, 2023 and 2022, approximately $ 4.2 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. Mavik Real Estate Special Opportunities Fund, LP On August 3, 2020, the Company entered into a subscription agreement with RESOF whereby the Company committed to fund up to $ 50.0 million to purchase limited partnership interests in RESOF. For more information on this investment, please see Note 5 . Participation Agreements In the normal course of business, the Company may enter into participation agreements with related parties, primarily other affiliated funds managed by the Manager, and to a lesser extent, unrelated parties (the “Participants”). The purpose of the participation agreements is to allow the Company and an affiliate to originate a specified loan when, individually, the Company F-37 Notes to Consolidated Financial Statements does not have the liquidity to do so or to achieve a certain level of portfolio diversification. The Company may transfer portions of its investments to other Participants or it may be a Participant to a loan held by another entity. ASC 860, Transfers and Servicing (“ASC 860”) , establishes accounting and reporting standards for transfers of financial assets. ASC 860-10 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The Company has determined that the participation agreements it enters into are accounted for as secured borrowings under ASC 860 (see “ Participation Interests ” in Note 2 and “ Obligations Under Participation Agreements ” in Note 9 ). Participation Interests Purchased by the Company From time to time, the Company may purchase investments from affiliates pursuant to participation agreements. In accordance with the terms of each participation agreement, each Participant’s rights and obligations, as well as the proceeds received from the related borrower/issuer of the loan, are based upon their respective pro rata participation interest in the loan. The table below lists the participation interests purchased by the Company pursuant to participation agreements as of: December 31, 2023 Participating Interests Principal Balance Carrying Value Mesa AZ Industrial Owner, LLC (1) 38.27 % $ 31,000,000 $ 31,296,235 UNJ Sole Member, LLC (1) 40.80 % 7,444,357 7,488,777 Allowance for credit losses — ( 226,527 ) $ 38,444,357 $ 38,558,485 December 31, 2022 Participating Interests Principal Balance Carrying Value Havemeyer TSM LLC (1)(2) 23.00 % $ 3,282,208 $ 3,313,813 Mesa AZ Industrial Owner, LLC (1) 38.27 % 31,000,000 31,276,468 UNJ Sole Member, LLC (1) 40.80 % 7,444,357 7,482,547 $ 41,726,565 $ 42,072,828 ________________ (1) The loan is held in the name of Mavik Real Estate Special Opportunities Fund REIT, LLC, a related-party REIT managed by the Manager. (2) This loan was repaid in February 2023. Transfers of Participation Interest by the Company The following tables summarize the loans that were subject to participation agreements with affiliated entities and third-parties as of: Transfers Treated as Obligations Under Participation Agreements as of December 31, 2022 Principal Balance Carrying Value % Transferred Principal Balance Carrying Value 610 Walnut Investors LLC (1) $ 18,625,738 $ 18,738,386 67.57 % $ 12,584,958 $ 12,680,594 $ 18,625,738 $ 18,738,386 $ 12,584,958 $ 12,680,594 ________________ (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 extinguishment of participation liability 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. , exit fee, prepayment income) and related fees/expenses ( e.g. , disposition fees, asset F-38 Notes to Consolidated Financial Statements management and asset servicing fees), are based upon their respective pro rata participation interest in such participated investments, as specified in the respective participation agreement. The Participants’ share of the investments is repayable only from the proceeds received from the related borrower/issuer of the investments and, therefore, the Participants also are subject to credit risk ( i.e. , risk of default by the underlying borrower/issuer). Pursuant to the participation agreements with these entities, the Company receives and allocates the interest income and other related investment income to the Participants based on their respective pro rata participation interest. The Participants pay any expenses, including any fees to the Manager, only on their respective pro rata participation interest, subject to the terms of the respective governing fee arrangements. Note 9. Debt Unsecured Notes Payable The following table is a summary of the Company’s unsecured notes payable outstanding as of: December 31, Coupon Rate Effective Rate (1) Maturity Date 2023 2022 6.00 % Senior Notes Due 2026 6.00 % 6.80 % 6/30/2026 $ 85,125,000 $ 85,125,000 7.00 % Senior Notes Due 2026 (2) 7.00 % 10.05 % 3/31/2026 38,375,000 38,375,000 Total principal amount 123,500,000 123,500,000 Unamortized issue discount ( 1,444,813 ) ( 1,946,370 ) Unamortized purchase discount (2) ( 3,161,457 ) ( 4,332,096 ) Unamortized deferred financing costs ( 512,833 ) ( 690,861 ) Unsecured notes payable, net $ 118,380,897 $ 116,530,673 _______________ (1) Includes issue discount, purchase discount and deferred financing costs that are amortized to interest expense over the life of the notes. (2) In connection with the BDC Merger, Terra LLC assumed all the obligations under the 7.00 % Senior Notes ( Note 3 ) and recorded a purchase discount of $ 4.6 million, representing the difference between the carrying value and the fair value of the notes on the date of the merger. The 6.00 % Senior Notes Due 2026 On June 10, 2021, the Company issued $ 78.5 million in aggregate principal amount of its 6.00 % notes due 2026, and on June 25, 2021, the underwriters partially exercised their option to purchase an additional $ 6.6 million of the notes (collectively the “ 6.00 % Senior Notes Due 2026”). The 6.00 % Senior Notes Due 2026 may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after June 10, 2023, at a redemption price equal to 100 % of the outstanding principal amount thereof, plus accrued and unpaid interest. The 7.00 % Senior Notes Due 2026 On February 10, 2021, Terra BDC issued $ 34.8 million in aggregate principal amount of 7.00 % fixed-rate notes due 2026, and on February 26, 2021, the underwriters exercised the option to purchase an additional $ 3.6 million of the notes (collectively the “ 7.00 % Senior Notes Due 2026”). The 7.00 % Senior Notes Due 2026 may be redeemed in whole or in part at any time or from time to time at Terra BDC’s option on or after February 10, 2023, at a redemption price equal to 100 % of the outstanding principal amount thereof, plus accrued and unpaid interest. In connection with the BDC Merger, Terra LLC agreed to take all necessary action to assume the payment of the principal of and interest on all of the outstanding 7.00 % Senior Notes Due 2026. Covenant Compliance The Company’s unsecured notes payable contain certain financial covenants. As of December 31, 2023, the Company was in compliance with such covenants. F-39 Notes to Consolidated Financial Statements Secured Financing Arrangements The following table is a summary of the Company’s secured financing agreements in place as of: December 31, 2023 December 31, 2022 Current Maturity Extended Maturity Weighted Average Interest Rate (1) Pledged Asset Carrying Value Maximum Facility Size Principal Amount Principal Amount Repurchase Agreements: Goldman Sachs Bank facility (2)(3) February 2024 February 2025 8.59 % $ 140,607,937 $ 200,000,000 $ 75,455,624 $ 119,826,607 UBS AG facility (2)(4) November 2024 (5) 7.32 % 23,210,490 195,000,000 18,480,000 51,050,000 Total 163,818,427 395,000,000 93,935,624 170,876,607 Non-Recourse Financing: Promissory notes payable (2)(6) March 2025 - March 2026 March 2026 - March 2027 10.70 % 100,309,108 N/A 63,509,518 — Property mortgages - fixed rate June 2028 June 2028 6.25 % 81,674,492 N/A 40,250,000 — Property mortgages - variable rate (7) April 2027 April 2028 8.85 % 48,080,330 37,000,000 33,256,885 29,252,308 Total 230,063,930 37,000,000 137,016,403 29,252,308 Other Secured Financing: Revolving line of credit (2)(8) March 2024 March 2025 8.70 % 81,982,990 125,000,000 47,461,730 90,135,865 Term loan (9) March 2024 March 2024 12.72 % 130,435,138 15,000,000 15,000,000 25,000,000 Total 212,418,128 140,000,000 62,461,730 115,135,865 606,300,485 572,000,000 293,413,757 315,264,780 Unamortized deferred financing costs and other ( 2,888,444 ) ( 1,664,296 ) Secured financing agreements, net $ 290,525,313 $ 313,600,484 _______________ (1) Amount is calculated using the applicable index rate as of December 31, 2023. (2) These facilities were used to finance the Company’s senior loan investments. (3) Interest rate is based on Term SOFR (subject to underlying loan floors on a case-by-case basis) plus a spread ranging from 2.0 % to 5.00 %. In March 2024, the Company amended the Goldman Sachs Bank facility agreement to extend the maturity date to February 18, 2025 and to reduce the minimum interest coverage ratio covenant. (4) Interest rate is based on Term SOFR plus a spread of 1.965 %. In February 2024, the outstanding balance was repaid. In March 2024, the Company amended the side letter to the UBS AG facility agreement to reduce the maximum amount available under this facility to zero. In connection with this amendment, UBS AG waived the payment of any fees and the meeting of any representations, warranties or covenants for the period commencing on December 31, 2023 until such time as there are amounts outstanding under the UBS AG facility agreement. (5) The maturity of this facility can be extended annually on mutually agreeable terms. (6) Interest rate is based on Term SOFR plus a spread ranging from 4.75 % to 5.6 % with a combined floor rate ranging from 9.0 % to 10.9 %. (7) Interest rate is based on Term SOFR plus a spread of 3.5 % with a Term SOFR floor of 3.75 %. (8) Prior to March 31, 2023 borrowings under this facility bore interest at an annual rate of LIBOR + 3.25 % with a combined floor of 4.0 %. In connection with the transition of LIBOR, on March 31, 2023, the facility was amended and the interest rate was changed to Term SOFR + 3.35 % with a combined floor of 6.0 %. In March 2024, the Company amended the facility agreement to waive the quarterly minimum net worth covenant for the purposes of the December 31, 2023 measurement date and to decrease the minimum net worth covenant for future quarterly measurement dates. The amendment includes certain additional changes, including, but not limited to, extending the maturity date to September 12, 2024 with an option to extend the facility term for an additional 12 -month period, reducing the credit limit to $ 75.0 million, increasing the coupon rate and revising the minimum profitability covenant. (9) Terra LLC assumed this facility from Terra BDC in connection with the BDC Merger. Terra BDC pledged substantially all of its owned and thereafter acquired property as security for the obligations under the credit agreement. On June 30, 2023, the Company amended the facility 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 the normal course of business, the Company is in discussions with its lenders to extend, amend, or replace any financing facilities which contain near term expirations. F-40 Notes to Consolidated Financial Statements For the years ended December 31, 2023 and 2022, approximately $ 2.5 million and $ 2.0 million, respectively, of amortization of deferred financing costs and other from secured financing agreements was included in interest expense on the consolidated statements of operations. Additionally, for the years ended December 31, 2023 and 2022, the Company received proceeds from secured financing of $ 211.0 million and $ 286.6 million, respectively, and made repayments on secured financing of $ 205.3 million and $ 239.7 million, respectively. Repurchase Agreements The Company seeks to mitigate risks associated with its repurchase agreements by managing risk related to the credit quality of its assets, interest rates, liquidity, the rate of prepayment and market value. The margin call provisions under the repurchase facilities provide the lender with certain rights in the event of a decline in the credit of the underlying assets purchased. To monitor credit risk associated with the performance and value of its loans and investments, the Company’s asset management team regularly reviews its investment portfolios and is in regular contact with its borrowers, monitoring performance of the collateral and enforcing its rights as necessary. The Company further seeks to manage risks associated with the repurchase agreements by matching the maturities and interest rate characteristics of its loans with the related repurchase agreement. Financing Activities During the year ended December 31, 2023, the Company entered into the following financing arrangements: • Two property mortgages for a total of $ 73.5 million for the acquisition of eight industrial buildings; and • Three promissory notes for a total of $ 63.5 million to finance three senior loan investments. Additionally, in October 2023, the Company conveyed its interest in an office building to the lender by deed-in-lieu of foreclosure and the related $ 27.6 million mortgage payable is effectively extinguished. Covenant Compliance The Company’s secured financing agreements contain certain financial tests and covenants. In the event of a default or any breach of covenant of a related agreement, the lender has the right to accelerate all amounts due, charge interest at a default rate, retain all cash flow from the loans originated and/or sell such loans in a private sale on terms possibly unfavorable to the Company. As of December 31, 2023, the Company was in compliance with all such covenants, as amended or waived (see footnotes to " Secured Financing Arrangements" table above). Scheduled Debt Principal Payments Scheduled debt principal payments for each of the five calendar years following December 31, 2023 are as follows: Years Ending December 31, Total 2024 (1) $ 156,397,354 2025 56,000,000 2026 131,009,518 2027 33,256,885 2028 40,250,000 Thereafter — 416,913,757 Unamortized deferred financing costs and other ( 8,007,547 ) Total $ 408,906,210 _______________ (1) Amount includes $ 75.5 million of borrowings under a repurchase agreement for which the maturity was extended to 2025 subsequent to December 31, 2023. Amount also includes $ 47.5 million of borrowings under a revolving line of credit for which the maturity was extended to September 2024 plus an option to extend the maturity for an additional 12-month period. F-41 Notes to Consolidated Financial Statements Obligations Under Participation Agreements As discussed in Note 2 , the Company follows the guidance in ASC 860 when accounting for loan participations. Such guidance requires the transferred interests meet certain criteria in order for the transaction to be recorded as a sale. Loan participations 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 December 31, 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. Note 10. Commitments and Contingencies Unfunded Commitments on Loans Held for Investment Certain of the Company’s loans contain provisions for future fundings, which are subject to the borrower meeting certain performance-related metrics that are monitored by the Company. These fundings amounted to approximately $ 35.7 million and $ 47.3 million as of December 31, 2023 and 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. Unfunded Investment Commitment As discussed in Note 5 , on August 3, 2020, the Company entered into a subscription agreement with RESOF whereby the Company committed to fund up to $ 50.0 million to purchase limited partnership interests in RESOF. As of December 31, 2023 and 2022, the unfunded investment commitment was $ 37.4 million and $ 22.4 million, respectively. Other The Company enters into contracts that contain a variety of indemnification provisions. The Company’s maximum exposure under these arrangements is unknown; however, the Company has not had prior claims or losses pursuant to these contracts. The Manager has reviewed the Company’s existing contracts and expects the risk of loss to the Company to be remote. As described above in Note 6 “ Real Estate Operating Revenue and Expenses” , the Company previously owned a multi-tenant office building that is subject to a ground lease. The ground lease provides for a new base rent every 5 years based on the greater of the annual base rent for the prior lease year or 9 % of the fair market value of the land. The next rent reset on the ground lease is scheduled for November 1, 2025. The Company was litigating with the landlord with respect to the appropriate method for determining the fair value of the land for purposes of setting the ground rent. 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 has taken the necessary steps to terminate the associated litigation (styled Terra Ocean Ave., LLC v. Ocean Avenue Santa Monica Realty LLC, Superior Court of California, Los Angeles County, Case No. 20STCV34217). Additionally, from time to time, we and individuals employed by us and our Manager may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our borrowers and investees. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that such proceedings will have a material effect upon our financial condition or results of operations. See Note 8 for a discussion of the Company’s commitments to the Manager. F-42 Notes to Consolidated Financial Statements Note 11. Equity Earnings Per Share The following table presents earnings per share: Years Ended December 31, 2023 2022 Net loss $ ( 56,886,039 ) $ ( 6,951,693 ) Series A preferred stock dividend declared ( 3,907 ) ( 15,624 ) Net loss allocable to common stock $ ( 56,889,946 ) $ ( 6,967,317 ) Weighted-average shares outstanding - basic and diluted 24,335,545 20,709,400 Loss per share - basic and diluted $ ( 2.34 ) $ ( 0.34 ) Preferred Stock Classes Preferred Stock The Company’s charter gives it authority to issue 50,000,000 shares of preferred stock, $ 0.01 par value per share (“Preferred Stock”). The Board may classify any unissued shares of Preferred Stock and reclassify any previously classified but unissued shares of Preferred Stock of any series from time to time, into one or more classes or series of stock. As of December 31, 2023, there were no Preferred Stock issued or outstanding. As of December 31, 2022 there were 125 shares of Series A Preferred Stock (as defined below) issued and outstanding. Series A Preferred Stock On November 30, 2016, the Board classified and designated 125 shares of Preferred Stock as a separate class of Preferred Stock to be known as the 12.5 % Series A Redeemable Cumulative Preferred Stock, $ 1,000 liquidation value per share (“Series A Preferred Stock”). In December 2016, the Company sold 125 shares of the Series A Preferred Stock for $ 125,000 . The Series A Preferred Stock paid dividends at an annual rate of 12.5 % of the liquidation preference. These dividends were cumulative and payable semi-annually in arrears on June 30 and December 31 of each year. The Series A Preferred Stock, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company, ranked senior to common stock. The Company, at its option, may redeem the shares, with written notice, at a redemption price of $ 1,000 per share, plus any accrued unpaid distribution through the date of the redemption. The Series A Preferred Stock carried a redemption premium of $ 50 per share if redeemed prior to January 1, 2019. The Series A Preferred Stock generally had no voting rights. However, the Series A Preferred Stockholders’ voting was required if (i) authorization or issuance of any securities senior to the Series A Preferred Stock; (ii) an amendment to the Company’s charter that has a material adverse effect on the rights and preference of the Series A Preferred Stock; and (iii) any reclassification of the Series A Preferred Stock. In March 2023, the Series A Preferred Stock was fully redeemed at par for a total of $ 125,000 plus accrued dividends. Common Stock On October 1, 2022, in connection with the BDC Merger, the Company amended its charter to increase the shares authorized from 500,000,000 to 950,000,000 , consisting of 450,000,000 shares of Class A Common Stock, $ 0.01 par value per share (“Class A Common Stock”), 450,000,000 shares of Class B Common Stock, and 50,000,000 shares of Preferred Stock. Concurrently, 4,847,910 shares of Class B Common Stock were issued to former Terra BDC stockholders and each share of the Company’s common stock issued and outstanding immediately prior to the effective time of the BDC Merger was automatically changed into one issued and outstanding share of Class B Common Stock. As of December 31, 2023, Terra Fund 7 and Terra Offshore REIT held 8.7 % and 10.1 %, respectively, of the issued and outstanding shares of the Company’s common stock. The Class B Common Stock rank equally with and have identical preferences, rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption as each other share of the Company’s common stock, except as set forth below with respect to conversion. F-43 Notes to Consolidated Financial Statements In connection with the potential liquidity transactions discussed in Note 1 , on December 1, 2023, the Company amended its articles of amendment and restatement (the “A&R Articles”) to provide the Board with greater flexibility to pursue a direct listing. In connection with a listing of shares of Class A Common Stock on a national securities exchange, the outstanding shares of Class B Common Stock will be convertible on a one -for-one basis into listed shares of Class A Common Stock, subject to certain conversion terms and holding periods. Currently, there are no outstanding shares of Class A Common Stock. The A&R Articles also incorporate the provisions generally required by state regulators in order to become a non-traded REIT and publicly sell shares of the Company’s stock not listed on an exchange. These non-traded REIT provisions will spring into effect and become operative if the Company ultimately decides to register and sell shares in a non-traded REIT format. Distributions The Company generally intends to distribute substantially all of its taxable income, which does not necessarily equal net income as calculated in accordance with U.S. GAAP, to its stockholders each year to comply with the REIT provisions of the Internal Revenue Code. All distributions will be made at the discretion of the Board and will depend upon its taxable income, financial condition, maintenance of REIT status, applicable law, and other factors as the Board deems relevant. For the years ended December 31, 2023 and 2022, the Company made distributions to investors totaling $ 18.6 million and $ 16.0 million, respectively, of which $ 18.6 million and $ 6.5 million were returns of capital, respectively. Additionally, for the years ended December 31, 2023 and 2022, the Company made distributions to preferred stockholders of $ 3,907 and $ 15,624 , respectively. Distributions paid to stockholders consist of ordinary income, capital gains, return of capital or a combination thereof for income tax purposes. The following table presents distributions per share, declared and paid during the years ended December 31, 2023 and 2022, reported for federal tax purposes and serves as a designation of capital gain distributions, if applicable, pursuant to Section 857(b)(3)(C) of the Internal Revenue Code and Treasury Regulation § 1.857-6(e): Years Ended December 31, 2023 2022 Ordinary income $ — $ 0.47 Capital gain — — Return of capital 0.76 0.31 $ 0.76 $ 0.78 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 year ended December 31, 2023, the Company issued 663 shares of Class B Common Stock for a total of $ 8,399 pursuant to the Plan. Note 12. Subsequent Events Management has evaluated subsequent events through the date the consolidated financial statements were available to be issued. Management has determined that there are no material events other than those described in Note 9 that would require adjustment to, or disclosure in, the Company’s consolidated financial statements. F-44 Terra Property Trust, Inc. Schedule III – Real Estate and Accumulated Depreciation As of December 31, 2023 Initial Costs Cost Capitalized Subsequent to Acquisition Increase (Decrease) in Net Investment Gross Amount at Period End Description Encumbrance Land Building and Building Improvements Land Building and Building Improvements Total Accumulated Depreciation Date of Construction Date Acquired Life Used for Depreciation Industrial buildings in Dallas, TX $ 40,250,000 $ 14,457,149 $ 65,365,376 $ 132,506 $ — $ 14,457,149 $ 65,497,882 $ 79,955,031 $ 1,189,296 1970; 1978; 1980 May 2023 30 - 35 years Industrial buildings in Dallas, TX 33,256,885 9,327,855 39,248,352 194,512 — 9,327,855 39,442,864 48,770,719 812,121 1975; 1977; 1988 March 2023 35 - 38 years $ 73,506,885 $ 23,785,004 $ 104,613,728 $ 327,018 $ — $ 23,785,004 $ 104,940,746 $ 128,725,750 $ 2,001,417 At December 31, 2023, the aggregate cost of real estate for federal income tax purposes was $ 109.2 million. The changes in total real estate assets and accumulated depreciation are as follows: Reconciliation of Real Estate Asset Reconciliation of Accumulated Depreciation Year Ended December 31, 2023 Year Ended December 31, 2023 Balance, beginning of year $ 53,816,609 Balance, beginning of year $ 7,156,383 Additions during the year: Additions during the year: Acquisitions 128,398,732 Depreciation for the year 3,254,832 Capital improvements 327,018 Deductions during the year: Deductions during the year: Disposition (1) ( 8,409,798 ) Dispositions (1) ( 42,051,069 ) Balance, end of year $ 2,001,417 Impairment charge (1) ( 11,765,540 ) Balance, end of year $ 128,725,750 ___________________________ (1) During the year ended December 31, 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 and recognized a loss on disposal of real estate of $ 4.2 million. As of December 31, 2023, the Company no longer owns the multi-tenant office building. F-45 Terra Property Trust, Inc. Schedule IV – Mortgage Loans on Real Estate As of December 31, 2023 Description (1) Number of Loans Property Type/Location Contractual Interest Rate (2) Maximum Maturity Date (3) Periodic Payment Terms Prior Liens Face Amount Carrying Amount Principal Amount of Mortgages Subject to Delinquent Principal or Interest Mezzanine loans individually < 3% of carrying amount of total loans: Mezzanine loan 1 Student housing/California 11.0 % May 2027 Interest Only — $ 3,000,000 $ 2,935,304 $ — Mezzanine loan 1 Industrial/Massachusetts 8.5 % September 2027 Interest Only — 7,000,000 7,000,000 — Mezzanine loan (4)(5) 1 Mixed-use/California 15.5 % June 2027 Interest Only — 7,444,357 7,488,777 — 17,444,357 17,424,081 — First mortgages individually > 3% of carrying amount of total loans: Loan A (6) Office/Georgia 10.0 % August 2024 Interest Only — 56,835,827 56,835,827 56,835,827 Loan B Hotel/California 10.5 % January 2025 Interest Only — 43,222,382 43,801,303 — Loan C (7)(8) Industrial/New Jersey 12.8 % August 2025 Interest Only — 60,579,869 60,612,621 60,579,869 Loan D Land/New Jersey 17.3 % March 2025 Interest Only — 21,839,509 22,876,428 — Loan E Office/California 8.9 % December 2024 Interest Only — 18,000,000 18,041,150 — Loan F Infrastructure/Utah 14.0 % August 2025 Interest Only — 21,250,000 21,443,421 — Loan G Mixed-use/North Carolina 13.5 % November 2024 Interest Only — 21,826,479 21,929,657 — Loan H (4)(5) Land/Arizona 18.1 % September 2024 Interest Only — 31,000,000 31,296,235 — Loan I Student housing/Utah 10.4 % March 2024 Interest Only — 28,000,000 28,886,528 — Loan J Multifamily/Washington 9.8 % April 2026 Interest Only — 23,100,000 23,210,490 — Loan K Multifamily/California 10.9 % October 2024 Interest Only — 27,494,267 27,810,327 — First mortgages individually < 3% of carrying amount of total loans: First mortgages 2 Multifamily/California & Washington 9.5 %- 13.1 % April 2024 March 2027 Interest Only — 12,317,167 12,174,903 1,364,944 365,465,500 368,918,890 118,780,640 Preferred equity investments individually > 3% of carrying amount of total loans: Loan L (9) Office/New York 13.7 % July 2022 Interest Only — 69,976,792 69,976,792 69,976,792 Loan M Multifamily/Georgia 14.0 % June 2026 Interest Only — 17,500,001 17,766,501 — Loan N Mixed use/California 20.3 % August 2025 Interest Only — 18,567,296 18,855,139 — Loan O (10) Mixed use/New York 18.0 % March 2025 Interest Only — 15,258,233 15,258,233 15,258,233 Preferred equity investments individually < 3% if carrying amount of total loans: Preferred equity investment (11) 1 Multifamily/New York 12.3 % August 2021 Interest Only — 5,248,647 5,248,647 5,248,647 F-46 126,550,969 127,105,312 90,483,672 Total loans (12) $ 509,460,826 513,448,283 $ 209,264,312 Allowance for credit losses (13) ( 56,976,025 ) Carrying value, net $ 456,472,258 ___________________________ (1) All of the Company’s loans have a prepayment provision. (2) For all floating rate loans, contractual interest rate was determined using the applicable benchmark rate as of December 31, 2023. (3) Maximum maturity date assumes all extension options are exercised. (4) Participation interest is with Mavik Real Estate Special Opportunities Fund REIT, LLC, a related-party REIT managed by the Manager. (5) The Company acquired these investments through participation agreements. See “ Participation Agreements ” in Note 8 in the accompanying notes to the consolidated financial statements. (6) This loan is current in maturity default. The Company recorded an allowance of credit losses of $ 11.8 million on this loan as a result of a decline in the fair value of the underlying collateral. (7) Amount included $ 4.0 million of incremental borrowing that bears interest at an annual rate of 20.0 % until certain conditions are met, at which time the interest rate will be the same as the original loan. (8) The interest payment on this loan is past due; however, the Company expects to be able to collect all amounts due for both principal and interest according to the contractual terms of the loan. (9) This loan is current in maturity default. The Company recorded an allowance of credit losses of $ 26.4 million on this loan as a result of a decline in the fair value of the underlying collateral. (10) This loan is current in maturity default. The Company recorded an allowance of credit losses of $ 15.1 million on this loan and expects the sponsor to pay the remaining balance. (11) This loan is current in maturity default. The Company initiated a litigation to seek full repayment of the loan from the sponsor. (12) The aggregate cost for U.S. federal income tax purposes was $ 575.9 million. (13) Excludes $ 0.3 million of allowance for credit losses related to unfunded commitments. F-47 Terra Property Trust, Inc. Notes to Schedule IV - Mortgage Loans on Real Estate December 31, 2023 Reconciliation of Mortgage Loans on Real Estate Year Ended December 31, 2023 Balance, beginning of year $ 626,490,767 Additions during the period: New mortgage loans 78,883,295 Deductions during the period: Collections of principal ( 126,142,565 ) Settlement of loans ( Note 4 ) ( 70,737,874 ) Amortization of premium ( 1,124,157 ) Accrual, payment and accretion of investment-related fees and other, net ( 1,055,589 ) Provision for loan losses ( 45,591,567 ) Cumulative effect of credit loss accounting standard effective January 1, 2023 ( Note 2 , Note 4 ) ( 4,250,052 ) Balance, end of year $ 456,472,258 F-48 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 15, 2024 TERRA PROPERTY TRUST, INC. By: /s/ Vikram S. Uppal Vikram S. Uppal Chief Executive Officer and Chief Investment Officer (Principal Executive Officer) By: /s/ Gregory M. Pinkus Gregory M. Pinkus Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Vikram S. Uppal Chairman of the Board, Chief Executive Officer and Chief Investment Officer March 15, 2024 Vikram S. Uppal (Principal Executive Officer) /s/ Gregory M. Pinkus Chief Financial Officer, Treasurer and Secretary March 15, 2024 Gregory M. Pinkus (Principal Financial and Accounting Officer) /s/ Roger H. Beless Director March 15, 2024 Roger H. Beless /s/ Michael L. Evans Director March 15, 2024 Michael L. Evans /s/ Adrienne M. Everett Director March 15, 2024 Adrienne M. Everett /s/ Spencer E. Goldenberg Director March 15, 2024 Spencer E. Goldenberg /s/ Gaurav Misra Director March 15, 2024 Gaurav Misra 60