What changed in this filing

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Item 1. Financial Statements

2024-05-13 compared with 2023-11-14 · 594 added, 1192 removed, 963 unchanged (65% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Cash and cash equivalents $ 17,914,875 $ 10,674,475

6 unchanged sentences

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

credit losses of $ 415,268 and none

credit losses of $ 687,939 and $ 226,527

38,089,285 38,558,485

3 unchanged sentences

Lease intangible assets, net 8,534,578 9,869,364

Operating lease right-of-use asset 27,365,847 27,378,786

Deal deposit — 4,241,892

Interest receivable 8,014,178 6,537,368

Due from related parties 1,092,348 655,263

Other assets 9,090,039 8,811,583

1 unchanged sentence

Liabilities and Equity

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

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

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

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

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

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

Unsecured notes payable, net $ 118,872,834 $ 118,380,897

Secured financing agreements, net 258,749,238 290,525,313

Obligations under participation agreements ( Note 7 )

Interest reserve and other deposits held on investments 4,097,364 3,954,986

Operating lease liability 27,365,847 27,378,786

Lease intangible liabilities, net ( Note 5 )

9 unchanged sentences

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

September 30, 2023 and December 31, 2022, respectively

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

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

shares issued, as of both March 31, 2024 and December 31, 2023

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

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

24,336,424 and 24,336,033 shares issued and outstanding as of March 31, 2024

and December 31, 2023, respectively

2 unchanged sentences

Accumulated deficit ( 213,882,368 ) ( 203,047,758 )

Accumulated other comprehensive loss ( 335,782 ) —

Total equity 230,487,890 241,653,808

2 unchanged sentences

Terra Property Trust, Inc.

Consolidated Statements of Operations

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

2023 2022 2023 2022

Consolidated Statements of Operations and Comprehensive (Loss) Income

Three Months Ended March 31,

Interest income $ 12,148,735 $ 15,615,807

Real estate operating revenue 2,719,701 1,332,969

Prepayment fee income — 809,301 — 1,984,061

Other operating income 140,909 53,395

4 unchanged sentences

Asset servicing fee 406,525 470,525

Provision for credit losses 27,096,841 9,188,129 30,899,434 9,264,058

Provision for (reversal of provision for) credit losses 1,873,111 ( 850,051 )

Real estate operating expenses 691,006 1,209,912

Depreciation and amortization 2,116,682 681,813

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

Professional fees 885,569 979,895

2 unchanged sentences

10,212,760 6,978,233

Operating (loss) income ( 20,653,463 ) ( 3,202,550 ) ( 17,667,390 ) 5,787,916

Operating income 4,796,585 10,023,938

Other income and expenses

Interest expense from obligations under

participation agreements ( 243,945 ) ( 562,182 ) ( 1,353,006 ) ( 2,875,946 )

Interest expense on repurchase agreements

payable ( 2,502,623 ) ( 2,394,754 ) ( 8,505,926 ) ( 4,815,863 )

Interest expense on mortgage loans payable ( 2,133,874 ) ( 534,617 ) ( 4,520,974 ) ( 1,574,063 )

Interest expense on revolving line of credit ( 1,968,212 ) ( 647,473 ) ( 6,473,793 ) ( 1,872,504 )

Interest expense on term loan payable ( 532,387 ) — ( 1,239,418 ) ( 164,969 )

Interest expense on secured financing ( 7,289,912 ) ( 6,119,731 )

Interest expense on unsecured notes payable ( 2,440,375 ) ( 2,394,306 )

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

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

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

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

Income (loss) from equity investment in

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

Gain on sale of interests in unconsolidated

investments — 799,827 — 799,827

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

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

Interest expense on obligations under participation agreements ( 618,495 ) ( 532,146 )

Unrealized (loss) gain on investments, net ( 22,931 ) 6,584

Loss from equity investment in unconsolidated investments ( 473,387 ) ( 436,860 )

Realized loss on investments, net ( 135,459 ) —

( 10,980,559 ) ( 9,476,459 )

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

Net (loss) income $ ( 6,183,974 ) $ 547,479

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

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

Loss per share — basic and diluted

Net (loss) income allocable to common stock $ ( 6,183,974 ) $ 543,572

Other Comprehensive loss

Available-for-sale debt securities ( 335,782 ) —

( 335,782 ) —

Comprehensive (loss) income $ ( 6,519,756 ) $ 543,572

Per share data

(Loss) income per share — basic and diluted

$ ( 0.25 ) $ 0.02

Weighted-average shares — basic and diluted

4 unchanged sentences

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

Capital Accumulated Deficit

Preferred Stock Class A Common Stock Class B Common Stock Additional

Capital Accumulated Deficit Accumulated Other Comprehensive loss

$ 0.01 Par Value

Shares Amount Shares Amount Shares Amount Total equity

Shares Amount Shares Amount Total Equity

Balance at January 1, 2024

Cumulative effect of credit loss

accounting standard effective

January 1, 2023 ( Note 2 )

$ — — $ — 24,336,033 $ 243,360 $ 444,458,206 $ ( 203,047,758 ) $ — $ 241,653,808

Shares issued from reinvestment of

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

Redemption of Series A Preferred

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

Distributions declared on common

shares ($ 0.19 per share)

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

Distributions declared on preferred

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

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

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

Shares issued from reinvestment of

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

Distributions declared on common

shares ($ 0.19 per share)

Shares issued from reinvestment of shareholder

distributions — — — 391 4 4,470 — — 4,474

Distributions declared on common shares ($ 0.19 per

— — — — — — ( 4,650,636 ) — ( 4,650,636 )

Net loss — — — — — — ( 6,183,974 ) — ( 6,183,974 )

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

Shares issued from reinvestment of

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

Distributions declared on common

shares ($ 0.19 per share)

Other comprehensive loss:

Available-for-sale debt securities — — — — — — — ( 335,782 ) ( 335,782 )

Balance at March 31, 2024

$ — — $ — 24,336,424 $ 243,364 $ 444,462,676 $ ( 213,882,368 ) $ ( 335,782 ) $ 230,487,890

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

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

See notes to unaudited consolidated financial statements.

Terra Property Trust, Inc.

Consolidated Statements of Changes in Equity (Continued)

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

Common Stock Additional

Class A Common Stock Class B Common Stock Additional

Capital Accumulated Deficit

$ 0.01 Par Value

Shares Amount Shares Amount Total equity

$ 0.01 Par Value

Shares Amount Shares Amount Shares Amount Total Equity

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

Distributions declared on common shares ($ 0.20 per share)

Cumulative effect of credit loss accounting standard effective

January 1, 2023 ( Note 2 )

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

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

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

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

Shares issued from reinvestment of shareholder distributions — — — — — 34 — 478 — 478

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

Distributions declared on common shares ($ 0.19 per share)

2 unchanged sentences

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

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

Distributions declared on common shares ($ 0.19 per share)

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

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

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

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

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

See notes to unaudited consolidated financial statements .

1 unchanged sentence

Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

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

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

Net (loss) income $ ( 6,183,974 ) $ 547,479

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

Depreciation and amortization 2,116,682 681,813

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

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

Provision for (reversal of provision for) credit losses 1,873,111 ( 850,051 )

Amortization of net purchase premiums on loans 78,132 346,780

5 unchanged sentences

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

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

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

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

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

Loss on sale of real estate — 51,984

Realized loss on investments, net 135,459 —

Unrealized loss (gain) on investments, net 22,931 ( 6,584 )

Distributions received from equity investment in unconsolidated investments 648,911 4,050,553

Loss (income) from equity investment in unconsolidated investments 3,959,892 ( 2,961,929 )

Loss from equity investment in unconsolidated investments 473,387 1,010,625

Changes in operating assets and liabilities:

1 unchanged sentence

Interest receivable ( 1,476,810 ) ( 1,127,241 )

Due from related party ( 453,597 ) 2,605,639

Due from related parties ( 437,085 ) ( 138,508 )

Other assets 999,329 ( 806,166 )

4 unchanged sentences

Other liabilities ( 77,673 ) ( 1,010,363 )

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

Net cash (used in) provided by operating activities ( 4,186,780 ) 8,661,008

Cash flows from investing activities:

Origination and purchase of loans ( 73,104,166 ) ( 187,878,643 )

Proceeds from repayments of loans 46,981,320 59,177,506

Origination and purchase of loans ( 7,173,474 ) ( 46,214,722 )

Purchase of equity interests in unconsolidated investments ( 6,476,877 ) —

Funding for promissory note receivable ( 1,225,656 ) —

Proceeds from sale of marketable securities 1,292,897 —

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

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

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

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

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

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

Cash acquired in purchase of real estate 712,608 —

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

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

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

Distributions in excess equity income — 742,651

Net cash provided by (used in) investing activities 33,398,210 ( 51,990,191 )

1 unchanged sentence

Consolidated Statements of Cash Flows (Continued)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from financing activities:

Proceeds from mortgage loan payable 73,249,135 —

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

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

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

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

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

Principal repayments on secured financing ( 84,780,619 ) ( 19,230,071 )

Proceeds from secured financing 53,019,501 68,264,993

Proceeds from obligations under participation agreements 15,000,000 521,886

Distributions paid ( 4,646,162 ) ( 4,653,921 )

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

Payment of financing costs ( 929,335 ) ( 844,415 )

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

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

Change in interest reserve and other deposits held on investments 142,378 ( 21,410 )

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

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

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

Proceeds from secured borrowing — 4,151,186

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

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

Net cash (used in) provided by financing activities ( 22,194,237 ) 43,912,062

Net increase in cash, cash equivalents and restricted cash 7,017,193 582,879

Cash, cash equivalents and restricted cash at beginning of period 19,536,777 36,469,592

1 unchanged sentence

$ 26,553,970 $ 37,052,471

Nine Months Ended September 30,

Three Months Ended March 31,

Supplemental Disclosure of Cash Flows Information:

1 unchanged sentence

Supplemental non-cash information:

Reinvestment of stockholder distributions $ 4,563 $ —

Supplemental non-cash investing information:

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

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

Total Capitalized Costs:

Cash and cash equivalents $ 3,515,466

Loans held for investment 68,737,877

Equity investment in unconsolidated investment 10,149,642

Interest receivable 456,650

Other assets 429,326

Net Assets Acquired

Cash and cash equivalents $ 712,608

Other assets 33,802

Land 14,457,149

Buildings and Improvements 65,365,376

Intangible asset and liability:

In-please lease 8,403,667

Below-market rent ( 4,770,870 )

Accounts payable and accrued expenses ( 912,771 )

Reinvestment of shareholder distributions $ 4,474 $ 478

See notes to unaudited consolidated financial statements .

1 unchanged sentence

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2023

March 31, 2024

Terra Property Trust, Inc.

(and, together with its consolidated subsidiaries, the “Company” or “Terra Property Trust”) was incorporated under the Maryland General Corporation Law on December 31, 2015.

Terra Property Trust is a real estate credit focused company that originates, structures, funds and manages commercial real estate investments, including mezzanine loans, first mortgage loans, subordinated mortgage loans and preferred equity investments.

The Company’s loans finance the acquisition, construction, development or redevelopment of quality commercial real estate in the United States.

The Company focuses on the origination of middle market loans in the approximately $ 10 million to $ 50 million range, to finance properties in primary and secondary markets.

( 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 in the Company’s experience have been 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.

1 unchanged sentence

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

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

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’s investment activities are externally managed by Terra REIT Advisors, LLC (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 7 ).

The Company does not currently have any employees and does not expect to have any employees.

1 unchanged sentence

On October 1, 2022, pursuant to that certain Agreement and Plan of Merger, dated as of May 2, 2022 (the “Merger Agreement”), Terra Income Fund 6, Inc.

(“Terra BDC”), merged with and into Terra Income Fund 6, LLC (“Terra LLC”), a wholly owned subsidiary of the Company, with Terra LLC continuing as the surviving entity of the merger (the “BDC Merger”) and as a wholly owned subsidiary of the Company ( Note 3 ).

As of September 30, 2023, Terra JV, LLC (“Terra JV”), former shareholders of Terra BDC and Terra Offshore Funds REIT, LLC (“Terra Offshore REIT”) held 70.0 %, 19.9 % and 10.1 % of the issued and outstanding shares of the Company’s common stock, respectively.

Pursuant to the terms of the transactions described in the Merger Agreement, approximately 4,847,910 shares of the Company’s Class B Common Stock, $ 0.01 par value per share (“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 October 1, 2022.

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.

Notes to Unaudited Consolidated Financial Statements

As of March 31, 2024, 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.

Summary of Significant Accounting Policies

4 unchanged sentences

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

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

Notes to Unaudited Consolidated Financial Statements

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

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.

11 unchanged sentences

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

Current Expected Credit Losses Reserve

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

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

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

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

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

Amortized cost is the amount at which a financing receivable or a loan is 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.

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

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

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

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

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

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

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

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,

Notes to Unaudited Consolidated Financial Statements

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

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

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

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

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

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

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.

On a quarterly basis, adjustments to the weights ascribed to the multiple macroeconomic forecast scenarios are 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.

A significant amount of judgment is applied in selecting inputs and analyzing results produced by the models to determine the allowance for credit losses on performing loans.

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

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

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

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

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

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

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

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

The 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.

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 Company to determine the amount of the expected loss more accurately and reasonably for these investments.

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

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.

Notes to Unaudited Consolidated Financial Statements

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.

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

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

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

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

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

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 March 31, 2024, 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 of each loan.

Equity Investment in Unconsolidated Investments

The Company accounts for its equity interests in unconsolidated investments under the equity method of accounting, i.e., at cost, increased or decreased by its share of earnings or losses, less distributions, plus contributions and other adjustments required by equity method accounting.

Notes to Unaudited Consolidated Financial Statements

The Company 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.

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.

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Marketable Securities

The Company from time to time invests in short term debt and equity securities.

These securities are classified as available-for-sale and are carried at fair value.

Changes in the fair value of equity securities are recognized in earnings.

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.

Held-to-Maturity Debt Securities

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

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

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

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

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The value allocated to above or below market leases are amortized over the remaining lease term as an adjustment to rental income.

Notes to Unaudited Consolidated Financial Statements

Real estate assets are depreciated using the straight-line method over their estimated useful lives:

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

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

The review of recoverability is based on estimated future cash flows and the estimated liquidation value of such real estate assets, and 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.

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

Notes to Unaudited Consolidated Financial Statements

As of October 19, 2023, in connection with the deed in lieu of foreclosure discussed in Note 5 , the Company is no longer a party to the ground lease and the related ROU assets and liabilities were written off.

Revenue Recognition

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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.

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 interest and principal becomes not probable.

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

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All other income is recognized when earned.

Notes to Unaudited Consolidated Financial Statements

Cash, Cash Equivalents and Restricted Cash

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

September 30,

Cash and cash equivalents $ 17,914,875 $ 28,869,594

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statements of cash flows $ 26,553,970 $ 37,052,471

Notes to Unaudited Consolidated Financial Statements

Participation Interests

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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.

Interest expense from obligations under participation agreement is reversed when recovery of interest income on the related loan becomes not probable.

See “ Obligations Under Participation Agreements ” in Note 8 for additional information.

The Company previously financed certain of its senior loans through borrowings under an indenture and credit agreement.

The Company accounted for the borrowings as a term loan, which was carried at the contractual amount (cost), net of unamortized deferred financing fees.

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

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

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

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

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

Repurchase Agreements

The Company finances certain of its senior loans held for investment through repurchase transactions under master repurchase agreements.

The Company accounts for the repurchase transactions as secured borrowing transactions, which are carried at their contractual amounts (cost), net of unamortized deferred financing fees.

See “Repurchase Agreements” in Note 9 for additional information.

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 8 for additional information.

Fair Value Measurements

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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.

Notes to Unaudited Consolidated Financial Statements

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

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federal and state income taxes at regular corporate rates.

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

Notes to Unaudited Consolidated Financial Statements

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

As of March 31, 2024, 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 three and nine months ended September 30, 2023 and 2022, the Company did not incur any interest or penalties.

For the three months ended March 31, 2024 and 2023, the Company did not incur any interest or penalties.

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

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Earnings Per Share

The Company has a simple equity capital structure with only common stock outstanding as of September 30, 2023 and common stock and preferred stock outstanding as of December 31, 2022.

As a result, earnings per share, as presented, represent both basic and dilutive per-share amounts for the periods presented in the consolidated financial statements.

The Company has a simple equity capital structure with only common stock outstanding as of March 31, 2024 and December 31, 2023, and common stock and preferred stock outstanding prior to March 31, 2023.

As a result, earnings per share, as presented, represents 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.

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

Notes to Unaudited Consolidated Financial Statements

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.

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

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

At the Effective Time, except for any shares of common stock, par value $ 0.001 per share, of Terra BDC (“Terra BDC Common Stock”) held by the Company or any wholly owned subsidiary of the Company or Terra BDC, which shares were automatically retired and ceased to exist with no consideration paid therefor, each issued and outstanding share of Terra BDC Common Stock was automatically cancelled and retired and converted into the right to receive (i) 0.595 shares of the newly designated Class B Common Stock, par value $ 0.01 per share (“Class B Common Stock”) and (ii) cash, without interest, in lieu of any fractional shares of Class B Common Stock otherwise issuable in an amount, rounded to the nearest whole cent, determined by multiplying (x) the fraction of a share of Class B Common Stock to which such holder would otherwise be entitled by (y) $ 14.38 .

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

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

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

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

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

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

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

Notes to Unaudited Consolidated Financial Statements

The following table summarizes the total consideration and the fair values of assets acquired and liabilities assumed in the BDC Merger:

Total Consideration

Fair value of Terra Property Trust shares of common stock issued

Cash paid for fractional shares 12,920

Transaction costs 2,283,785

Assets Acquired and Liabilities Assumed at Fair Value

Cash and cash equivalents $ 24,321,951

Restricted cash 260,614

Loans Held for Investment

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

Interest receivable 1,367,044

Other assets 55,465

Term loan payable ( 25,000,000 )

Unsecured notes payable ( 33,770,000 )

Obligations under participation agreements ( 6,114,979 )

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

Due to manager ( 682,541 )

Interest payable ( 53,186 )

Accounts payable and accrued expenses ( 740,824 )

Other liabilities ( 387,446 )

Net assets acquired $ 73,351,325

The fair value of the 4,847,910 shares of the Class B Common Stock was determined based on the Company’s net asset value per share of $ 14.66 as of October 1, 2022.

Net Gain on Extinguishment of Obligations Under Participation Agreements

As discussed in Note 8 , in the normal course of business, the Company may enter into participation agreements with related parties, primarily other affiliated funds managed by the Manager, and to a lesser extent, unrelated parties.

As a result of the BDC Merger, the obligations under participation agreements with Terra BDC totaling $ 37.0 million were effectively extinguished and the Company recognized a net gain of $ 3.4 million, representing the difference between the carrying value of the Company’s obligations under participation agreements and the fair value of Terra BDC’s investments acquired through participation agreements.

Appointment of Directors

As of the Effective Time and in accordance with the Merger Agreement, the size of the Board was increased by three members and each of Spencer Goldenberg, Adrienne Everett and Gaurav Misra (each a “Terra BDC Designee”, and collectively, the “Terra BDC Designees”) were elected to the Board to fill the vacancies created by such increase, with each Terra BDC Designee to serve until the Company’s next annual meeting of stockholders and until his or her successor is duly elected and qualifies.

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

Voting Support Agreement

On the Closing Date, the Company, Terra JV and Terra Offshore REIT entered into a Voting Support Agreement (the “2022 Voting Agreement”).

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

Notes to Unaudited Consolidated Financial Statements

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

Indemnification Agreements

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

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

WMC Merger Agreement

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

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

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

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

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

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

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

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

Loans Held for Investment

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

As of September 30, 2023 and December 31, 2022, accrued interest receivable of $ 4.3 million and $ 4.1 million, respectively, is included in interest receivable on the consolidated balance sheets, and is excluded from the amortized cost of loans held for investment.

As of March 31, 2024 and December 31, 2023, accrued interest receivable of $ 8.0 million and $ 6.5 million, respectively, is included in interest receivable on the consolidated balance sheets, and is excluded from the amortized cost of loans held for investment.

Notes to Unaudited Consolidated Financial Statements

Portfolio Summary

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Fixed Rate Floating

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_______________

Notes to Unaudited Consolidated Financial Statements

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

Coupon rates shown were determined using LIBOR of 5.43 %, average SOFR of 5.32 % and Term SOFR of 5.32 % as of September 30, 2023 and LIBOR of 4.39 %, average SOFR of 4.06 % and Term SOFR of 4.36 % as of December 31, 2022.

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

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

(1) These loans pay a coupon rate of 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 the London Interbank Offered Rate (“LIBOR”) of 5.44 %, average SOFR of 5.32 % and Term SOFR of 5.33 % as of March 31, 2024 and average SOFR of 5.34 % and Term SOFR of 5.35 % as of December 31, 2023.

(2) As of March 31, 2024 and December 31, 2023, amount included $ 323.9 million and $ 342.9 million of senior mortgages used as collateral for $ 187.6 million and $ 204.9 million of borrowings under secured financing arrangements, respectively ( Note 9 ).

(3) As of March 31, 2024 and December 31, 2023, 13 and 14 loans, respectively, were subject to a SOFR or Term SOFR floor, as applicable.

Lending Activities

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Balance, January 1, 2024

Cumulative effect of credit loss accounting standard effective

January 1, 2023 ( Note 2 )

$ 417,913,773 $ 38,558,485 $ 456,472,258

New loans made 73,104,166 — 73,104,166

Principal repayments received ( 46,981,320 ) — ( 46,981,320 )

New loans made 7,173,474 — 7,173,474

Net amortization of premiums on loans ( 78,132 ) — ( 78,132 )

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

( 68,737,877 ) — ( 68,737,877 )

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

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Provision for credit losses ( 1,306,358 ) ( 461,412 ) ( 1,767,770 )

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

Balance, March 31, 2024

$ 377,169,978 $ 38,089,285 $ 415,259,263

Notes to Unaudited Consolidated Financial Statements

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

Balance, January 1, 2023 $ 584,417,939 $ 42,072,828 $ 626,490,767

Cumulative effect of credit loss accounting standard effective

January 1, 2023 ( Note 2 )

( 4,250,052 ) — ( 4,250,052 )

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

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

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

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

Notes to Unaudited Consolidated Financial Statements

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

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

Portfolio Information

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

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

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Mezzanine loans 17,444,357 17,429,831 4.2 % 17,444,357 17,424,081 3.8 %

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

Allowance for credit losses — ( 58,743,795 ) ( 14.1 ) % — ( 56,976,025 ) ( 12.5 ) %

Total $ 469,652,980 $ 415,259,263 100.0 % $ 509,460,826 $ 456,472,258 100.0 %

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

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

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Total $ 469,652,980 $ 415,259,263 100.0 % $ 509,460,826 $ 456,472,258 100.0 %

September 30, 2023 December 31, 2022

Notes to Unaudited Consolidated Financial Statements

March 31, 2024 December 31, 2023

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

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Georgia 74,166,025 74,391,413 17.9 % 74,335,828 74,602,328 16.3 %

Utah 49,250,000 50,300,532 10.7 % 49,250,000 50,698,251 8.1 %

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

Arizona 31,000,000 31,287,431 7.5 % 31,000,000 31,296,235 6.9 %

Utah 28,000,000 28,910,000 7.0 % 49,250,000 50,329,949 11.0 %

North Carolina 21,826,479 21,927,383 5.3 % 21,826,479 21,929,657 4.8 %

Washington 15,307,938 15,268,620 3.7 % 34,052,223 34,020,449 7.5 %

Massachusetts 7,000,000 7,000,000 1.7 % 7,000,000 7,000,000 1.5 %

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

Allowance for credit losses — ( 58,743,795 ) ( 14.1 ) % — ( 56,976,025 ) ( 12.5 ) %

Total $ 469,652,980 $ 415,259,263 100.0 % $ 509,460,826 $ 456,472,258 100.0 %

Current Expected Credit Losses Reserve

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

The adoption of ASU

Notes to Unaudited Consolidated Financial Statements

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

Allowance for Credit Losses

As described in Note 2 , on January 1, 2023, the Company adopted the provisions of ASU 2016-13, Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to recognize credit losses on financial instruments based on an estimate of current expected credit losses.

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

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

Nine Months Ended September 30,

Three Months Ended March 31,

Allowance for credit losses, beginning of period $ 56,976,025 $ 25,471,890

1 unchanged sentence

January 1, 2023 ( Note 2 )

Provision for credit losses (1)

30,856,645 9,264,058

Provision (reversal of provision) for credit losses 1,767,770 ( 1,070,365 )

Charge-offs — —

1 unchanged sentence

Allowance for credit losses, end of period $ 58,743,795 $ 28,651,577

_______________

(1) Prior to the adoption of the CECL model on January 1, 2023, the Company recorded an allowance for credit losses equal to (i) 1.5 % of the aggregate carrying amount of loans rated as a “4”, plus (ii) 5 % of the aggregate carrying amount of loans rated as a “5”, plus (iii) non-performing loan reserves, if any.

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

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

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

These unfunded commitments amounted to approximately $ 30.7 million and $ 35.7 million as of March 31, 2024 and December 31, 2023, respectively.

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

Nine Months Ended September 30, 2023

Three Months Ended March 31,

Liability for credit losses on unfunded commitments, beginning of period $ 326,907 $ —

4 unchanged sentences

Accrued Interest Receivable

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

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

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

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

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

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

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 manner.

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 three months ended March 31, 2024 and 2023, the Company did not reverse any interest income

Notes to Unaudited Consolidated Financial Statements

accrual because all accrued interest income was deemed collectible.

For the three months ended March 31, 2024 and 2023, the Company suspended interest income accrual of $ 5.8 million and $ 3.4 million on four and four loans, respectively, because recovery of such income was not probable.

As of March 31, 2024 and December 31, 2023, there was no interest receivable recognized on these loans.

Non-Performing Loans

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

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

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

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 March 31, 2024 and December 31, 2023, the Company had eight and six non-performing loans with total carrying value of $ 263.5 million and $ 209.3 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 $ 55.7 million and $ 54.6 million as of March 31, 2024 and December 31, 2023, respectively.

Please see “Note 6.

Fair Value Measurements – Significant Unobservable Inputs” for information on how the fair values of these loans were determined.

Loan Risk Rating

3 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

(iv) loan to value.

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:

4 unchanged sentences

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 September 30, 2023:

September 30, 2023

The following tables present the amortized cost of the Company’s loan portfolio by year of origination and loan risk rating:

March 31, 2024

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

9 unchanged sentences

Total, net of allowance for credit losses $ 415,259,263

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:

Notes to Unaudited Consolidated Financial Statements

December 31, 2023

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

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

2023 2022 2021 2020 2019 Prior

1 — $ — — % $ — $ — $ — $ — $ — $ —

1 unchanged sentence

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

Non-performing (1)

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

_______________

(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

Notes to Unaudited Consolidated Financial Statements

Company is entitled to receive waterfall profit upon a sale.

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

As a result, the remaining $ 1.4 million is reflected as a loan receivable and it is fully reserved for as of September 30, 2023 and December 31, 2022.

The Company classified this loan modification as a TDR as it met all the conditions to be considered a TDR pursuant to ASC 310-40.

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

The Company recorded an allowance for credit losses of $ 1.4 million to fully reserve for the unpaid principal balance.

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

Equity Investment in Unconsolidated Investments

The Company owns interests in a limited partnership and three joint ventures.

The Company owns interests in a limited partnership and four 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.

Equity Investment in a Limited Partnership

3 unchanged sentences

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

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

The Company evaluated its equity interest in RESOF and determined it does not have a controlling financial interest and is not the primary beneficiary.

Accordingly, the equity interest in RESOF is accounted for as an equity method investment.

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

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

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

The equity income for the nine months ended September 30, 2023 included the negative adjustments made due to the dilution in the Company’s ownership interest in RESOF as new investors were admitted in 2022 and 2023.

For the three and nine months ended September 30, 2023, the Company received distributions from RESOF of $ 0.7 million and $ 5.4 million, respectively.

For the three and nine months ended September 30, 2022, the Company recorded equity income from RESOF of $ 2.1 million and $ 5.0 million, respectively, and received no distributions from RESOF.

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

The following tables present a summary of information regarding the Company’ equity investment in RESOF:

March 31, 2024 December 31, 2023

Ownership Interest Carrying Value Unfunded Commitment Ownership Interest Carrying Value Unfunded Commitment

Equity investment in RESOF 14.9 % $ 24,510,818 $ 31,479,273 14.9 % $ 18,196,583 $ 37,444,080

Three Months Ended March 31,

Income from equity investment in RESOF $ 998,339 $ 303,600

Distributions received from RESOF $ 648,911 $ 3,787,783

Notes to Unaudited Consolidated Financial Statements

1 unchanged sentence

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Investments at fair value (cost of $ 273,515,287 and $ 196,129,031 , respectively)

9 unchanged sentences

Partners’ capital $ 159,131,795 $ 118,248,930

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

2023 2022 2023 2022

Three Months Ended March 31,

Total investment income $ 10,833,147 $ 8,111,779

1 unchanged sentence

Net investment income 6,650,818 4,944,984

Unrealized appreciation (depreciation)

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

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

Net increase in partners’ capital resulting

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

Unrealized depreciation on investments ( 527,912 ) ( 595,911 )

Net increase in partners’ capital resulting from operations $ 6,122,906 $ 4,349,073

Equity Investment in Joint Ventures

As of September 30, 2023 and December 31, 2022, the Company beneficially owned equity interests in three joint ventures that invest in real estate properties.

As of March 31, 2024 and December 31, 2023, the Company beneficially owned equity interests in four 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.

Notes to Unaudited Consolidated Financial Statements

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

September 30, 2023 December 31, 2022

Entity Co-owner (1)

Beneficial Ownership Interest Carrying Value Beneficial Ownership Interest Carrying Value

LEL Arlington JV LLC (1)

Affiliate/Third party 27.2 % $ 6,431,784 27.2 % $ 7,271,603

LEL NW 49th JV LLC (1)

Affiliate/Third party 27.2 % 1,653,527 27.2 % 1,521,556

The following tables present a summary of the Company’s equity investment in the joint ventures:

March 31, 2024 December 31, 2023

Entity Co-owner Beneficial Ownership Interest Carrying Value Beneficial Ownership Interest Carrying Value

LEL Arlington JV LLC Third party/Affiliate 27.2 % $ 6,817,220 27.2 % $ 7,024,245

LEL NW 49th JV LLC Third party/Affiliate 27.2 % 1,572,436 27.2 % 1,619,157

TCG Corinthian FL Portfolio

JV LLV (1)(2)

Affiliate/Third Party 30.6 % 6,108,226 30.6 % 6,896,816

SF-Dallas Industrial, LLC (3)

N/A N/A — N/A 10,013,691

JV LLV Third party/Affiliate 30.6 % 5,415,771 30.6 % 5,590,427

Windy Hill PV Five CM, LLC (1)

Third party 41.9 % 4,209,660 42.4 % 4,740,914

$ 18,015,087 $ 18,974,743

_______________

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

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

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

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

(1) This investment was acquired in November 2023.

Three Months Ended March 31,

Loss from equity investment in the joint ventures $ ( 1,471,726 ) $ ( 740,460 )

Distributions received from the joint ventures $ — $ 262,770

Notes to Unaudited Consolidated Financial Statements

The following tables present estimated combined summarized financial information of the Company’s equity investment in the joint ventures.

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Net investments in real estate $ 219,800,521 $ 223,039,486

1 unchanged sentence

Total assets 239,986,179 241,401,911

Mortgage loan payable 149,120,780 147,740,645

Mortgage loans payable 187,687,424 187,269,209

Other liabilities 5,034,206 4,509,167

1 unchanged sentence

Members’ capital $ 47,264,549 $ 49,623,535

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

2023 2022 2023 2022

Three Months Ended March 31,

Revenues $ 4,462,871 $ 3,924,579

2 unchanged sentences

Interest expense ( 3,362,558 ) ( 2,559,954 )

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

Unrealized loss ( 852,253 ) ( 826,501 )

Net loss $ ( 4,179,985 ) $ ( 3,570,180 )

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

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

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

Notes to Unaudited Consolidated Financial Statements

Real Estate Owned, Net

Real Estate Activities

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

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

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

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

Location Number of

Properties Date of

Acquisition Property Type Total Capitalized

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

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

$ 132,087,234

These acquisitions were deemed to be real estate asset acquisitions, and therefore total transaction costs were capitalized to the cost basis of the assets.

2024 — In January 2024, a lease for a space in one of the industrial properties was terminated and the Company received a termination fee of $ 0.03 million.

In connection with the lease termination, the Company wrote off the related unamortized in-place lease of $ 0.3 million and unamortized below-market rent of $ 0.1 million.

Subsequent to the lease termination, the Company entered into a new lease with another tenant for the same space.

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

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

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

Total Capitalized Costs

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 $ 9,327,855

Buildings and improvements 39,248,352

Intangible assets and liabilities:

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

Intangible asset and liability:

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

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

( 4,093,267 )

Accounts payable and accrued expenses ( 912,771 )

$ 132,087,234

2022 — In June 2022, the Company sold the 4.9 acres of land it owned in Pennsylvania for net proceeds of $ 8.6 million, and recognized a net loss on sale of $ 0.1 million excluding impairment charges of $ 1.6 million and $ 3.4 million recognized in March 2022 and December 2021, respectively.

Notes to Unaudited Consolidated Financial Statements

Real Estate Owned, Net

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

Real estate owned is comprised of eight industrial buildings located in Texas with lease intangible assets and liabilities.

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

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

3 unchanged sentences

Tenant improvements 25,032 ( 190 ) 24,842 25,032 ( 15,401 ) 9,631

Furniture and fixtures 236,000 ( 236,000 ) — 236,000 ( 220,267 ) 15,733

Total real estate 128,734,958 ( 2,786,106 ) 125,948,852 128,725,750 ( 2,001,417 ) 126,724,333

1 unchanged sentence

In-place lease 12,060,731 ( 3,526,153 ) 8,534,578 12,719,000 ( 2,849,636 ) 9,869,364

Above-market rent 156,542 ( 90,706 ) 65,836 156,542 ( 77,540 ) 79,002

Total intangible assets 12,060,731 ( 3,526,153 ) 8,534,578 12,719,000 ( 2,849,636 ) 9,869,364

1 unchanged sentence

Below-market rent ( 8,649,073 ) 2,635,042 ( 6,014,031 ) ( 8,864,138 ) 2,025,263 ( 6,838,875 )

Above-market ground lease ( 8,896,270 ) 673,466 ( 8,222,804 ) ( 8,896,270 ) 575,705 ( 8,320,565 )

Total intangible liabilities ( 8,649,073 ) 2,635,042 ( 6,014,031 ) ( 8,864,138 ) 2,025,263 ( 6,838,875 )

2 unchanged sentences

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

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

2023 2022 2023 2022

Three Months Ended March 31,

Real estate operating revenues:

10 unchanged sentences

Total $ 691,006 $ 1,209,912

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

As of December 31, 2022, the Company owned a multi-tenant office building that was leased to three tenants.

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

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

Notes to Unaudited Consolidated Financial Statements

and provides for a new base rent every 5 years based on the greater of the annual base rent for the prior lease year or 9 % of the fair market value of the land.

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

The Company is currently litigating with the landlord with respect to the appropriate method for determining the fair value of the land for purposes of setting the ground rent – Terra Ocean Ave., LLC v.

Ocean Avenue Santa Monica Realty LLC, Superior Court of California, Los Angeles County, Case No.

The Company believes this determination should be based on comparable sales, while the landlord insists that the rent under the ground lease itself is also relevant.

The Company’s position has prevailed in all three of the prior arbitrations to reset the ground rent.

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

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

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

Scheduled Future Minimum Rent Income

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

Years Ending December 31, Total

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

2024 9,456,610

2025 4,940,447

2026 4,600,139

2027 3,162,610

Thereafter 5,821,613

Total $ 30,319,533

Scheduled Annual Net Amortization of Intangibles

Based on the intangible assets and liabilities recorded at September 30, 2023, scheduled annual net amortization of intangibles for each of the next five calendar years and thereafter is as follows:

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

Increase in Depreciation and Amortization (1)

Decrease in Rent Expense (1)

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

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

2025 ( 1,532,194 ) 2,139,932 ( 130,348 ) 477,390

2026 ( 1,158,162 ) 1,780,528 ( 130,348 ) 492,018

2027 ( 393,640 ) 768,252 ( 130,348 ) 244,264

Thereafter ( 768,172 ) 1,135,356 ( 7,636,238 ) ( 7,269,054 )

Total $ ( 7,726,052 ) $ 12,626,358 $ ( 8,222,804 ) $ ( 3,322,498 )

_______________

(1) Amortization of below-market rent and above-market rent intangibles is recorded as an adjustment to lease revenues;

amortization of in-place lease intangibles is included in depreciation and amortization;

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

Net amortization of above- and below-market rent intangibles was $ 0.8 million and $ 0.03 million for the three months ended March 31, 2024 and 2023, respectively, and is recorded as an adjustment to lease revenues on the consolidated statements of operations.

Amortization of in-place lease intangibles was $ 1.3 million and $ 0.3 million for the three months ended March 31, 2024 and 2023, respectively, and is included in depreciation and amortization expense on the consolidated statements of operations.

Notes to Unaudited Consolidated Financial Statements

Supplemental Ground Lease Disclosures

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

September 30, 2023 December 31, 2022

Operating lease

Operating lease right-of-use asset $ 27,365,847 $ 27,378,786

Operating lease liability $ 27,365,847 $ 27,378,786

Weighted average remaining lease term — operating lease (years) 63.1 63.8

Weighted average discount rate — operating lease 7.6 % 7.6 %

The Company previously owned an office building that was subject to a ground lease whereby the Company was the lessee (or a tenant) to the ground lease.

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

Accordingly, the Company is no longer a party to the ground lease.

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

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

2023 2022 2023 2022

Three Months Ended March 31, 2023

Operating lease cost $ 519,750

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

Nine Months Ended September 30,

Three Months Ended March 31, 2023

Amounts included in the measurement of lease liability:

2 unchanged sentences

Operating lease $ 519,750

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

Years Ending December 31, Operating Lease

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

2024 2,079,000

2025 2,079,000

2026 2,079,000

2027 2,079,000

Thereafter 122,227,875

Total lease payments 131,063,625

Imputed interest ( 103,697,778 )

Total $ 27,365,847

Fair Value Measurements

4 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

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

Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities that the Company has the ability to access.

Level 2 — Pricing inputs are other than quoted prices in active markets, including, but not limited to, quoted prices for similar assets and liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs.

Level 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.

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

As of September 30, 2023 and December 31, 2022, the Company had not elected the fair value option for its financial instruments, including loans held for investment, loans held for investment acquired through participation, held-to-maturity debt securities, obligations under participation agreements, term loan payable, repurchase agreement payable, mortgage loan payable and revolving line of credit.

Notes to Unaudited Consolidated Financial Statements

As of March 31, 2024 and December 31, 2023, 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.

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

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

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

September 30, 2023

March 31, 2024

Fair Value Measurements

7 unchanged sentences

Total $ 5,449,364 $ 83,928 $ — $ 5,533,292

_______________

Notes to Unaudited Consolidated Financial Statements

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

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

December 31, 2023

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Level 1 Level 2 Level 3 Total

Marketable Securities:

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

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.

Notes to Unaudited Consolidated Financial Statements

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

Nine Months Ended September 30,

Marketable Securities Derivatives Marketable Securities

Three Months Ended March 31,

Marketable Securities Derivatives Marketable Securities Derivatives

Beginning balance $ 4,961,879 $ 83,807 $ 147,960 $ —

Purchases — — — 258,500

7,905,211 258,500 —

Proceeds from sale ( 1,292,897 ) — — —

Reclassification of net realized gains on marketable securities

Reclassification of net realized loss on marketable securities

into earnings ( 135,459 ) — — —

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

Unrealized (loss) gain on marketable securities and derivatives ( 358,833 ) 121 6,584 —

Ending balance $ 3,174,690 $ 83,928 $ 154,544 $ 258,500

_______________

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

Financial Instruments Not Carried at Fair Value

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.

Notes to Unaudited Consolidated Financial Statements

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

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

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Total loans $ 469,652,980 $ 415,259,263 $ 417,755,399 $ 509,460,826 $ 456,472,258 $ 457,339,949

Term loan payable 3 $ 15,000,000 $ 14,898,434 $ 15,000,000 $ 25,000,000 $ 25,000,000 $ 25,000,000

Unsecured notes payable 1 $ 123,500,000 $ 118,872,834 $ 81,293,650 $ 123,500,000 $ 118,380,897 $ 98,020,050

Repurchase agreement

payable 3 112,905,625 112,392,727 112,905,625 170,876,606 169,304,710 170,876,606

Secured financing agreements 3 261,652,639 258,749,238 260,794,611 293,413,757 290,525,313 293,413,757

Obligations under participation

agreements 3 15,000,000 15,137,755 15,196,628 — — —

Mortgage loan payable 3 100,852,253 99,434,309 101,118,741 29,252,308 29,488,326 29,394,870

Revolving line of credit

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

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

Total liabilities $ 400,152,639 $ 392,759,827 $ 357,284,889 $ 416,913,757 $ 408,906,210 $ 391,433,807

The Company estimated that its other financial assets and liabilities, not included in the tables above, had fair values that approximated their carrying values at both September 30, 2023 and December 31, 2022 due to their short-term nature.

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

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

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

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

Nine Months Ended September 30,

Fair Value Impairment Charges Fair Value Impairment Charges

Impairment Charges

Real estate and intangibles $ 27,004,389 $ 11,765,540 $ 8,395,011 $ 1,604,989

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

Impairment charges, and their related triggering events and fair value measurements were as follows:

Real Estate and Intangibles

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

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

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

In October 2023, the Company

Notes to Unaudited Consolidated Financial Statements

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

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

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

The land was sold in June 2022.

The Company estimated that its other financial assets and liabilities, not included in the tables above, had fair values that approximated their carrying values at both March 31, 2024 and December 31, 2023 due to their short-term nature.

Valuation Process for Fair Value Measurement

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covenants of the investment, including prepayment provisions;

the portfolio company’s ability to make payments, net operating income and debt-service coverage ratio;

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;

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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.

Notes to Unaudited Consolidated Financial Statements

The Manager designates a valuation committee to oversee the entire valuation process of the Company’s Level 3 investments.

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.

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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 September 30, 2023 and December 31, 2022.

The following tables summarize the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 loans as of March 31, 2024 and December 31, 2023.

The tables are not intended to be all-inclusive, but instead identify the significant unobservable inputs relevant to the determination of fair values.

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

Fair Value at March 31, 2024

Primary Valuation Technique Unobservable Inputs March 31, 2024

Asset Category Minimum Maximum Weighted Average

Loans held for investment, net $ 433,004,722 Discounted cash flow Discount rate 9.03 % 16.55 % 12.23 %

Loans held for investment, net (1)

$ 378,955,975 Discounted cash flow Discount rate 10.46 % 16.38 % 12.13 %

Loans held for investment acquired through

1 unchanged sentence

Total Level 3 Assets $ 417,755,399

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

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

Term loan payable 15,000,000 Discounted cash flow Discount rate 12.71 % 12.71 % 12.71 %

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

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

Secured financing agreements $ 260,794,611 Discounted cash flow Discount rate 6.25 % 11.30 % 8.97 %

Obligation under participation agreement 15,196,628 Discounted cash flow Discount rate 16.38 % 16.38 % 16.38 %

Total Level 3 Liabilities $ 275,991,239

Notes to Unaudited Consolidated Financial Statements

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

Fair Value at December 31, 2023

Primary Valuation Technique Unobservable Inputs December 31, 2023

Asset Category Minimum Maximum Weighted Average

Loans held for investment, net $ 581,182,892 Discounted cash flow Discount rate 8.71 % 19.36 % 11.46 %

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

1 unchanged sentence

Total Level 3 Assets $ 457,339,949

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

Obligations under participation agreements 12,680,595 Discounted cash flow Discount rate 16.36 % 16.36 % 16.36 %

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

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

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

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 $ 207.8 million and $ 154.6 million of non-performing loans ( Note 3 ) as of March 31, 2024 and December 31, 2023, respectively.

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 % as of both March 31, 2024 and December 31, 2023.

These inputs are based on the location, type and nature of the property, current sales and lease comparables, anticipated real estate and capital market conditions, and management’s 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.

Related Party Transactions

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The Company entered into the Management Agreement with the Manager whereby the Manager is responsible for its day-to-day operations.

The Management Agreement runs co-terminus with the amended and restated operating agreement for Terra Fund 5, which is scheduled to terminate on December 31, 2023 unless Terra Fund 5 is dissolved earlier.

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

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

2023 2022 2023 2022

The following table presents a summary of fees paid and costs reimbursed to the Manager in connection with

Notes to Unaudited Consolidated Financial Statements

providing services to the Company that are included on the consolidated statements of operations:

Three Months Ended March 31,

Origination and extension fee expense (1)

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

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

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

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

(2) Disposition fee is generally offset with exit fee income and included in interest income on the consolidated statements of operations.

2 unchanged sentences

In the event that the term of any real estate-related loan held by the Company is extended, the Manager also receives an extension fee equal to the lesser of (i) 1 % of the principal amount of the loan being extended or (ii) the amount of fee paid to the Company by the borrower in connection with such extension.

Notes to Unaudited Consolidated Financial Statements

Asset Management Fee

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

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

As of March 31, 2024 and December 31, 2023, the Company had not received any breakup fees.

Operating Expenses

2 unchanged sentences

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.

Notes to Unaudited Consolidated Financial Statements

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 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.

In January 2024, the promissory note was amended to (i) extend the maturity date from June 30, 2024 to April 30, 2025 and to (ii) modify the interest rate from 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, to 15.0 %.

During the three months ended March 31, 2024 and 2023, the Company provided funding under the promissory note receivable of $ 1.2 million and none , respectively.

Notes to Unaudited Consolidated Financial Statements

March 31, 2024 and December 31, 2023, amount outstanding under the promissory note receivable was $ 5.1 million and $ 3.8 million, respectively, which is included in Other assets on the consolidated balance sheets.

Due from Related Parties

As of March 31, 2024 and December 31, 2023, amount due from related parties was $ 1.1 million and $ 0.7 million, primarily related to operational cash requirements the Company paid on behalf of its affiliates.

Cost Sharing and Reimbursement Agreement

2 unchanged sentences

Distributions Paid

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

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

For the three months ended March 31, 2024 and 2023, the Company made distributions to investors totaling $ 4.7 million and $ 4.7 million, respectively, of which $ 4.7 million and $ 4.2 million were returns of capital, respectively ( Note 10 ).

Due to Manager

As of September 30, 2023 and December 31, 2022, approximately $ 3.2 million and $ 3.9 million, respectively, was due to the Manager, as reflected on the consolidated balance sheets, primarily related to the present value of the disposition fees on individual loans due to the Manager.

Notes to Unaudited Consolidated Financial Statements

As of March 31, 2024 and December 31, 2023, approximately $ 2.4 million and $ 4.2 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

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

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

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

Participation Interests Purchased by the Company

1 unchanged sentence

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.

Notes to Unaudited Consolidated Financial Statements

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

September 30, 2023

March 31, 2024

Participating Interests Principal Balance Carrying Value

7 unchanged sentences

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)

2 unchanged sentences

40.80 % 7,444,357 7,488,777

Allowance for credit losses — ( 226,527 )

$ 38,444,357 $ 38,558,485

1 unchanged sentence

(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.

Notes to Unaudited Consolidated Financial Statements

Transfers of Participation Interest by the Company

The following tables summarize the loans that were subject to participation agreements with affiliated entities and third-parties as of:

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

Transfers of Participation Interests by the Company

The following table summarizes the investment that was subject to a PA with an investment partnership affiliated with the Manager as of March 31, 2024.

There was no such investment as of December 31, 2023.

March 31, 2024

Transfers treated as

obligations under participation agreements

Principal Carrying Value % Transferred Principal Carrying Value

Asano Bankers Hill, LLC (1)

$ 18,567,296 $ 18,831,851 80.8 % $ 15,000,000 $ 15,137,755

________________

(1) Participant was a third party.

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

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

, exit fee, prepayment income) and related fees/expenses ( e.g.

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

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

, risk of default by the underlying borrower/issuer).

Pursuant to the participation agreements with these entities, the Company receives and allocates the interest income and other related investment income to the Participants based on their respective pro rata participation interest.

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

Unsecured Notes Payable

The 6.00 % Senior Notes Due 2026

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

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

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

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

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

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

The Indenture contains certain covenants that, among other things, limit the ability of the Company, subject to exceptions, to make distributions in excess of 90% of the Company’s taxable income, incur indebtedness (as defined in the Indenture) or purchase shares of the Company’s capital stock unless the Company has an asset coverage ratio (as defined in the Indenture) of at least 150 % after giving effect to such transaction.

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

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

The 7.00 % Senior Notes Due 2026

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

(1) Participant is a certain separately managed account, an investment partnership managed by the Manager.

This investment is held in the name of the Company, but the Participant’s rights and obligations, including interest income and other income (e.g., exit fee, prepayment income) and related fees/expenses (e.g., disposition fees, asset management and asset servicing fees), are based upon its pro rata participation interest in such participated investment, as specified in the participation agreement.

The Participant’s share of the investment is repayable only from the proceeds received from the related borrower/issuer of the investment and, therefore, the Participant also is subject to credit risk (i.e., risk of default by the underlying borrower/issuer).

Pursuant to the participation agreement with this entity, the Company receives and allocates the interest income and other related investment income to the Participant based on its pro rata participation interest.

The Participant pays any expenses, including any fees to the Manager, only on its pro rata participation interest, subject to the terms of the governing fee arrangements.

Notes to Unaudited Consolidated Financial Statements

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

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

On the Closing Date, Terra BDC, Terra LLC and the Trustee entered into a Second Supplemental Indenture pursuant to which Terra LLC assumed the payment of the 7.00 % Senior Notes Due 2026 and the performance of every covenant of the TIF6 Indenture, as supplemented by the First Supplemental Indenture, to be performed or observed by Terra BDC.

The 7.00 % Senior Notes Due 2026 will mature on March 31, 2026, unless earlier repurchased or redeemed.

The 7.00 % Senior Notes Due 2026 bear interest at a rate of 7.00 % per annum, payable on March 30, June 30, September 30 and December 30 of each year.

The 7.00 % Senior Notes Due 2026 are Terra LLC’s direct unsecured obligations and rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by Terra LLC;

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

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

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

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

The TIF6 Indenture also provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the 7.00 % Senior Notes Due 2026 to become or to be declared due and payable.

Summarized Information

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

September 30, 2023 December 31, 2022

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

Unsecured Notes Payable

The following table presents a summary of the Company’s unsecured notes payable outstanding as of:

Coupon Rate Effective Rate (1)

Maturity Date March 31, 2024 December 31, 2023

6.00 % Senior Notes Due 2026

2 unchanged sentences

7.00 % 10.27 % 3/31/2026 38,375,000 38,375,000

Total principal amount 123,500,000 123,500,000

Unamortized issue discount ( 1,313,154 ) ( 1,444,813 )

Unamortized purchase discount (2)

( 2,847,913 ) ( 3,161,457 )

Unamortized deferred financing costs ( 466,099 ) ( 512,833 )

Unsecured notes payable, net $ 118,872,834 $ 118,380,897

_______________

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

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

Revolving Line of Credit

On March 12, 2021, Terra Mortgage Portfolio II, LLC, an indirect wholly-owned subsidiary of the Company, entered into a Business Loan and Security Agreement (the “Revolving Line of Credit”) with Western Alliance Bank (“WAB”) to provide for advances up to the lesser of $ 75.0 million or the amount determined by the borrowing base, which is based on the eligible assets pledged to the lender.

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

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

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

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

(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 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 March 31, 2024, the Company was in compliance with such covenants.

Notes to Unaudited Consolidated Financial Statements

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

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

In connection with the Revolving Line of Credit, the Company entered into a limited guaranty (the “Guaranty”) in favor of WAB, pursuant to which the Company guarantees the payment of up to 25 % of the amount outstanding under the Revolving Line of Credit.

Under the Revolving Line of Credit and the Guaranty, the Company is required to maintain (i) a minimum total net worth of $ 250.0 million;

(ii) a $ 3.5 million quarterly operating profit, as defined within the agreement;

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

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

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

The Revolving Line of Credit contains various affirmative and negative covenants, including maintenance of a debt to total net worth ratio and limitations on the incurrence of liens and indebtedness, loans, distributions, change of management and ownership, changes in the nature of business and transactions with affiliates.

The Revolving Line of Credit also includes customary events of default, including a cross-default provision applicable to debt obligations of Terra Mortgage Portfolio II, LLC or the Company.

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

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

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

For the nine months ended September 30, 2023 and 2022, the Company received proceeds from the Revolving Line of Credit of $ 57.0 million and $ 41.2 million, respectively, and made repayments of $ 96.8 million and $ 55.6 million, respectively.

Secured Financing Arrangements

The following table is a summary of the Company’s secured financing agreements in place as of:

March 31, 2024 December 31, 2023

Current Maturity Extended Maturity Weighted Average Interest Rate (1)

Pledged Asset Carrying Value Maximum Facility Size Principal Amount Principal

Repurchase Agreements:

UBS Master Repurchase Agreement

On November 8, 2021, Terra Mortgage Capital III, LLC (the “Seller”), a special-purpose indirect wholly-owned subsidiary of the Company, entered into an Uncommitted Master Repurchase Agreement (the “UBS Master Repurchase Agreement”) with UBS AG ( the “Buyer”).

The UBS Master Repurchase Agreement provides for advances of up to $ 195 million in the aggregate, which the Company expects to use to finance certain secured performing commercial real estate loans, including senior mortgage loans, where the underlying mortgaged properties consist of value-added assets with loan-to-value ratio between 65 % and 80 % that are typically yielding between 2.5 % and 5.0 %.

Advances under the UBS Master Repurchase Agreement accrue interest at a per annum pricing rate equal to the sum of (i) the 30-day LIBOR or Term SOFR if LIBOR is not available and (ii) the applicable spread, which ranges from 1.60 % to 2.25 %, and have a maturity date of November 7, 2024.

The actual terms of financing for each asset will be determined at the time of financing in accordance with the UBS Master Repurchase Agreement.

Subject to satisfaction of certain conditions, the Seller may extend the maturity date of the UBS Master Repurchase Agreement annually thereafter on mutually agreeable terms.

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

The UBS Master Repurchase Agreement contains margin call provisions that provide the Buyer with certain rights in the event of a decline in the credit of the underlying assets purchased under the UBS Master Repurchase Agreement.

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

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

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

In addition, the UBS Guarantee Agreement contains financial covenants, which require the Company to maintain:

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

(ii) total liquidity of at least the

Notes to Unaudited Consolidated Financial Statements

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

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

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

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

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

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

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

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

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

September 30, 2023

Collateral Borrowings Under Master Repurchase Agreement

Principal Amount Carrying Value Fair

Value Borrowing Date Principal Amount Interest

NB Factory TIC 1, LLC $ 28,000,000 $ 28,863,816 $ 28,918,363 11/8/2021 $ 18,970,000 Term SOFR+ 1.75 %

Grandview’s Remington Place,

LLC 23,100,000 23,206,471 23,235,030 5/6/2022 18,480,000 Term SOFR + 1.965 %

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

December 31, 2022

Collateral Borrowings Under Master Repurchase Agreement

Principal Amount Carrying Value Fair

Value Borrowing Date Principal Amount Interest

NB Factory TIC 1, LLC $ 28,000,000 $ 28,857,892 $ 28,902,234 11/8/2021 $ 18,970,000 LIBOR+ 1.74 % (LIBOR floor of 0.1 %)

Grandview’s Madison Place, LLC 17,000,000 17,105,928 17,105,928 3/7/2022 13,600,000 Term SOFR + 1.965 %

Grandview’s Remington Place,

LLC 23,100,000 23,199,620 23,203,343 5/6/2022 18,480,000 Term SOFR + 1.965 %

Goldman Sachs Bank facility (2)(3)

February 2025 February 2025 8.59 % $ 138,036,063 $ 200,000,000 $ 73,855,624 $ 75,455,624

UBS AG facility (2)(4)

November 2024 (5) 8.70 % — — — 18,480,000

Total 138,036,063 200,000,000 73,855,624 93,935,624

Non-Recourse Financing:

Promissory notes payable (2)(6)

March 2025 - March 2026 March 2026 - March 2027 10.91 % 130,634,208 N/A 78,997,103 63,509,518

Property mortgages - fixed rate June 2028 June 2028 6.25 % 80,692,752 N/A 40,250,000 40,250,000

Property mortgages - variable rate (7)

April 2027 April 2028 8.83 % 47,776,647 N/A 33,788,801 33,256,885

Total 259,103,607 153,035,904 137,016,403

Other Secured Financing:

Revolving line of credit (2)(8)

September 2024 September 2025 8.68 % 59,082,967 75,000,000 34,761,111 47,461,730

Term loan (9)

— — — 15,000,000

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

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

Goldman Master Repurchase Agreement

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

On February 18, 2022, Terra Mortgage Capital I, LLC (the “GS Seller”), a special-purpose indirect wholly-owned subsidiary of the Company, entered into an Uncommitted Master Repurchase and Securities Contract Agreement (the “Repurchase Agreement”) with Goldman Sachs Bank USA ( the “GS Buyer”).

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

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

Advances under the Repurchase Agreement accrue interest at a per annum pricing rate equal to the sum of (i) Term SOFR (subject to underlying loan floors on a case-by-case basis) and (ii) the applicable spread, which ranges from 1.75 % to 3.00 %, and have a maturity date of February 18, 2024.

The actual terms of financing for each asset will be determined at the time of financing in accordance with the Repurchase Agreement.

Subject to satisfaction of certain conditions, the GS Seller may extend the maturity date of the Repurchase Agreement for another 12-month term.

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

Notes to Unaudited Consolidated Financial Statements

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

The Repurchase Agreement contains margin call provisions that provide the GS Buyer with certain rights in the event of a decline in debt yield, loan-to-value ratio, and value of the underlying loans purchased under the Repurchase Agreement.

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

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

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

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

In addition, the Guarantee Agreement contains financial covenants, which require the Company to maintain:

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

(ii) total liquidity in an amount equal to or greater than the lesser of $ 15 million or 10 % of the then-current outstanding amount under the Repurchase Agreement (iii) tangible net worth at an amount no less than 75 % of that at closing;

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

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

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

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

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

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

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

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

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

September 30, 2023

Collateral Borrowings Under Repurchase Agreement

Principal Amount Carrying Value Fair

Value Borrowing Date Principal Amount Interest

1389 Peachtree St, LP;

1401 Peachtree St, LP;

1409 Peachtree St, LP $ 58,695,313 $ 58,695,313 $ 50,900,000 2/18/2022 $ 20,072,636 Term SOFR + 2.465 %

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

Patrick Henry Recovery Acquisition,

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

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

5 % ( 0.25 % Floor)

Total 59,082,967 75,000,000 34,761,111 62,461,730

$ 456,222,637 $ 275,000,000 261,652,639 293,413,757

Notes to Unaudited Consolidated Financial Statements

December 31, 2022

Collateral Borrowings Under Repurchase Agreement

Principal Amount Carrying Value Fair

Value Borrowing Date Principal Amount Interest

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

1389 Peachtree St, LP;

Peachtree St, LP;

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

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

Patrick Henry Recovery

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

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

Unamortized deferred financing costs and other ( 2,903,401 ) ( 2,888,444 )

Secured financing agreements, net $ 258,749,238 $ 290,525,313

_______________

For the nine months ended September 30, 2023 and 2022 the Company borrowed $ 14.2 million and $ 119.8 million, respectively, under the Repurchase Agreement and made repayments of $ 58.6 million and zero , respectively.

As previously reported by Terra BDC, on April 9, 2021, Terra BDC, as borrower, entered into a credit agreement (the “Credit Agreement”) with Eagle Point Credit Management LLC, as the administrative agent and collateral agent (“Eagle Point”), and certain funds and accounts managed by Eagle Point, as lenders (in such capacity, collectively, the “Lenders”).

The Credit Agreement provides for (i) a delayed draw term loan of $ 25.0 million and (ii) additional incremental loans in a minimum amount of $ 1.0 million and multiples of $ 0.5 million in excess thereof, which may be approved by a Lender in its sole discretion (the “Term Loan”).

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

The Term Loan bore interest on the outstanding principal amount thereof at a rate equal to 5.625 % per annum;

provided that if at any time Terra BDC was rated below investment grade, the interest rate would increase to 6.625 % until the rating is no longer below investment grade.

In connection with the entry into the Credit Agreement, Terra BDC also agreed to pay Eagle Point an upfront fee in an amount equal to 2.50 % of the loan commitment amount on the initial borrowing date as described in the Credit Agreement.

Terra BDC also paid, with respect to any unused portion of the Term Loan, a commitment fee of 0.75 % per annum.

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

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

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

provided that the make whole premium may in no event be less than zero.

In connection with its entry into the Credit Agreement, Terra BDC also entered into a security agreement (the “Security Agreement”), by and among Terra BDC, as grantor, and Eagle Point, as administrative agent, for the benefit of the Lenders, their affiliates and Eagle Point as the secured parties thereunder.

Pursuant to the Security Agreement, Terra BDC pledged substantially all of its then owned and thereafter acquired property as security for the obligations of Terra BDC under the Credit Agreement, subject to certain limitations and restrictions set forth in the Security Agreements.

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

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

(1) Amount is calculated using the applicable index rate as of March 31, 2024.

(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 5.98 % with a combined floor rate ranging from 9.0 % to 11.28 %.

(7) Interest rate is based on Term SOFR plus a spread of 3.5 % with a Term SOFR floor of 3.75 %.

(8) In March 2024, the Company amended the facility agreement to extend the maturity date to September 12, 2024 with an option to extend the facility term for an additional 12 -month period, reduce the credit limit to $ 75.0 million, increase the coupon rate and revise the minimum profitability and net worth covenants.

As of March 31, 2024, interest rate is based on Term SOFR + 3.5 % with a combined floor of 7.0 %.

The lender agreed to waive the minimum profitability covenant for the three months ended March 31, 2024 and the Company agreed to provide the lender with a plan to reduce the balance under the line by June 30, 2024.

(9) In March 2024, the term loan was repaid in full.

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.

For the three months ended March 31, 2024 and 2023, approximately $ 0.9 million and $ 0.5 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 three months ended March 31, 2024 and 2023, the Company

Notes to Unaudited Consolidated Financial Statements

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

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

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

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

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

Mortgage Loans Payable

Mortgage Loan Financing Activities

2023 — During the nine months ended September 30, 2023, the Company entered into the following financing arrangements:

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

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

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

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

September 30, 2023 December 31, 2022

Lender Current

Interest Rate Maturity

Date Principal Amount Carrying Value Carrying Value of

Collateral Principal Amount Carrying Value Carrying Value of

Term SOFR + 3.85 %

(Term SOFR Floor of 2.23 %)

May 31, 2023 $ 27,603,118 $ 27,869,606 $ 27,004,389 $ 29,252,308 $ 29,488,326 $ 40,581,847

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

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

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

$ 100,852,253 $ 99,434,309 $ 157,754,942 $ 29,252,308 $ 29,488,326 $ 40,581,847

___________________

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

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

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

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

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

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

received proceeds from secured financing of $ 53.0 million and $ 68.3 million, respectively, and made repayments on secured financing of $ 84.8 million and $ 19.2 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.

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 March 31, 2024, the Company was in compliance with all such covenants, as amended or waived.

Scheduled Debt Principal Payments

Notes to Unaudited Consolidated Financial Statements

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

Scheduled debt principal payments for each of the five calendar years following March 31, 2024 are as follows:

Years Ending December 31, Total

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

2024 (April 1 through December 31)

2025 142,355,624

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2028 40,250,000

Thereafter 40,250,000

Unamortized deferred financing costs ( 8,185,466 )

Unamortized deferred financing costs and other ( 7,530,567 )

Total $ 377,622,072

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

Obligations Under Participation Agreements

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

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

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

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

As of March 31, 2024, obligations under participation agreements were $ 15.1 million (see “Participation Agreements” in Note 7 ).

The interest rate on the obligations under participation agreements was 20.32 %.

There were no such obligations under participation agreements as of December 31, 2023.

Commitments and Contingencies

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

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

These fundings amounted to approximately $ 30.7 million and $ 35.7 million as of March 31, 2024 and December 31, 2023, respectively.

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

Notes to Unaudited Consolidated Financial Statements

Unfunded Investment Commitment

As discussed in Note 4 , on August 3, 2020, the Company entered into a subscription agreement with RESOF whereby the Company committed to fund up to $ 50.0 million to purchase limited partnership interests in RESOF.

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

As of March 31, 2024 and December 31, 2023, the unfunded investment commitment was $ 31.5 million and $ 37.4 million, respectively.

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

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

From time to time, the Company and the Manager may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company’s rights under contracts with its portfolio companies.

Additionally, as described above under “ Note 6 .

Real Estate Owned, Net—Real Estate Operating Revenue and Expenses,” as of September 30, 2023 and December 31, 2022, the Company owned a multi-tenant office building that is subject to a ground lease.

The ground lease provides for a new base rent every 5 years based on the greater of the annual base rent for

Notes to Unaudited Consolidated Financial Statements

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

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

Ocean Avenue Santa Monica Realty LLC, Superior Court of California, Los Angeles County, Case No.

The Company believes this determination should be based on comparable sales, while the landlord insists that the rent under the ground lease itself is also relevant.

The Company’s position has prevailed in all three of the prior arbitrations to reset the ground rent.

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

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

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

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

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

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

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

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

(i) Breach of Contract;

(ii) Judicial Foreclosure and Deficiency Judgment;

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

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

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

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

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

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

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 7 for a discussion of the Company’s commitments to the Manager.

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The following table presents earnings per share:

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

2023 2022 2023 2022

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

Three Months Ended March 31,

Net (loss) income $ ( 6,183,974 ) $ 547,479

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

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

Weighted-average shares outstanding - basic

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

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

Net (loss) income allocable to common stock $ ( 6,183,974 ) $ 543,572

Weighted-average shares outstanding - basic and diluted 24,336,157 24,335,373

(Loss) income per share - basic and diluted $ ( 0.25 ) $ 0.02

Preferred Stock Classes

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

As of September 30, 2023, there were no Preferred Stock issued or outstanding.

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

Notes to Unaudited Consolidated Financial Statements

As of March 31, 2024, there were no shares of Preferred Stock issued or outstanding.

As of December 31, 2023 there were no shares of Series A Preferred Stock (as defined below) issued and outstanding.

Series A Preferred Stock

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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.

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

As of September 30, 2023, Terra JV, LLC, former shareholders of Terra BDC and Terra Offshore Funds REIT, LLC held 70.0 %, 19.9 % and 10.1 % of the issued and outstanding shares of the Class B Common Stock, respectively.

As of March 31, 2024, Terra Fund 7

Notes to Unaudited Consolidated Financial Statements

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.

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

On the date that is 365 calendar days (or, if such date is not a business day, the next business day) after the date of initial listing of shares of Class A Common Stock for trading on a national securities exchange or such earlier date following the First Conversion Date as approved by the Board (the “Second Conversion Date”), one-half of the issued and outstanding shares of Class B Common Stock will automatically and without any action on the part of the holder thereof convert into an equal number of shares of Class A Common Stock.

On the date that is 545 calendar days (or, if such date is not a business day, the next business day) after the date of initial listing of shares of Class A Common Stock for trading on a national securities exchange or such earlier date following the Second Conversion Date as approved by the Board, all of the issued and outstanding shares of Class B Common Stock will automatically and without any action on the part of the holder thereof convert into an equal number of shares of Class A Common Stock.

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

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

Notes to Unaudited Consolidated Financial Statements

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

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

There were no such distributions for the three months ended March 31, 2024.

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

For the three months ended March 31, 2024 and 2023, the Company issued 391 and 34 shares of Class B Common Stock for a total of $ 4,474 and $ 478 pursuant to the Plan, respectively.

Subsequent Events

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

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

Real Estate Owned, Net and Note 9.

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

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

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

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• actual and potential conflicts of interest with any of the following affiliated entities:

Terra Fund Advisors, LLC, Terra REIT Advisors, LLC (“Terra REIT Advisors” or our “Manager”), Terra Income Advisors, LLC;

Terra Fund Advisors, LLC, Terra REIT Advisors, LLC (our “Manager”);

Terra Capital Partners, LLC (“Terra Capital Partners”), our sponsor;

Terra Secured Income Fund 5, LLC (“Terra Fund 5”);

Terra JV, LLC (“Terra JV”);

Terra Income Fund 6, Inc.

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

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

• liquidity transactions that may be available to us in the future, including a liquidation of our assets, a sale of our company, a listing of our shares of common stock on a national securities exchange, an amendment of our charter to incorporate certain provisions generally required by state securities regulators to allow us to publicly sell unlisted shares (provided that such provisions would only take effect when a registration statement related to the publicly offered unlisted shares is declared effective), an adoption of a share repurchase plan or a strategic business

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

• actions and initiatives of the U.S.

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Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Part I — Item 1A.

Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2022 and in “Part II — Item 1A.

Risk Factors” in this quarterly report on Form 10-Q.

Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2023.

Other factors that could cause actual results to differ materially include:

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Stockholders are advised to consult any additional disclosures that we may make directly to stockholders or through reports that we may file in the future with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

We are a real estate credit focused company that originates, structures, funds and manages commercial real estate investments, including mezzanine loans, first mortgage loans, subordinated mortgage loans and preferred equity investments throughout the United States, which we collectively refer to as our targeted assets.

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

Our loans finance the acquisition, construction, development or redevelopment of quality commercial real estate in the United States.

We focus on the origination of middle market loans in the approximately $10 million to $50 million range, to finance properties primarily in primary and secondary markets.

We believe loans in this size range are subject to less competition, offer higher risk adjusted returns than larger loans with similar risk metrics and facilitate portfolio diversification.

Our investment objective is to provide attractive risk-adjusted returns to our stockholders, primarily through regular distributions.

We are a real estate investment trust that originates, invests in and manages a diverse portfolio of real estate and real estate-related assets.

We focus 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, which we collectively refer to as our targeted assets.

Our loans finance the acquisition, development or recapitalization of high-quality commercial real estate in the United States.

We focus on middle market loans in the approximately $10 million to $50 million range, which we believe are subject to less competition, offer higher risk-adjusted returns than larger loans with similar risk metrics and facilitate portfolio diversification.

Our investment objective is to provide attractive risk-adjusted returns to our stockholders, primarily by earning high current income that allows for regular distributions, and, in certain instances, benefiting from potential capital appreciation.

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

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

We may also make strategic real estate equity and non-real estate-related investments that align with our investment objectives and criteria.

As of March 31, 2024, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 19 loans in nine states with an aggregate net principal balance of $454.7 million, a weighted average coupon rate of 12.8% and a weighted average remaining term to maturity of 0.7 years.

Each of our loans was originated by Terra Capital Partners or its affiliates.

Our portfolio is diversified based on location of the underlying properties, loan structure and property type.

As of September 30, 2023, our portfolio included underlying properties located in 22 markets, across nine states and includes property types such as multifamily housing, student housing, commercial offices, medical offices, mixed-use and industrial properties.

The profile of these properties ranges from stabilized

and value-added properties to pre-development and construction.

As of March 31, 2024, our portfolio included underlying properties located in 19 markets, across nine states and includes property types such as multifamily housing, student housing, commercial offices, medical offices, mixed-use and industrial properties.

The profile of these properties ranges from stabilized and value-added properties to pre-development and construction.

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

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Through December 31, 2015, our business was conducted through a series of predecessor private partnerships.

At the beginning of 2016, we completed the merger of these private partnerships into a single entity as part of our plan to reorganize our business as a REIT for federal income tax purposes.

Following the REIT formation transaction, Terra Fund 5 contributed the consolidated portfolio of net assets of certain Terra Funds to our company in exchange for all of the shares of our common stock.

At the beginning of 2016, we completed the merger of these private partnerships into a single entity as part of our plan to reorganize our business as a REIT for federal income tax purposes (the “REIT Formation Transaction”).

Following the REIT Formation Transaction, Terra Secured Income Fund 5, LLC (“Terra Fund 5”) contributed the consolidated portfolio of net assets of certain Terra Funds to our company in exchange for all of the shares of our common stock.

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

Following the consummation of the BDC Merger (as defined below) and as of September 30, 2023, former Terra BDC stockholders owned approximately 19.9% of our common equity, Terra JV held 70.0% of the issued and outstanding shares of our common stock with the remainder of 10.1% held by Terra Offshore REIT;

and Terra Fund 5 and Terra Fund 7 owned an 87.6% and 12.4% interest, respectively, in Terra JV.

On October 1, 2022, pursuant to that certain Agreement and Plan of Merger, dated as of May 2, 2022 (the “Merger Agreement”), Terra BDC merged with and into Terra Income Fund 6, LLC (“Terra LLC”), our wholly owned subsidiary, with Terra LLC continuing as the surviving entity of the merger (the “BDC Merger”) and as our wholly owned subsidiary.

Pursuant to the terms of the transactions described in the Merger Agreement, approximately 4,847,910 shares of our Class B Common Stock, $0.01 par value per share ("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 October 1, 2022.

As of March 31, 2024, Terra Fund 7 and Terra Offshore REIT held approximately 8.7% and 10.1%, respectively, of our issued and outstanding Class B Common Stock.

As previously disclosed, we continue to explore alternative liquidity transactions on an opportunistic basis to maximize stockholder value.

Examples of the alternative liquidity transactions that, depending on market conditions, may be available to us include a listing of our shares of common stock on a national securities exchange, adoption of a share repurchase plan, a liquidation of our assets, a sale of our company or a strategic business combination, in each case, which may include the further in-kind distribution of our shares of common stock indirectly owned by certain of our affiliate funds to the ultimate investors in such affiliate funds.

We cannot provide any assurance that any alternative liquidity transaction will be available or, if available, that we will pursue or be successful in completing any such alternative liquidity transaction.

One of the potential future liquidity transactions that we continue to evaluate is a “direct listing” of its Class A Common Stock, $0.01 par value per share (“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 our view lead to a constructive trading environment for the Class A Common Stock, we will explore alternative paths to pursue our investment strategy and provide liquidity to our investors, including converting our company into a traditional “non-traded REIT.” As part of a potential conversion to a non-traded REIT, we would adopt a customary share repurchase plan pursuant to which our investors could request to have their shares of its common stock redeemed for cash.

We have elected to be taxed as a REIT for U.S.

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Recent Developments

Merger Agreements

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

At the Effective Time, except for any shares of Terra BDC Common Stock held by us or any of our wholly owned subsidiaries or Terra BDC, which shares were automatically retired and ceased to exist with no consideration paid therefor, each issued and outstanding share of Terra BDC Common Stock was automatically cancelled and retired and converted into the right to receive (i) 0.595 shares of our newly designated Class B Common Stock, par value $0.01 per share (“Class B Common Stock”) and (ii) cash, without interest, in lieu of any fractional shares of Class B Common Stock otherwise issuable in an amount, rounded to the nearest whole cent, determined by multiplying (x) the fraction of a share of Class B Common Stock to which such holder would otherwise be entitled by (y) $14.38.

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

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

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

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

Securities Purchase Program

As previously disclosed, we may repurchase certain of our 6.00% senior notes due 2026 listed on the New York Stock Exchange (“NYSE”) under the trading symbol “TPTA” and Terra LLC’s 7.00% senior notes due 2026 listed on the NYSE under the trading symbol “TFSA”.

The repurchases may be made directly by us or made indirectly through an affiliated purchaser entity managed by our Manager and co-owned by us and other vehicles managed by our Manager or its affiliates.

Such affiliate purchaser entity may also purchase third-party marketable securities.

The timing and amount of any transactions will be determined by our Manager based on its evaluation of market conditions, prices, legal requirements and other factors, and may be made from time to time on the open market, in privately negotiated transactions or otherwise, in each case subject to compliance with all SEC rules and other legal requirements.

Portfolio Summary

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

September 30, 2023

March 31, 2024

Fixed Rate Floating

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

Coupon rates shown were determined using LIBOR of 5.43%, average SOFR of 5.32% and Term SOFR of 5.32% as of September 30, 2023, and LIBOR of 4.39%, average SOFR of 4.06% and Term SOFR of 4.36% as of December 31, 2022.

(2) As of September 30, 2023 and December 31, 2022, amount included $339.9 million and $413.1 million of senior mortgages used as collateral for $200.3 million and $261.0 million of borrowings under credit facilities, respectively.

(3) As of September 30, 2023 and December 31, 2022, 15 and 21 loans, respectively, are subject to a LIBOR, SOFR, or Term SOFR floor, as applicable.

Coupon rates shown were determined using LIBOR of 5.44%, average SOFR of 5.32% and Term SOFR of 5.33% as of March 31, 2024, and LIBOR of 5.47%, average SOFR of 5.34% and Term SOFR of 5.35% as of December 31, 2023.

(2) As of March 31, 2024 and December 31, 2023, amount included $323.9 million and $342.9 million of senior mortgages used as collateral for $187.6 million and $204.9 million of borrowings under credit facilities, respectively.

(3) As of March 31, 2024 and December 31, 2023, 13 and 14 loans, respectively, are subject to a SOFR, or Term SOFR floor, as applicable.

Real Estate Ownership

In addition to our net loan portfolio, as of September 30, 2023, we owned eight industrial buildings acquired in 2023 and a multi-tenant office building acquired pursuant to a foreclosure;

and as of December 31, 2022, we owned a multi-tenant office building acquired pursuant to a foreclosure.

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

As of September 30, 2023, the mortgage loans payable encumbering the industrial buildings and the multi-tenant office building had an outstanding principal amount of $100.9 million and as of December 31, 2022, the mortgage loans payable encumbering the multi-tenant office building had an outstanding principal amount of $29.3 million.

In addition to our net loan portfolio, we own eight industrial buildings.

As of March 31, 2024 and December 31, 2023, the real estate and related lease intangible assets and liabilities had a net carrying value of $128.5 million and $129.8 million, respectively, and the mortgage loans payable encumbering the real estate properties had an outstanding principal amount of $74.0 million and $73.5 million, respectively.

Equity Investments

Additionally, as of September 30, 2023 and December 31, 2022, we owned 14.9% and 27.9%, respectively, of equity interest in a limited partnership that invests primarily in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets.

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

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

We accounted for this arrangement as an equity investment.

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

As of September 30, 2023 and December 31, 2022, these equity investments had total carrying value of $32.5 million and $62.5 million, respectively.

Additionally, as of March 31, 2024 and December 31, 2023, we owned 14.9% and 14.9%, respectively, of equity interest in a limited partnership that invests primarily in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets.

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

As of March 31, 2024 and December 31, 2023, these equity investments had total carrying value of $42.5 million and $37.2 million, respectively.

Book Value Per Share

We calculate our book value per share by dividing our net equity by the number of outstanding shares of our common stock, unless otherwise determined by our Board.

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

Our book value per share of Class B Stock Common Stock as of March 31, 2024 and December 31, 2023 was $9.47 and $9.93, respectively.

Portfolio Investment Activity

Net Loan Portfolio

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

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

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

Real Estate Ownership

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

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

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

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

For the three months ended March 31, 2024 and 2023, we invested $11.4 million and $25.7 million in new and add-on investments and had $27.5 million and $39.9 million of repayments, resulting in net repayments of $16.1 million and $14.2 million, respectively.

Amounts are net of obligations under participation agreements and secured financing agreements.

Net Loan Portfolio Information

The tables below set forth the types of loans in our loan portfolio, as well as the property type and geographic location of the properties securing these loans, on a net loan basis, which represents our proportionate share of the loans, based on our economic ownership of these loans as of:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Loan Structure Principal Balance Carrying

4 unchanged sentences

Mezzanine loans 17,444,357 17,429,831 4.4 % 17,444,357 17,424,081 3.8 %

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

Allowance for credit losses — (58,743,795) (14.7) % — (56,976,025) (12.5) %

Total $ 454,652,980 $ 400,121,508 100.0 % $ 509,460,826 $ 456,472,258 100.0 %

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Property Type Principal Balance Carrying

11 unchanged sentences

Total $ 454,652,980 $ 400,121,508 100.0 % $ 509,460,826 $ 456,472,258 100.0 %

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Geographic Location Principal Balance Carrying

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Our operating results may also be impacted by conditions in the financial markets and unanticipated credit events experienced by borrowers under our loan assets.

Credit risk represents the potential loss that we would incur if our borrowers failed to perform pursuant to the terms of their obligations to us.

With respect to our loan portfolio, we seek to manage credit risk by limiting exposure to any one individual borrower and any one asset class.

Additionally, our Manager employs an asset management approach and monitors the portfolio of investments through, at a minimum, quarterly financial review of property performance including net operating income, loan-to-value, debt service coverage ratio and the debt yield.

Our Manager also requires certain borrowers to establish an interest reserve, as a form of additional collateral, for the purpose of providing for future interest or property-related operating payments.

The performance and value of our loans depends upon the sponsors’ ability to operate or manage the development of the respective properties that serve as collateral so that each property’s value ultimately supports the repayment of the loan balance.

Mezzanine loans and preferred equity investments are subordinate to senior mortgage loans and, therefore, involve a higher degree of risk.

In the event of a default, mezzanine loans and preferred equity investments will be satisfied only after the senior lender’s investment is fully recovered.

As a result, in the event of a default, we may not recover all of our investments.

Our loans and investments are subject to credit risk.

The performance and value of our loans and investments depend upon the owners’ ability to operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us.

To monitor this risk, our asset management team reviews our investment portfolios and is in regular contact with our borrowers, monitoring performance of the collateral and enforcing our rights as necessary.

In addition, we are exposed to the risks generally associated with the commercial real estate market, including variances in occupancy rates, capitalization rates, absorption rates, and other macroeconomic factors beyond our control.

2 unchanged sentences

Concentration Risk

We hold real estate-related loans.

Thus, our loan portfolio may be subject to a more rapid change in value than would be the case if it were required to maintain a wide diversification among industries, companies and types of loans.

The result of such concentration in real estate assets is that a loss in such loans could materially reduce our capital.

We hold real estate and real estate-related loans.

Thus, our investment portfolio may be subject to a more rapid change in value than would be the case if it were required to maintain a wide diversification among industries, companies and types of loans.

The result of such concentration in real estate assets is that a loss in such investments could materially reduce our capital.

Interest Rate Risk

2 unchanged sentences

(i) the interest expense associated with variable rate borrowings to increase;

(ii) the value of real estate-related loans to decline;

(ii) the value of real estate and real estate-related loans to decline;

(iii) coupons on variable rate loans to reset, although on a delayed basis, to higher interest rates;

3 unchanged sentences

(i) the interest expense associated with variable rate borrowings to decrease;

(ii) the value of real estate-related loans to increase;

(ii) the value of real estate and real estate-related loans to increase;

(iii) coupons on variable rate real estate-related loans to reset, although on a delayed basis, to lower interest rates;

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The following table presents the comparative results of our operations:

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

2023 2022 Change 2023 2022 Change

Three Months Ended March 31,

2024 2023 Change

Interest income $ 12,148,735 $ 15,615,807 $ (3,467,072)

Real estate operating revenue 2,719,701 1,332,969 1,386,732

Prepayment fee income — 809,301 (809,301) — 1,984,061 (1,984,061)

Other operating income 140,909 53,395 87,514

1 unchanged sentence

Operating expenses

Operating expenses reimbursed to

Manager 2,407,757 2,013,135 394,622 6,704,790 6,082,333 622,457

Operating expenses reimbursed to Manager 2,178,164 2,177,004 1,160

Asset management fee 1,715,042 1,997,427 (282,385)

Asset servicing fee 406,525 470,525 (64,000)

Provision for credit losses 27,096,841 9,188,129 17,908,712 30,899,434 9,264,058 21,635,376

Provision for (reversal of provision for) credit losses 1,873,111 (850,051) 2,723,162

Real estate operating expenses 691,006 1,209,912 (518,906)

Depreciation and amortization 2,116,682 681,813 1,434,869

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

Professional fees 885,569 979,895 (94,326)

2 unchanged sentences

10,212,760 6,978,233 3,234,527

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

Operating income 4,796,585 10,023,938 (5,227,353)

Other income and expenses

Interest expense from obligations

under participation agreements (243,945) (562,182) 318,237 (1,353,006) (2,875,946) 1,522,940

Interest expense on repurchase

agreements payable (2,502,623) (2,394,754) (107,869) (8,505,926) (4,815,863) (3,690,063)

Interest expense on mortgage loans

payable (2,133,874) (534,617) (1,599,257) (4,520,974) (1,574,063) (2,946,911)

Interest expense on revolving line

of credit (1,968,212) (647,473) (1,320,739) (6,473,793) (1,872,504) (4,601,289)

Interest expense on term loan

payable (532,387) — (532,387) (1,239,418) (164,969) (1,074,449)

Interest expense on unsecured

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

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

Interest expense on secured

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

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

Unrealized losses on investments,

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

Income (loss) from equity

investment in unconsolidated

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

Gain on sale of interests in

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

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

Realized (losses) gains on

investments, net — — — (25,024) 83,411 (108,435)

Interest expense on secured financing (7,289,912) (6,119,731) (1,170,181)

Interest expense on unsecured notes payable (2,440,375) (2,394,306) (46,069)

Interest expense on obligations under participation agreements (618,495) (532,146) (86,349)

Unrealized (loss) gain on investments, net (22,931) 6,584 (29,515)

Loss from equity investment in unconsolidated investments (473,387) (436,860) (36,527)

Realized loss on investments, net (135,459) — (135,459)

(10,980,559) (9,476,459) (1,504,100)

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

Net (loss) income $ (6,183,974) $ 547,479 $ (6,731,453)

Net Loan Portfolio

In assessing the performance of our loans, we believe it is appropriate to evaluate the loans on an economic basis, that is, gross loans net of obligations under participation agreements, term loan payable, revolving credit facility and repurchase agreement payable.

In assessing the performance of our loans, we believe it is appropriate to evaluate the loans on an economic basis, that is, gross loans net of obligations under participation agreements, promissory notes payable, revolving credit facility and repurchase agreements payable.

The following table presents a reconciliation of our loan portfolio on a weighted average basis from gross to net :

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

Weighted Average Principal Amount (1)

Weighted Average Coupon Rate (2)

Weighted Average Principal Amount (1)

Weighted Average Coupon Rate (2)

Total portfolio

Gross loans $ 523,306,837 13.1 % $ 533,529,996 9.8 %

Obligations under participation agreements

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

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

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

Revolving line of credit (86,269,481) 8.7 % (42,251,492) 6.4 %

Net loans (3)

$ 302,511,964 16.4 % $ 229,665,029 14.4 %

Gross loans $ 396,644,512 12.6 % $ 394,986,942 8.6 %

Obligations under participation agreements

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

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

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

Revolving line of credit (86,269,481) 8.7 % (42,251,492) 6.4 %

Net loans (3)

$ 175,849,639 17.7 % $ 133,784,869 15.0 %

Subordinated loans (4)

Gross loans $ 126,662,325 14.5 % $ 138,543,054 12.9 %

Obligations under participation agreements — — % (42,662,894) 12.7 %

Net loans (3)

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

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

Three Months Ended March 31, 2024 Three Months Ended March 31, 2023

Weighted Average Principal Amount (1)

5 unchanged sentences

Obligations under participation agreements (12,032,967) 20.3 % (12,900,803) 16.8 %

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

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

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

Term loan payable — — % (13,788,746) 5.3 %

Revolving line of credit (100,087,965) 8.7 % (49,545,296) 6.4 %

Promissory notes payable (65,985,924) 10.9 % — — %

Repurchase agreements payable (80,820,899) 8.6 % (166,262,832) 6.7 %

Revolving line of credit payable (46,881,127) 8.7 % (97,062,727) 8.1 %

Net loans (3)

1 unchanged sentence

Gross loans $ 378,176,428 12.8 % $ 498,798,978 11.3 %

Obligations under participation agreements

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

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

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

Term loan payable — — % (13,788,746) 5.3 %

Revolving line of credit (100,087,965) 8.7 % (49,545,296) 6.4 %

Promissory notes payable (65,985,924) 10.9 % — — %

Repurchase agreements payable (80,820,899) 8.6 % (166,262,832) 6.7 %

Revolving line of credit payable (46,881,127) 8.7 % (97,062,727) 8.1 %

Net loans (3)

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Interest Income

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

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

For the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, interest income decreased by $3.5 million, primarily due to a decrease in contractual interest income as a result of a decrease in the weighted average principal balance of gross loans, partially offset by an increase in the weighted average coupon rate due to increases in the underlying index rates.

Real Estate Operating Revenue

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

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

Prepayment Fee Income

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

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

For the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, real estate operating revenue increased by $1.4 million, primarily due to an increase in lease revenue contributed by the eight industrial buildings acquired in 2023, partially offset by a reduction in lease revenue resulting from the disposal of the office building in October 2023.

Other Operating Income

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

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

Operating Expenses Reimbursed to Manager

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

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

For the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, other operating income increased by $0.1 million, primarily due to an increase in dividend income recognized on marketable securities, partially offset by a decrease in application fees income on deals under application.

Asset Management Fee

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

For the three and nine months ended September 30, 2023 as compared to the same periods in 2022, asset management fees increased by $0.4 million and $1.4 million, respectively, primarily due to an increase in total assets under management primarily resulting from loans acquired in connection with the BDC Merger.

For the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, asset management fees decreased by $0.3 million, primarily due to a decrease in total assets under management primarily resulting from repayment of loans.

Asset Servicing Fee

Under the terms of the Management Agreement with our Manager, we paid our Manager a monthly servicing fee at an annual rate of 0.25% of the aggregate gross origination price or acquisition price for each real estate-related loan held by us.

For the three and nine months ended September 30, 2023 as compared to the same periods in 2022, asset servicing fees increased by $0.1 million and $0.3 million, respectively, primarily due to an increase in total assets under management primarily resulting from loans acquired in connection with the BDC Merger.

For the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, asset servicing fees decreased by $0.1 million, primarily due to a decrease in total assets under management resulting from the repayment of loans.

Provision for Credit Losses

On January 1, 2023, we adopted the provisions of Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326):

On January 1, 2023, we adopted the provisions of ASU 2016-13, Financial Instruments — Credit Losses (Topic 326):

Prior to the adoption of ASU 2016-13, we recorded an allowance for credit losses equal to (i) 1.5% of the aggregate carrying amount of loans rated as a “4”, plus (ii) 5% of the aggregate carrying amount of loans rated as a “5”, plus (iii) past due loan reserves, if any.

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

For the three months ended March 31, 2024, provision for credit losses was $1.9 million, primarily related to the decline in fair value of collateral underlying one loan in the investment portfolio as well as a decline in modeled macroeconomic forecasts for commercial real estate.

For the three months ended March 31, 2023, we reversed provision for credit losses of $0.9 million due to an improvement in macroeconomic forecasts during the period, partially offset by incremental credit losses incurred on newly originated loans.

Real Estate Operating Expenses

For the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, real estate operating expenses decreased by $0.5 million, primarily due to a reduction in ground lease rent on the office building disposed of in October 2023, partially offset by an increase in real estate operating expenses related to the industrial buildings that we acquired in 2023.

Depreciation and Amortization

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

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

Impairment Charges

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

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

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

For the nine months ended September 30, 2022, we recognized an impairment charge of $1.6 million, on 4.9 acres of the development land located in Pennsylvania in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost of sale.

The development land was sold in the second quarter of 2022.

Professional Fees

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

Directors’ Fees

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

Interest from Obligations under Participation Agreements

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

Interest Expense on Repurchase Agreements Payable

On November 8, 2021, we entered into a master repurchase agreement that provides for advances of up to $195 million which we expect to use to finance certain secured performing commercial real estate loans, including senior mortgage loans.

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

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

Interest Expense on Mortgage Loans Payable

For the three and nine months ended September 30, 2023, as compared to the same periods in 2022, interest expense on mortgage loan payable increased by $1.6 million and $2.9 million, respectively, as a result of an increase in the weighted average principal amount outstanding on mortgage loan payable, primarily due to financing obtained in connection with an acquisitions of real estate in 2023, as well as an increase in the index rate on the existing mortgage loan payable.

Interest Expense on Revolving Line of Credit

On March 12, 2021, we entered into a Business Loan and Security Agreement (the “revolving line of credit”) to provide for advances up to the lesser of $75.0 million or the amount determined by the borrowing base, which is based on the eligible assets pledged to the lender.

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

For the three and nine months ended September 30, 2023, as compared to the same periods in 2022, interest expense on revolving line of credit increased by $1.3 million and $4.6 million, respectively, as a result of an increase in weighted average principal amount outstanding on the revolving line of credit as well as an increase in the index rate on the revolving line of credit.

Interest Expense on Term Loan Payable

On September 3, 2020, we entered into an indenture and credit agreement that provided for a floating rate loan of $103.0 million, $3.6 million of additional future advances, and up to $11.6 million of additional future discretionary advances, in connection with certain outstanding funding commitments under the mortgage assets owned by us and financed under the indenture and credit agreement.

The loan bore interest at LIBOR plus 4.25% with a LIBOR floor of 1.0%.

On February 18, 2022, we refinanced this loan with a new repurchase agreement.

Additionally, in connection with the BDC Merger, we assumed a term loan of $25.0 million.

The term loan bears interest at an annual rate of 5.625% and matures on July 1, 2023.

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

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

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

For the three and nine months ended September 30, 2023, as compared to the same periods in 2022, interest expense on term loan payable increased by $0.5 million and $1.1 million, respectively, as a result of interest expense recognized on the term loan that we acquired in connection with the BDC Merger on October 1, 2022, partially offset by the reversal of the previously accrued step-up interest of $0.4 million during the first quarter of 2022 in connection with the termination of the old term loan.

For the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, depreciation and amortization increased by $1.4 million, primarily due to the industrial buildings that we acquired in 2023, partially offset by a reduction in depreciation and amortization related to the disposal of the office building in October 2023.

Interest Expense on Secured Financing

Our secured financing consists of repurchase agreements, revolving line of credit, term loan, promissory notes and property mortgages.

For the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, interest expense on secured financing increased by $1.2 million as a result of an increase in the weighted average principal amount outstanding as well as an increase in the index rate on secured financing agreements.

Interest Expense on Unsecured Notes Payable

1 unchanged sentence

In connection with the BDC Merger, we assumed $38.4 million in aggregate principal amount of 7.00% notes due in 2026.

For the three and nine months ended September 30, 2023, as compared to the same periods in 2022, interest expense on unsecured notes payable increased by $1.0 million and $2.9 million, respectively, as a result of an increase in the weighted average principal amount outstanding due to the assumption of unsecured notes payable in connection with the BDC Merger.

Interest Expense on Note Payable

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

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

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

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

Interest Expense on Secured Borrowing

In March 2020, we entered into a financing transaction where a third-party purchased an A-note position.

However, the sale of the A-note position did not qualify for sale accounting treatment and therefore, the gross amount of the loan remained in the consolidated balance sheets.

The portion that was sold was reflected as secured borrowing in the consolidated balance sheets, and the associated interest was reflected as interest expense on secured borrowing in the consolidated statements of operations.

The secured borrowing was repaid in August 2022.

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

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

Gain on Extinguishment of Debt

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

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

Unrealized Losses on Investments, Net

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

Income (Loss) from Equity Investment in Unconsolidated Investments

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

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).

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

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

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

We accounted for this arrangement as an equity investment.

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

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

The equity income (loss) from RESOF included adjustments made due to the dilution of our ownership interest in RESOF as new investors were admitted in 2022 and 2023.

For the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, interest expense on unsecured notes payable remained substantially the same.

Interest from Obligations under Participation Agreements

For the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, interest expense from obligations under participation agreements increased by $0.1 million, primarily as a result of an increase in the weighted average interest rate on the outstanding obligations under participation agreements, partially offset by a slight decrease in the weighted average principal amount outstanding.

Loss from Equity Investment in Unconsolidated Investments

As of both March 31, 2024 and December 31, 2023, we owned a 14.9% equity interest in RESOF, a limited partnership that invests primarily in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets.

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

For the three months ended March 31, 2024, we recognized loss from equity investment in unconsolidated investments of $0.5 million, which consisted of net equity loss from the joint ventures of $1.5 million, partially offset by equity income from RESOF of $1.0 million.

For the three months ended March 31, 2023, we recognized a loss from equity investment in unconsolidated investments of $0.4 million, which primarily consisted of net equity loss from the joint ventures and the mezzanine loan of $0.7 million, partially offset by equity income from RESOF of $0.3 million.

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

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

Gain on Sale of Interests in Unconsolidated Investments

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

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

Loss on Sale of Real Estate

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

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

Realized Loss On Investments, Net

For the three months ended March 31, 2024, we sold a portion of our investments in common stock and recognized a net loss on sale of $0.1 million.

There were no such realized loss for three months ended March 31, 2023.

Net (Loss) Income

For the three months ended March 31, 2024, the resulting net loss was $6.2 million, compared to a net income of $0.5 million for the three months ended March 31, 2023.

Financial Condition, Liquidity and Capital Resources

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As part of our capital raising transactions, we may grant to one or more of these vehicles certain control rights over our activities including rights to approve major decisions we take as part of our business.

In order to qualify as a REIT, we must distribute to our stockholders, each calendar year, dividends equal to at least 90% of our REIT taxable income (including certain items of non-cash income), determined without regard to the deduction for dividends paid and excluding net capital gain.

In order to qualify as a REIT, we must distribute to our stockholders, each calendar year, dividends equal to at least 90% of our REIT taxable income (including certain items of

non-cash income), determined without regard to the deduction for dividends paid and excluding net capital gain.

These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for our business.

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We expect to maintain sufficient liquidity to fund such commitments through matching these commitments with principal repayments on outstanding loans or draw downs on our credit facilities.

Additionally, we had $27.6 million of borrowings outstanding under a mortgage loan payable that bear interest at an annual rate of Term SOFR plus 3.85% with a Term SOFR floor of 2.23%, that is collateralized by an office building.

The mortgage loan payable matured on May 31, 2023.

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

was effectively extinguished.

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

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

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

Our line of credit with outstanding principal balance of $50.4 million matures on March 12, 2024 and our GS repurchase agreement with outstanding principal balance of $75.5 million matures on February 18, 2024 (see Summary of Financing below).

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

Obligation under participation agreement of $15.0 million will mature in the next twelve months.

We use the proceeds from the repayment of the corresponding investment to repay the participation obligation.

Our revolving line of credit with outstanding principal balance of $34.8 million is to come due on September 12, 2024 and our Goldman Sachs Bank repurchase agreement with outstanding principal balance of $73.9 million is to come due on February 18, 2025.

The lender agreed to waive our minimum profitability covenant for the three months ended March 31, 2024 in our revolving line of credit and we agreed to provide the lender with a plan to reduce the balance under the line by June 30, 2024.

We expect to either extend the facility term of the facilities or convert the facilities to a term loan with maturity co-terminus with the underlying loans and use the proceeds from the repayment of the underlying loans to repay the term loans, or refinance with another lender.

Additionally, a promissory note payable with an outstanding principal balance of $49.5 million that is collateralized by two senior loans with aggregate principal balance of $84.8 million will mature on March 22, 2025.

We expect to use proceeds from the repayment of the underlying loans to repay the promissory note payable.

Summary of Financing

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

The table below summarizes our debt financing as of March 31, 2024:

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

Senior unsecured notes N/A $ 85,125,000 N/A 6.00% 6/30/2026

Senior unsecured notes N/A 38,375,000 N/A 7.00% 3/31/2026

Mortgage loan payable N/A 40,250,000 N/A 6.25% 6/6/2028

Unsecured notes payable N/A $ 85,125,000 N/A 6.00% June 2026

Unsecured notes payable N/A 38,375,000 N/A 7.00% March 2026

Property mortgages N/A 40,250,000 N/A 6.25% June 2028

$ 163,750,000

Variable Rate:

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

Mortgage loan payable $37,000,000 32,999,135 N/A Term SOFR +3.5% (Term SOFR

Floor of 3.75%) 4/9/2027

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

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

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

UBS repurchase

agreement (1)

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

GS repurchase

agreement (2)

Property mortgages N/A $ 33,788,801 N/A Term SOFR +3.5% (Term SOFR

Floor of 3.75%) April 2027

Promissory notes payable N/A 78,997,103 N/A Term SOFR plus a spread ranging from 4.75% to 5.98% with a combined floor rate ranging from 9.0% to 11.28% March 2025 - March 2026

Revolving line of

credit $ 75,000,000 34,761,111 $ 40,238,889 Term SOFR + 3.5% (combined floor rate of 7.0%) September 2024

Goldman Sachs Bank

repurchase agreement

200,000,000 73,855,624 126,144,376 Term SOFR (subject to underlying loan floors on a case-by-case basis) plus a spread ranging from 2.0% to 5.00%)

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

February 2025

$ 275,000,000 $ 221,402,639 $ 166,383,265

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

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

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

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

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

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

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

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

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

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

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

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

Cash Flows Provided by (Used in) Operating Activities

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

Cash Flows (Used in) Provided by Operating Activities

For the three months ended March 31, 2024, cash flows used in operating activities was $4.2 million, compared to cash flow from operating activities of $8.7 million for the three months ended March 31, 2023.

The decrease in operating cash flows was primarily due to a decrease in net contractual interest income.

Cash Flows Provided by (Used in) Investing Activities

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

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

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

Cash Flows Used in Financing Activities

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

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

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

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

For the three months ended March 31, 2024, cash flows provided by investing activities were $33.4 million, primarily related to proceeds from repayment of loans of $47.0 million, partially offset by origination and purchase of loans of $7.2 million and purchase of equity interests in unconsolidated investments of $6.5 million.

For the three months ended March 31, 2023, cash flows used in investing activities were $52.0 million, primarily related to purchase of real estate properties of $48.8 million, origination and purchase of loans of $46.2 million and purchase of held-to-maturity debt securities of $20.0 million, partially offset by proceeds from repayments of loans of $59.2 million and return of capital on unconsolidated investments of $3.9 million.

Cash Flows (Used in) Provided by Financing Activities

For the three months ended March 31, 2024, cash flows used in financing activities were $22.2 million, primarily related to principal repayments on secured financing of $84.8 million, distributions paid of $4.6 million and payment for financing costs of $0.9 million, partially offset by proceeds from secured financing of $53.0 million and proceeds from obligations under participation agreements of $15.0 million.

For the three months ended March 31, 2023, cash flows provided by financing activities were $43.9 million, primarily due to proceeds from secured financing of $68.3 million, partially offset by principal repayments on secured financing of $19.2 million and distributions paid of $4.7 million.

Distribution Reinvestment Plan

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As we execute our expected operating plans, we will describe additional critical accounting policies in the notes to our future consolidated financial statements in addition to those discussed below.

Current Expected Credit Losses Reserve

Allowance for Credit Losses

On January 1, 2023, we adopted the provisions of ASU 2016-13, which requires entities to recognize credit losses on financial instruments based on an estimate of current expected credit losses (“CECL”).

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

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

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

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

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

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

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

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

The CECL model 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.

We use a model-based approach for estimating the allowance for credit losses on performing loans on a collective basis, including future funding commitments for which we do not have the unconditional right to cancel, as these loans share similar risk characteristics.

We utilize 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 our loan portfolio.

We utilize a commercial mortgage-based, third-party loan loss model and because we do not have a meaningful history of realized credit losses on our loan portfolio, we subscribe to a database service to provide historical proxy loan loss information.

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

We have chosen to incorporate a weighted average macroeconomic forecast that encompasses baseline, optimistic and pessimistic scenarios, into our allowance for credit losses on performing loans estimate during the reasonable and supportable forecast period which is currently eight quarters.

We select 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.

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.

Management Agreement with Terra REIT Advisors

We currently pay the following fees to Terra REIT Advisors pursuant to the Management Agreement:

Management Agreement with our Manager

We currently pay the following fees to our Manager pursuant to the Management Agreement:

Origination and Extension Fee .

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The following table presents a summary of fees paid and costs reimbursed to our Manager in connection with providing services to us:

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

2023 2022 2023 2022

Three Months Ended March 31,

Origination and extension fee expense (1)

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

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

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

These origination fees were capitalized to the carrying value of the unconsolidated investment as a transaction cost.

(2) Disposition fee is generally offset with exit fee income and included in interest income on the consolidated statements of operations.

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 (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 us 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 us during the Initial Term or any Renewal Term upon a finding by either (i) at least two-thirds of the independent directors on our Board or (ii) the holders of a majority of the outstanding shares of our common stock (other than those shares held by members of the our senior management team or affiliates of our Manager) that either (a) there has been unsatisfactory performance by our Manager that is materially detrimental to us, or (b) the compensation payable to our Manager pursuant to the Management Agreement is unfair;

provided, however, that we will not have the right to terminate the Management Agreement on the basis of unfair compensation to our Manager if our 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 our Board determine to be fair pursuant to the procedures set forth in the Management Agreement.

We must deliver prior written notice of any such termination to our 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 us as discussed above, we will pay our 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 our Manager pursuant to the Management 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.

We may also terminate the Management Agreement, effective upon 30 calendar days’ prior written notice from our Board to our Manager, without payment of any Termination Fees or other penalties, upon (i) the material breach of the Management Agreement by our Manager or its affiliates that continues for 30 days after written notice thereof to our Manager (or 45 days after delivery of written notice thereof if our 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 our 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) our 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 us.

Our Manager may terminate the Management Agreement, effective upon 60 days’ prior written from our Manager to us, if we breach the Management Agreement and such breach continues for 30 days after written notice thereof.

We will pay our Manager the Termination Fee upon such termination by our Manager.

Cost Sharing and Reimbursement Agreement with Terra LLC

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We have further diversified our exposure to loans and borrowers by entering into participation agreements whereby we transferred a portion of certain of our loans on a pari passu basis to related parties, primarily other affiliated funds managed by our Manager or its affiliates, and to a lesser extent, unrelated parties.

We have also sold a portion of a loan to a third party that did not qualify for sale accounting.

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

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

As of March 31, 2024, the principal balance of our participation obligation was $15.0 million, which was a participation obligation to a related-party managed by the Manager.

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

We do not have direct liability to a participant with respect to the underlying loan and the participants’ share of the investments is repayable only from the proceeds received from the related borrower/issuer of the investments and, therefore, the participants also are subject to credit risk (i.e., risk of default by the underlying borrower/issuer).

We do not have

direct liability to a participant with respect to the underlying loan and the participants’ share of the investments is repayable only from the proceeds received from the related borrower/issuer of the investments and, therefore, the participants also are subject to credit risk (i.e., risk of default by the underlying borrower/issuer).

Pursuant to the participation agreement with these entities, we receive and allocate the interest income and other related investment income to the participants based on their respective pro rata participation interest.

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As such, the investments remain on our combined consolidated balance sheets and the proceeds are recorded as obligations under participation agreements.

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

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

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

The secured borrowing was repaid in August 2022.

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

For the three months ended March 31, 2024, the weighted average outstanding principal balance on obligations under participation agreements was approximately $12.0 million and the weighted average interest rate was approximately 20.3%, compared to the weighted average outstanding principal balance on obligations under participation agreements of approximately $12.9 million and the weighted average interest rate was approximately 16.8% for the three months ended March 31, 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements