What changed in this filing

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Item 1. Financial Statements

2024-08-09 compared with 2024-05-13 · 453 added, 277 removed, 1280 unchanged (36% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Cash and cash equivalents $ 18,937,034 $ 10,674,475

5 unchanged sentences

345,816,691 417,913,773

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

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

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

of $ 251,722 and $ 226,527

38,535,503 38,558,485

23 unchanged sentences

Preferred stock, $ 0.01 par value, 50,000,000 shares authorized and none issued

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

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

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

issued, as of both June 30, 2024 and December 31, 2023

Class B Common Stock, $ 0.01 par value, 450,000,000 shares authorized and 24,336,871

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

and December 31, 2023, respectively

and 24,336,033 shares issued and outstanding as of June 30, 2024 and

December 31, 2023, respectively

243,369 243,360

7 unchanged sentences

Consolidated Statements of Operations and Comprehensive (Loss) Income

Three Months Ended March 31,

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

2024 2023 2024 2023

Interest income $ 8,435,024 $ 15,878,453 $ 20,583,759 $ 31,494,260

6 unchanged sentences

Asset servicing fee 394,995 496,374 801,520 966,899

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

Provision for credit losses 2,576,325 4,652,644 4,449,436 3,802,593

Real estate operating expenses 782,271 1,864,212 1,473,277 3,074,124

3 unchanged sentences

Other 100,594 188,631 363,505 403,875

Impairment charge — 11,765,540 — 11,765,540

10,471,686 25,820,320 20,684,446 32,798,553

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

Operating income (loss) 701,834 ( 7,037,865 ) 5,498,419 2,986,073

Other income and expenses

2 unchanged sentences

Interest expense on obligations under participation agreements ( 770,648 ) ( 576,915 ) ( 1,389,143 ) ( 1,109,061 )

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

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

Unrealized gain on investments, net 201,501 51,224 178,570 57,808

Income (loss) from equity investment in unconsolidated

investments 1,671,970 ( 1,759,934 ) 1,198,583 ( 2,196,794 )

Realized loss on investments, net ( 310,550 ) ( 25,024 ) ( 446,009 ) ( 25,024 )

( 8,241,144 ) ( 12,199,200 ) ( 19,221,703 ) ( 21,675,659 )

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

Net loss $ ( 7,539,310 ) $ ( 19,237,065 ) $ ( 13,723,284 ) $ ( 18,689,586 )

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

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

Other Comprehensive loss

Net loss allocable to common stock $ ( 7,539,310 ) $ ( 19,237,065 ) $ ( 13,723,284 ) $ ( 18,693,493 )

Other comprehensive income (loss)

Available-for-sale debt securities 316,392 — ( 19,390 ) —

316,392 — ( 19,390 ) —

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

Comprehensive loss $ ( 7,222,918 ) $ ( 19,237,065 ) $ ( 13,742,674 ) $ ( 18,693,493 )

Per share data

(Loss) income per share — basic and diluted

Loss per share — basic and diluted

$ ( 0.31 ) $ ( 0.79 ) $ ( 0.56 ) $ ( 0.77 )

6 unchanged sentences

Preferred Stock Class A Common Stock Class B Common Stock Additional

Capital Accumulated Deficit Accumulated Other Comprehensive loss

Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss)

$ 0.01 Par Value

2 unchanged sentences

Balance at January 1, 2024 $ — — $ — 24,336,033 $ 243,360 $ 444,458,206 $ ( 203,047,758 ) $ — $ 241,653,808

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

Shares issued from reinvestment of shareholder

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

Distributions declared on common shares ($ 0.19 per

Distributions declared on common shares ($ 0.19 per share)

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

3 unchanged sentences

Balance at March 31, 2024 — — — 24,336,424 243,364 444,462,676 ( 213,882,368 ) ( 335,782 ) 230,487,890

Shares issued from reinvestment of shareholder

distributions — — — 447 5 5,045 — — 5,050

Distributions declared on common shares ($ 0.19 per share)

— — — — — — ( 4,650,718 ) — ( 4,650,718 )

Net loss — — — — — — ( 7,539,310 ) — ( 7,539,310 )

Other comprehensive income:

— — — — — — — —

Available-for-sale debt securities — — — — — — — 316,392 316,392

Balance at June 30, 2024

$ — — $ — 24,336,871 $ 243,369 $ 444,467,721 $ ( 226,072,396 ) $ ( 19,390 ) $ 218,619,304

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

15 unchanged sentences

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

Shares issued from reinvestment of

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

Distributions declared on common shares ($ 0.19 per share)

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

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

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

See notes to unaudited consolidated financial statements .

1 unchanged sentence

Consolidated Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

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

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

Net loss $ ( 13,723,284 ) $ ( 18,689,586 )

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

Depreciation and amortization 3,863,801 2,438,477

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

Provision for credit losses 4,449,436 3,802,593

Amortization of net purchase premiums on loans 152,872 823,785

4 unchanged sentences

Amortization and accretion of investment-related fees, net ( 679,753 ) ( 475,043 )

Impairment charge — 11,765,540

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

Realized loss on investments, net 446,009 25,024

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

Unrealized gain on investments, net ( 178,570 ) ( 57,808 )

Distributions received from equity investment in unconsolidated investments 1,684,877 5,087,025

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

(Income) loss from equity investment in unconsolidated investments ( 1,198,583 ) 4,001,731

Changes in operating assets and liabilities:

11 unchanged sentences

Proceeds from repayments of loans 110,423,185 98,977,506

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

Origination, purchase and funding of loans ( 42,609,078 ) ( 63,775,372 )

Purchase of equity interests in unconsolidated investments ( 36,600,606 ) —

Distributions received in excess of equity income 2,627,499 —

Repayments of promissory note receivable 9,020,609 —

Funding for promissory note receivable ( 4,962,369 ) —

Proceeds from sale of marketable securities 3,551,098 —

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

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

Purchase of equity securities ( 2,022,353 ) —

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

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

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

Cash acquired in purchase of real estate — 712,608

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

2 unchanged sentences

Consolidated Statements of Cash Flows (Continued)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from financing activities:

11 unchanged sentences

$ 30,424,280 $ 58,096,906

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental Disclosure of Cash Flows Information:

2 unchanged sentences

Reinvestment of shareholder distributions $ 9,524 $ 1,988

Supplemental non-cash investing information:

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

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

Total Capitalized Costs:

Cash and cash equivalents $ 3,515,466

Loans held for investment 68,737,877

Equity investment in unconsolidated investment 10,149,642

Interest receivable 456,650

Other assets 429,326

Net Assets Acquired

Cash and cash equivalents $ 712,608

Other assets 33,802

Land 14,457,149

Buildings and Improvements 65,365,376

Intangible asset and liability:

In-please lease 8,403,667

Below-market rent ( 4,770,870 )

Accounts payable and accrued expenses ( 912,771 )

See notes to unaudited consolidated financial statements .

1 unchanged sentence

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2024

June 30, 2024

Terra Property Trust, Inc.

21 unchanged sentences

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.

As of June 30, 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

32 unchanged sentences

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 has chosen to incorporate a weighted average macroeconomic forecast that encompasses baseline, upside and downside 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.

25 unchanged sentences

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.

As of June 30, 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

2 unchanged sentences

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.

If, however, the investor’s cumulative distributions received, less distributions received in prior periods determined to be returns of investment, exceed 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.

To the extent an impairment has occurred and is determined to be other-than-temporary, the Company measures the charge as the excess of the carrying value of its investment over its estimated fair value, which is determined by calculating its share of the estimated fair market value of the underlying net assets based on the terms of the applicable partnership or joint venture agreements.

Equity Securities Without Readily Determinable Fair Value

The Company accounts for its equity security without readily determinable fair value at cost, which is included in other assets on the consolidated balance sheets.

The Company has elected the measurement alternative and therefore will evaluate whether the security continues to qualify for the alternative at each reporting period.

The Company evaluates its equity security without readily determinable fair value on a periodic basis to determine if there is an observable price change in an orderly transaction for similar investments or if there are any indicators that the value of its equity security may be impaired.

The Company will make fair value adjustments, if any, or reductions for any impairment to derive the carrying value of the investment..

Marketable Securities

6 unchanged sentences

Real estate acquired is recorded at its estimated fair value at acquisition and is shown net of accumulated depreciation and impairment charges.

Notes to Unaudited Consolidated Financial Statements

Acquisition of properties generally are accounted for as asset acquisitions.

3 unchanged sentences

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:

27 unchanged sentences

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

Notes to Unaudited Consolidated Financial Statements

Real Estate Operating Revenues:

7 unchanged sentences

All other income is recognized when earned.

Notes to Unaudited Consolidated Financial Statements

Cash, Cash Equivalents and Restricted Cash

24 unchanged sentences

GAAP establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs.

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

Notes to Unaudited Consolidated Financial Statements

agreement payment and revolving line of credit.

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

4 unchanged sentences

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.

5 unchanged sentences

federal and state income taxes at regular corporate rates.

As of March 31, 2024, the Company has satisfied all the requirements for a REIT.

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

For the three and six months ended June 30, 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.

1 unchanged sentence

Earnings Per Share

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.

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

10 unchanged sentences

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

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.

As of June 30, 2024 and December 31, 2023, accrued interest receivable of $ 8.1 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

1 unchanged sentence

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Fixed Rate Floating

11 unchanged sentences

(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.

Coupon rates shown were determined using the London Interbank Offered Rate (“LIBOR”) of 5.45 %, average SOFR of 5.34 % and Term SOFR of 5.34 % as of June 30, 2024 and average SOFR of 5.34 % and Term SOFR of 5.35 % as of December 31, 2023.

(2) As of June 30, 2024 and December 31, 2023, amount included $ 302.6 million and $ 342.9 million of senior mortgages used as collateral for $ 192.5 million and $ 204.9 million of borrowings under secured financing arrangements, respectively ( Note 9 ).

(3) As of June 30, 2024 and December 31, 2023, 13 and 14 loans, respectively, were subject to a SOFR or Term SOFR floor, as applicable.

Lending Activities

9 unchanged sentences

Provision for credit losses ( 4,141,777 ) ( 25,195 ) ( 4,166,972 )

Balance, March 31, 2024

Balance, June 30, 2024

$ 345,816,691 $ 38,535,503 $ 384,352,194

8 unchanged sentences

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

Settlement of loans in exchange for real estate properties ( Note 5 )

( 68,737,877 ) — ( 68,737,877 )

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

net ( 242,361 ) ( 9,197 ) ( 251,559 )

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

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

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

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

Portfolio Information

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

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

4 unchanged sentences

Total $ 415,281,848 $ 384,352,194 100.0 % $ 509,460,826 $ 456,472,258 100.0 %

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

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

Office $ 115,976,792 $ 116,315,046 30.3 % $ 144,812,619 $ 144,853,769 31.7 %

Multifamily 67,379,930 67,867,269 16.3 % 85,660,082 86,210,868 18.9 %

Industrial 70,022,380 70,022,380 18.2 % 67,579,869 67,612,621 14.8 %

Mixed-use 63,046,365 63,457,260 15.3 % 63,096,365 63,531,806 13.9 %

Infill land 53,900,000 55,341,248 14.4 % 52,839,509 54,172,663 11.9 %

Multifamily 53,322,162 53,659,242 14.0 % 85,660,082 86,210,868 18.9 %

Mixed-use 47,838,132 48,232,387 12.5 % 63,096,365 63,531,806 13.9 %

Hotel - full/select service 43,222,382 43,832,428 11.4 % 43,222,382 43,801,303 9.6 %

4 unchanged sentences

Notes to Unaudited Consolidated Financial Statements

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

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

3 unchanged sentences

New Jersey 85,922,380 87,067,380 22.7 % 82,419,378 83,489,049 18.3 %

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

Arizona 31,000,000 31,296,248 8.1 % 31,000,000 31,296,235 6.9 %

Georgia 30,000,000 30,300,000 7.9 % 74,335,828 74,602,328 16.3 %

Utah 28,000,000 28,910,000 7.5 % 49,250,000 50,329,949 11.0 %

9 unchanged sentences

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

Three Months Ended March 31,

Six Months Ended June 30,

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

Cumulative effect of credit loss accounting standard effective

January 1, 2023 ( Note 2 )

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

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

Provision for credit losses 4,166,972 3,406,854

Charge-offs ( 26,237,688 ) —

2 unchanged sentences

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.

These unfunded commitments amounted to approximately $ 27.8 million and $ 35.7 million as of June 30, 2024 and December 31, 2023, respectively.

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

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

Three Months Ended March 31,

Six Months Ended June 30,

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

2 unchanged sentences

Liability for credit losses on unfunded commitments, end of period $ 609,371 $ 765,410

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

Accrued Interest Receivable

1 unchanged sentence

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

For the three and six months ended June 30, 2024, the Company reversed $ 0.7 million of accrued interest

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.

income because such income was deemed uncollectible.

For the three and six months ended June 30, 2023, the Company did no t reverse any interest income accrual because all accrued interest income was deemed collectible.

For the three months ended June 30, 2024 and 2023, the Company suspended interest income accrual of $ 6.8 million and $ 3.7 million on five and three loans, respectively, because recovery of such income was not probable.

For the six months ended June 30, 2024 and 2023, the Company suspended interest income accrual of $ 12.6 million and $ 7.2 million on five and three loans, respectively, because recovery of such income was not probable.

As of June 30, 2024 and December 31, 2023, interest receivable recognized on these loans was $ 4.8 million and $ 3.4 million, respectively.

Non-Performing Loans

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

As of 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.

As of June 30, 2024 and December 31, 2023, the Company had six non-performing loans with total carrying value of $ 192.7 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 $ 31.0 million and $ 54.6 million as of June 30, 2024 and December 31, 2023, respectively.

Please see “Note 6.

13 unchanged sentences

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

March 31, 2024

June 30, 2024

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

8 unchanged sentences

Allowance for credit losses ( 34,905,309 )

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

Total, net of allowance for

credit losses $ 384,352,194

Notes to Unaudited Consolidated Financial Statements

12 unchanged sentences

Equity Investment in Unconsolidated Investments

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

The Company owns interests in a limited partnership, joint ventures and a preferred equity investment with profit-sharing feature.

The Company accounts for its interests in these investments under the equity method of accounting ( Note 2 ).

7 unchanged sentences

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

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

Equity investment in RESOF 14.9 % $ 33,452,393 $ 23,277,662 14.9 % $ 18,196,583 $ 37,444,080

Three Months Ended March 31,

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

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

2024 2023 2024 2023

Income (loss) from equity investment in RESOF $ 1,775,929 $ ( 1,159,388 ) $ 2,774,268 $ ( 855,788 )

Distributions received from RESOF $ 1,035,966 $ 921,887 $ 1,684,877 $ 4,709,670

2 unchanged sentences

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Investments at fair value (cost of $ 359,640,878 and $ 196,129,031 , respectively)

9 unchanged sentences

Partners’ capital $ 219,240,401 $ 118,248,930

Three Months Ended March 31,

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

2024 2023 2024 2023

Total investment income $ 14,200,717 $ 8,264,132 $ 25,033,864 $ 16,375,911

1 unchanged sentence

Net investment income 8,641,109 4,436,548 15,291,927 9,381,532

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

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

Unrealized appreciation (depreciation) on

investments 2,576,304 ( 288,031 ) 2,048,392 ( 883,942 )

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

Net increase in partners’ capital resulting

from operations $ 11,217,413 $ 4,009,573 $ 17,340,319 $ 8,358,646

Equity Investment in Joint Ventures

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.

The Company beneficially owns equity interests in joint ventures that invest in real estate properties, opportunistic debt and equity securities, and indirectly, together with other non-affiliated entities, a non-real estate operating company.

The Company evaluated its equity interests in these entities 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.

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

March 31, 2024 December 31, 2023

June 30, 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 % $ 6,629,749 27.2 % $ 7,024,245

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

LEL NW 49th JV LLC (1)

Third party/Affiliate 27.2 % 98,974 27.2 % 1,619,157

TCG Corinthian FL Portfolio

JV LLV Third party/Affiliate 30.6 % 6,757,895 30.6 % 5,590,427

Windy Hill PV Five CM, LLC (1)

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

610 Walnut Investors LLC Third party 38.4 % 3,660,985 42.4 % 4,740,914

MASPEN MS I LLC (2)

Affiliates 2.4 % 50,500 — % —

Axar Special Opportunity Fund

N/A 100.0 % 5,314,958 — % —

$ 22,513,061 $ 18,974,743

_______________

(1) This investment was acquired in November 2023.

Three Months Ended March 31,

(1) In June 2024, this joint venture sold its underlying real estate property and distributed proceeds to the members.

The Company’s portion of the distribution was $ 2.6 million.

Notes to Unaudited Consolidated Financial Statements

(2) In May 2024, the Company contributed $ 50,000 to this entity for the purpose of investing in opportunistic equity and debt securities.

This entity is jointly owned with two related parties managed by the Manager.

(3) In June 2024, the Company made a $ 20.0 million capital commitment to this fund that has indirectly invested, together with other non-affiliated entities, in a non-real estate operating company.

As of June 30, 2024, the total amount contributed was $ 5.0 million.

The Company determined it is not a primary beneficiary of the fund and therefore accounts for the investment using the equity method of accounting.

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

2024 2023 2024 2023

Loss from equity investment in the joint ventures $ ( 179,937 ) $ ( 600,546 ) $ ( 1,651,663 ) $ ( 1,341,006 )

Distributions received from the joint ventures $ 2,627,499 $ — $ 2,627,499 $ —

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:

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Net investments in real estate $ 201,367,478 $ 223,039,486

5 unchanged sentences

Members’ capital $ 52,688,205 $ 49,623,535

Three Months Ended March 31,

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

2024 2023 2024 2023

Revenues $ 4,462,447 $ 4,243,689 $ 8,925,318 $ 8,168,268

2 unchanged sentences

Interest expense ( 3,534,694 ) ( 2,595,844 ) ( 6,897,252 ) ( 5,155,798 )

Gain on sale of real estate 4,816,477 — 4,816,477 —

Unrealized loss ( 731,824 ) ( 423,481 ) ( 1,584,077 ) ( 1,249,982 )

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

Net income (loss) $ 253,391 $ ( 2,685,557 ) $ ( 3,926,594 ) $ ( 6,255,737 )

Other Equity Investments

In June 2024, the Company entered into a preferred equity agreement with TCC Boundary Partners LLC.

The investment carries interest at an annual rate of 15.0 % and matures on June 30, 2029.

Additionally, the Company will receive distributions in the event that net proceeds from the sale of underlying property exceed certain internal rate of return thresholds.

Because the Company shares residual profit from the sale of underlying property with the borrower, the Company accounts for the investment using the equity method of accounting.

As of June 30, 2024, the Company's investment had a carrying value of $ 14.7 million.

For both the three and six months ended June 30, 2024, the Company recorded $ 0.1 million in equity income from TCC Boundary Partners LLC and did not receive any distributions.

Real Estate Owned, Net

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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.

Notes to Unaudited Consolidated Financial Statements

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

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

Location Number of

Properties Date of

Acquisition Property Type Total Capitalized

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

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

$ 132,087,234

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

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

Total Capitalized Costs:

Cash and cash equivalents $ 52,313,739

Loans held for investment 68,737,877

Equity investment in unconsolidated investment 10,149,642

Interest receivable 456,650

Other assets 429,326

$ 132,087,234

Net Assets Acquired

Cash and cash equivalents $ 712,608

Other assets 33,802

Land 23,785,004

Buildings and Improvements 104,613,728

Intangible asset and liability:

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

Intangible assets and liabilities:

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

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

( 8,864,137 )

Accounts payable and accrued expenses ( 912,771 )

$ 132,087,234

Notes to Unaudited Consolidated Financial Statements

2 unchanged sentences

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

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

13 unchanged sentences

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

Three Months Ended March 31,

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

2024 2023 2024 2023

Real estate operating revenues:

7 unchanged sentences

Management fees 64,147 86,880 126,401 126,298

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

Lease expense, including amortization of above-

market ground lease — 487,163 — 974,326

Other operating expenses 325,344 426,382 524,594 511,254

Total $ 782,271 $ 1,864,212 $ 1,473,277 $ 3,074,124

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.

The following table presents the amortization of intangibles that is included in the consolidated statements of operations:

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

2024 2023 2024 2023

Net amortization of above- and below-market rent

intangibles (1)

$ ( 703,872 ) $ ( 575,219 ) $ ( 1,528,715 ) $ ( 609,983 )

Amortization of in-place lease intangibles (2)

$ 964,516 $ 935,285 $ 2,299,301 $ 1,208,755

_______________

(1) Net amortization of above- and below-market rent intangibles is recorded as an adjustment to real estate operating revenue on the consolidated statements of operations.

Notes to Unaudited Consolidated Financial Statements

(2) Amortization of in-place lease intangibles is included in depreciation and amortization expense on the consolidated statements of operations.

Supplemental Ground Lease Disclosures

3 unchanged sentences

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

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023 Six Months Ended June 30, 2023

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

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

Three Months Ended March 31, 2023

Six Months Ended June 30, 2023

Amounts included in the measurement of lease liability:

15 unchanged sentences

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.

In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

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

In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair

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.

value measurement.

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

As of June 30, 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, equity securities, secured financing agreements, unsecured notes payable and obligations under participation agreements.

Such financial instruments are carried at cost, less impairment or less net deferred costs, where applicable.

9 unchanged sentences

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

March 31, 2024

June 30, 2024

Fair Value Measurements

3 unchanged sentences

Marketable securities - debt securities 1,129,263 — — 1,129,263

Marketable securities - equity securities 2,361,818 — — 2,361,818

Derivative - interest rate cap (2)

16 unchanged sentences

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

Three Months Ended March 31,

Six Months Ended June 30,

Marketable Securities Derivatives Marketable Securities Derivatives

4 unchanged sentences

into earnings ( 446,009 ) — — —

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

Unrealized gain (loss) on marketable securities and derivatives 164,491 ( 5,311 ) 4,259 22,528

Ending balance $ 1,129,263 $ 78,496 $ 1,203,973 $ 281,028

1 unchanged sentence

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

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

5 unchanged sentences

Total loans 415,281,848 384,352,194 387,478,245 509,460,826 456,472,258 457,339,949

Equity securities (1)

3 2,000,000 2,022,353 2,000,000 — — —

Total assets $ 417,281,848 $ 386,374,547 $ 389,478,245 $ 509,460,826 $ 456,472,258 $ 457,339,949

Unsecured notes payable 1 $ 123,500,000 $ 119,376,974 $ 97,655,250 $ 123,500,000 $ 118,380,897 $ 98,020,050

3 unchanged sentences

Total liabilities $ 405,379,645 $ 398,969,447 $ 377,783,050 $ 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 March 31, 2024 and December 31, 2023 due to their short-term nature.

______________

(1) Amount is included in Other assets on the consolidated balance sheets.

The Company estimated that its other financial assets and liabilities, not included in the tables above, had fair values that approximated their carrying values at both June 30, 2024 and December 31, 2023 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 ).

Notes to Unaudited Consolidated Financial Statements

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

Three Months Ended June 30,

Fair Value Impairment Charges Fair Value Impairment Charges

Impairment Charges

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

$ — $ 11,765,540

Six Months Ended June 30,

Fair Value Impairment Charges Fair Value Impairment Charges

Impairment Charges

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

$ — $ 11,765,540

There were no impairment charges for the three and six months ended June 30, 2024.

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

Real Estate and Intangibles

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

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

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

Valuation Process for Fair Value Measurement

10 unchanged sentences

and the anticipated duration of each real estate-related loan investment.

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.

1 unchanged sentence

Valuations determined by the valuation committee are supported by pertinent data and, in addition to a proprietary valuation model, are based on market data, industry accepted third-party valuation models and discount rates or other methods the valuation committee deems to be appropriate.

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

Because there is

Notes to Unaudited Consolidated Financial Statements

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

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

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

The following tables summarize the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 loans as of June 30, 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 March 31, 2024

Primary Valuation Technique Unobservable Inputs March 31, 2024

Fair Value at June 30, 2024

Primary Valuation Technique Unobservable Inputs June 30, 2024

Asset Category Minimum Maximum Weighted Average

3 unchanged sentences

participation, net 38,821,848 Discounted cash flow Discount rate 15.56 % 18.33 % 17.79 %

Equity securities (2)

2,000,000 N/A N/A N/A N/A N/A

Total Level 3 Assets $ 389,478,245

13 unchanged sentences

_______________

(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.

(1) Amount includes $ 161.7 million and $ 154.6 million of non-performing loans ( Note 3 ) as of June 30, 2024 and December 31, 2023, respectively.

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.

(2) Fair market value is based on purchase price.

Related Party Transactions

4 unchanged sentences

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

Three Months Ended March 31,

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

2024 2023 2024 2023

Origination and extension fee expense (1)

6 unchanged sentences

Total $ 4,852,129 $ 5,982,361 $ 9,754,632 $ 11,869,578

_______________

(1) Origination and extension fee expense is generally offset with origination and extension fee income.

11 unchanged sentences

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

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

As of June 30, 2024 and December 31, 2023, the Company had not received any breakup fees.

Operating Expenses

6 unchanged sentences

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

2 unchanged sentences

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.

During the six months ended June 30, 2024 and 2023, the Company provided funding under the promissory note receivable of $ 5.0 million and $ 0.8 million, respectively, and received repayments of $ 8.5 million and zero , respectively.

As of June 30, 2024 and December 31, 2023, amount outstanding under the promissory note receivable was $ 0.3 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.

As of June 30, 2024 and December 31, 2023, amount due from related parties was $ 0.8 million and $ 0.7 million, primarily related to operational cash requirements the Company paid on behalf of its affiliates.

Promissory Note Payable

On January 24, 2024, the Company, as borrower, entered into a revolving promissory note payable with Terra LLC.

The promissory note payable bears interest at the Prime Rate, as such Prime Rate is published in the Wall Street Journal, computed on the basis of the actual number of days elapsed and a year of 365 days.

The promissory note matures on March 31, 2027.

As of June 30, 2024, amount outstanding under this promissory note payable was $ 34.3 million.

The activity associated with this agreement is eliminated in consolidation and therefore has no impact on the Company’s consolidated financial statements.

Cost Sharing and Reimbursement Agreement

2 unchanged sentences

Distributions Paid

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 ).

For the three months ended June 30, 2024 and 2023, the Company made distributions to investors totaling $ 4.7 million and $ 4.7 million, respectively, all of which were returns of capital.

For the six months ended June 30, 2024 and 2023, the Company made distributions to investors totaling $ 9.3 million and $ 9.3 million, respectively, of which $ 9.3 million and $ 8.8 million were returns of capital, respectively ( Note 10 ).

Due to Manager

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.

As of June 30, 2024 and December 31, 2023, approximately $ 2.0 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

1 unchanged sentence

For more information on this investment, please see Note 4 .

Notes to Unaudited Consolidated Financial Statements

Participation Agreements

8 unchanged sentences

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:

March 31, 2024

June 30, 2024

Participating Interests Principal Balance Carrying Value

16 unchanged sentences

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.

The following table summarizes the investment that was subject to a PA with an investment partnership affiliated with the Manager as of June 30, 2024.

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

March 31, 2024

June 30, 2024

Transfers treated as

5 unchanged sentences

(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.

Notes to Unaudited Consolidated Financial Statements

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).

1 unchanged sentence

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

Unsecured Notes Payable

1 unchanged sentence

Coupon Rate Effective Rate (1)

Maturity Date March 31, 2024 December 31, 2023

Maturity Date June 30, 2024 December 31, 2023

6.00 % Senior Notes Due 2026

20 unchanged sentences

The Company’s unsecured notes payable contain certain financial covenants.

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

As of June 30, 2024, the Company was in compliance with such covenants.

Notes to Unaudited Consolidated Financial Statements

1 unchanged sentence

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

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Current Maturity Extended Maturity Weighted Average Interest Rate (1)

15 unchanged sentences

Revolving line of credit (2)(8)

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

December 2024 September 2025 8.69 % 59,266,539 34,761,111 34,761,111 47,461,730

Term loan (9)

5 unchanged sentences

_______________

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

(1) Amount is calculated using the applicable index rate as of June 30, 2024.

(2) These facilities were used to finance the Company’s senior loan investments.

8 unchanged sentences

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

(8) Interest rate is based on Term SOFR + 3.5 % with a combined floor of 7.0 %.

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.

In June 2024, the Company amended the facility agreement to extend the maturity date of the facility agreement to December 31, 2024, eliminate the ability to make additional revolving borrowings under the facility agreement, decrease the minimum net worth covenant of the Company for future quarterly measurement dates, introduce a minimum liquidity covenant of the Company, establish an interest reserve account and remove the minimum profitability and maximum global leverage covenants of the Company.

(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

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.

The following table presents certain information about the Company’s secured financing arrangements:

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

2024 2023 2024 2023

Amortization of deferred financing costs and others $ 575,236 $ 524,492 $ 1,521,384 $ 1,016,470

Proceeds from secured financing $ 58,246,507 $ 130,951,380

Repayments of secured financing $ ( 84,780,619 ) $ ( 102,713,974 )

Repurchase Agreements

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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.

As of June 30, 2024, the Company was in compliance with all such covenants, as amended or waived.

Scheduled Debt Principal Payments

Scheduled debt principal payments for each of the five calendar years following March 31, 2024 are as follows:

Scheduled debt principal payments for each of the five calendar years following June 30, 2024 are as follows:

Years Ending December 31, Total

2024 (April 1 through December 31)

2024 (July 1 through December 31)

2025 144,782,989

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

As of March 31, 2024, obligations under participation agreements were $ 15.1 million (see “Participation Agreements” in Note 7 ).

As of June 30, 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 20.34 %.

There were no such obligations under participation agreements as of December 31, 2023.

Notes to Unaudited Consolidated Financial Statements

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 $ 30.7 million and $ 35.7 million as of March 31, 2024 and December 31, 2023, respectively.

These fundings amounted to approximately $ 27.8 million and $ 35.7 million as of June 30, 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 March 31, 2024 and December 31, 2023, the unfunded investment commitment was $ 31.5 million and $ 37.4 million, respectively.

As of June 30, 2024 and December 31, 2023, the unfunded investment commitment was $ 23.3 million and $ 37.4 million, respectively.

Additionally, in June 2024, the Company made a $ 20.0 million capital commitment to an entity that will invest, indirectly, together with other non-affiliated entities, in a non-real estate operating company.

As of June 30, 2024, the unfunded commitment was $ 15.0 million.

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

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The following table presents earnings per share:

Three Months Ended March 31,

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

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

2024 2023 2024 2023

Net loss $ ( 7,539,310 ) $ ( 19,237,065 ) $ ( 13,723,284 ) $ ( 18,689,586 )

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

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

Net loss allocable to common stock $ ( 7,539,310 ) $ ( 19,237,065 ) $ ( 13,723,284 ) $ ( 18,693,493 )

Weighted-average shares outstanding - basic

and diluted 24,336,577 24,335,430 24,336,368 24,335,402

Loss per share - basic and diluted $ ( 0.31 ) $ ( 0.79 ) $ ( 0.56 ) $ ( 0.77 )

Preferred Stock Classes

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

As of March 31, 2024, there were no shares of Preferred Stock issued or outstanding.

As of June 30,

Notes to Unaudited Consolidated Financial Statements

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.

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

As of March 31, 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.

As of June 30, 2024, Terra Fund 7 and Terra Offshore REIT held 8.7 % and 10.1 %, respectively, of the issued and outstanding shares of the Company’s common stock.

The Class B Common Stock rank equally with and have identical preferences, rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption as each other share of the Company’s common stock, except as set forth below with respect to conversion.

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

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

There were no such distributions for the three months ended March 31, 2024.

For both the three months ended June 30, 2024 and 2023, the Company made distributions to investors totaling $ 4.7 million, all of which were returns of capital.

For both the six months ended June 30, 2024 and 2023, the Company made distributions to investors totaling $ 9.3 million, of which $ 9.3 million and $ 8.8 million were returns of capital, respectively.

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

There were no such distributions for the three and six months ended June 30, 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 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.

For the six months ended June 30, 2024 and 2023, the Company issued 838 and 143 shares of Class B Common Stock for a total of $ 9,524 and $ 1,988 pursuant to the Plan, respectively.

Subsequent Events

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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.

As of June 30, 2024, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 17 loans in nine states with an aggregate net principal balance of $400.3 million, a weighted average coupon rate of 12.8% and a weighted average remaining term to maturity of 0.9 years.

Each of our loans was originated by Terra Capital Partners or its affiliates.

Our portfolio is diversified based on location of the underlying properties, loan structure and property type.

As of March 31, 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.

As of June 30, 2024, our portfolio included underlying properties located in 17 markets, across nine states and includes property types such as multifamily housing, student housing, commercial offices, medical offices, mixed-use and industrial properties.

The profile of these properties ranges from stabilized and value-added properties to pre-development and construction.

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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 of June 30, 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.

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federal income tax on our net taxable income to the extent that we annually distribute all of our net taxable income to our stockholders.

Recent Developments

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:

March 31, 2024

June 30, 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 5.44%, 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.

Coupon rates shown were determined using LIBOR of 5.45%, average SOFR of 5.34% and Term SOFR of 5.34% as of June 30, 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 June 30, 2024 and December 31, 2023, amount included $302.6 million and $342.9 million of senior mortgages used as collateral for $192.5 million and $204.9 million of borrowings under credit facilities, respectively.

(3) As of June 30, 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, 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.

As of June 30, 2024 and December 31, 2023, the real estate and related lease intangible assets and liabilities had a net carrying value of $127.4 million and $129.8 million, respectively, and the mortgage loans payable encumbering the real estate properties had an outstanding principal amount of $74.4 million and $73.5 million, respectively.

Equity Investments

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.

As of both June 30, 2024 and December 31, 2023, we owned 14.9% 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.

We also beneficially own equity interests in joint ventures that invest in real estate properties, opportunistic debt and equity securities and, indirectly, together with other non-affiliated entities, a non-real estate operating company, as well as a preferred equity investment with residual profit sharing from sale of the underlying property.

These investments are accounted for using the equity method of accounting.

As of June 30, 2024 and December 31, 2023, these equity investments had total carrying value of $70.7 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 March 31, 2024 and December 31, 2023 was $9.47 and $9.93, respectively.

Our book value per share of Class B Stock Common Stock as of June 30, 2024 and December 31, 2023 was $8.98 and $9.93, respectively.

Portfolio Investment Activity

Net Loan Portfolio

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.

For the three months ended June 30, 2024 and 2023, we invested $46.3 million and $7.5 million in new and add-on investments and had $54.6 million and $6.4 million of repayments, resulting in net repayments of $8.3 million and net investments of $1.1 million, respectively.

Amounts are net of obligations under participation agreements and secured financing agreements.

For the six months ended June 30, 2024 and 2023, we invested $57.7 million and $33.2 million in new and add-on investments and had $82.2 million and $46.3 million of repayments, resulting in net repayments of $24.5 million and $13.1 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:

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Loan Structure Principal Balance Carrying

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Total $ 400,281,848 $ 369,207,220 100.0 % $ 509,460,826 $ 456,472,258 100.0 %

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Property Type Principal Balance Carrying

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Office $ 115,976,792 $ 116,315,046 31.5 % $ 144,812,619 $ 144,853,769 31.7 %

Multifamily 67,379,930 67,867,269 16.9 % 85,660,082 86,210,868 18.9 %

Industrial 70,022,380 70,022,380 19.0 % 67,579,869 67,612,621 14.8 %

Mixed-use 48,046,365 48,319,505 12.1 % 63,096,365 63,531,806 13.9 %

Infill land 53,900,000 55,341,248 15.0 % 52,839,509 54,172,663 11.9 %

Multifamily 53,322,162 53,659,242 14.5 % 85,660,082 86,210,868 18.9 %

Hotel - full/select service 43,222,382 43,832,428 11.9 % 43,222,382 43,801,303 9.6 %

Mixed-use 32,838,132 33,087,413 9.0 % 63,096,365 63,531,806 13.9 %

Student housing 31,000,000 31,854,772 8.6 % 31,000,000 31,821,832 7.0 %

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Total $ 400,281,848 $ 369,207,220 100.0 % $ 509,460,826 $ 456,472,258 100.0 %

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Geographic Location Principal Balance Carrying

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Massachusetts 7,000,000 7,000,000 1.9 % 7,000,000 7,000,000 1.5 %

Texas — — — % — — — %

Allowance for credit losses — (34,905,309) (9.5) % — (56,976,025) (12.5) %

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Our results of operations are affected by a number of factors and primarily depend on, among other things, the level of the interest income from targeted assets, the market value of our assets and the supply of, and demand for, real estate-related loans, including mezzanine loans, first mortgage loans, subordinated mortgage loans, preferred equity investments and other loans related to high quality commercial real estate in the United States, and the financing and other costs associated with our business.

Interest income and borrowing costs may vary as a result of changes in interest rates, which could impact the net interest we receive on our assets.

Interest income and borrowing costs may vary as a result of changes in interest rates, which could impact the net

interest we receive on our assets.

Our operating results may also be impacted by conditions in the financial markets and unanticipated credit events experienced by borrowers under our loan assets.

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The following table presents the comparative results of our operations:

Three Months Ended March 31,

2024 2023 Change

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

2024 2023 Change 2024 2023 Change

Interest income $ 8,435,024 $ 15,878,453 $ (7,443,429) $ 20,583,759 $ 31,494,260 $ (10,910,501)

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Operating expenses

Operating expenses reimbursed to Manager 2,178,164 2,177,004 1,160

Operating expenses reimbursed

to Manager 2,332,771 2,120,029 212,742 4,510,935 4,297,033 213,902

Asset management fee 1,619,971 2,105,049 (485,078) 3,335,013 4,102,476 (767,463)

Asset servicing fee 394,995 496,374 (101,379) 801,520 966,899 (165,379)

Provision for (reversal of provision for) credit losses 1,873,111 (850,051) 2,723,162

Provision for credit losses 2,576,325 4,652,644 (2,076,319) 4,449,436 3,802,593 646,843

Real estate operating expenses 782,271 1,864,212 (1,081,941) 1,473,277 3,074,124 (1,600,847)

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Other 100,594 188,631 (88,037) 363,505 403,875 (40,370)

Impairment charge — 11,765,540 (11,765,540) — 11,765,540 (11,765,540)

10,471,686 25,820,320 (15,348,634) 20,684,446 32,798,553 (12,114,107)

Operating income 4,796,585 10,023,938 (5,227,353)

Operating income (loss) 701,834 (7,037,865) 7,739,699 5,498,419 2,986,073 2,512,346

Other income and expenses

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)

Interest expense on secured

financing (6,580,840) (7,483,284) 902,444 (13,870,752) (13,603,015) (267,737)

Interest expense on unsecured

notes payable (2,452,577) (2,405,267) (47,310) (4,892,952) (4,799,573) (93,379)

Interest expense on obligations

under participation

agreements (770,648) (576,915) (193,733) (1,389,143) (1,109,061) (280,082)

Unrealized gain on

investments, net 201,501 51,224 150,277 178,570 57,808 120,762

Income (loss) from equity

investment in unconsolidated

investments 1,671,970 (1,759,934) 3,431,904 1,198,583 (2,196,794) 3,395,377

Realized loss on investments,

net (310,550) (25,024) (285,526) (446,009) (25,024) (420,985)

(8,241,144) (12,199,200) 3,958,056 (19,221,703) (21,675,659) 2,453,956

Net (loss) income $ (6,183,974) $ 547,479 $ (6,731,453)

Net loss $ (7,539,310) $ (19,237,065) $ 11,697,755 $ (13,723,284) $ (18,689,586) $ 4,966,302

Net Loan Portfolio

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The following table presents a reconciliation of our loan portfolio on a weighted average basis from gross to net :

Three Months Ended March 31, 2024 Three Months Ended March 31, 2023

Three Months Ended June 30, 2024 Three Months Ended June 30, 2023

Weighted Average Principal Amount (1)

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$ 92,898,816 13.0 % $ 112,193,275 14.0 %

Six Months Ended June 30, 2024 Six Months Ended June 30, 2023

Weighted Average Principal Amount (1)

Weighted Average Coupon Rate (2)

Weighted Average Principal Amount (1)

Weighted Average Coupon Rate (2)

Total portfolio

Gross loans $ 473,466,860 13.1 % $ 620,485,639 12.3 %

Obligations under participation agreements (13,516,484) 18.3 % (13,181,738) 17.1 %

Promissory notes payable (73,572,677) 10.9 % — — %

Repurchase agreements payable (77,498,307) 8.6 % (157,207,602) 7.0 %

Revolving line of credit payable (40,821,119) 8.7 % (107,111,725) 8.5 %

Net loans (3)

$ 268,058,273 15.4 % $ 342,984,574 15.7 %

Gross loans $ 365,553,392 12.9 % $ 489,904,811 11.7 %

Promissory notes payable (73,572,677) 10.9 % — — %

Repurchase agreements payable (77,498,307) 8.6 % (157,207,602) 7.0 %

Revolving line of credit payable (40,821,119) 8.7 % (107,111,725) 8.5 %

Net loans (3)

$ 173,661,289 16.7 % $ 225,585,484 16.5 %

Subordinated loans (4)

Gross loans $ 107,913,468 14.0 % $ 130,580,828 14.3 %

Obligations under participation agreements (13,516,484) 18.3 % (13,181,738) 17.1 %

Net loans (3)

$ 94,396,984 13.4 % $ 117,399,090 14.0 %

_______________

(1) Amount is calculated based on the number of days each loan is outstanding.

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Interest Income

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.

For the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023, interest income decreased by $7.4 million and $10.9 million, respectively primarily due to a decrease in contractual interest income as a result of a decrease in the weighted average principal balance of performing loans as well as an increase in suspended interest income accrual on non-performing loans of $3.0 million and $5.4 million, respectively, 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 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 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.

For the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, real estate operating revenue decreased by $0.1 million, primarily due to a reduction in lease revenue resulting from the disposal of the office building in October 2023, substantially offset by an increase in lease revenue contributed by the five industrial buildings acquired in May 2023.

For the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, real estate operating revenue increased by $1.3 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.

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 both the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023, operating expenses reimbursed to our Manager increased by $0.2 million, primarily due to an increase in our Manager’s overhead costs.

Asset Management Fee

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

For the three months ended March 31, 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.

For the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023, asset management fees decreased by $0.5 million and $0.8 million, respectively, 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 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.

For the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023, asset servicing fees decreased by $0.1 million and $0.2 million, respectively, primarily due to a decrease in total assets under management resulting from the repayment of loans.

Provision for Credit Losses

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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.

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.

For the three and six months ended June 30, 2024, provision for credit losses was $2.6 million and $4.4 million, respectively, 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 and six months ended June 30, 2023, provision for credit losses was $4.7 million and $3.8 million, respectively, primarily due to a decline in the fair value of the collateral on a loan.

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.

For the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023, real estate operating expenses decreased by $1.1 million and $1.6 million, respectively, 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 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.

For the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, depreciation and amortization decreased by $0.01 million, primarily due to the disposal of the office building in October 2023, substantially offset by an increase in depreciation and amortization related to 5 industrial buildings that we acquired in May 2023.

For the six months ended June 30, 2024 as compared to the six months ended June 30, 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.

Impairment Charge

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

There was no impairment charge recorded for the three and six months ended June 30, 2024.

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.

For the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, interest expense on secured financing decreased by $0.9 million as a result of a decrease in the weighted average principal amount outstanding, partially offset by an increase in the index rate on secured financing agreements.

For the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, interest expense on secured financing increased by $0.3 million as a result of an increase in the index rate on secured financing agreements, partially offset by a decrease in the weighted average principal amount outstanding.

Interest Expense on Unsecured Notes Payable

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In connection with the BDC Merger, we assumed $38.4 million in aggregate principal amount of 7.00% notes due in 2026.

For the three 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.

For the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 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 six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023, interest expense from obligations under participation agreements increased by $0.2 million and $0.3 million, respectively, primarily as a result of an increase in the weighted average interest rate on the outstanding obligations under participation agreements as well as an increase in the weighted average principal amount outstanding.

Unrealized Gain on Investments, Net

For the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023, unrealized gain on investments, net increased by $0.2 million and $0.1 million, respectively, primarily due to an increase in the fair value of our marketable securities at period end.

Income (Loss) from Equity Investment in Unconsolidated Investments

As of both June 30, 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 joint ventures that invest in real estate properties, opportunistic debt and equity securities and, indirectly, together with other non-affiliated entities, a non-real estate operating company, and a preferred equity investment with residual profit-sharing.

Our income (loss) from equity investment in unconsolidated investments are as follows:

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

2024 2023 2024 2023

Income (loss) from equity investment in RESOF $ 1,775,929 $ (1,159,388) $ 2,774,268 $ (855,788)

Loss from equity investment in the joint ventures (179,937) (600,546) (1,651,663) (1,341,006)

Income from other equity investments 75,978 — 75,978 —

$ 1,671,970 $ (1,759,934) $ 1,198,583 $ (2,196,794)

For the three and six months ended June 30, 2024, we recognized equity income from RESOF as RESOF continues to invest its capital and generate positive income.

For the three and six months ended June 30, 2023, we recognized equity loss from RESOF primarily due to adjustments made to equity income as a result of the dilution of our ownership interest in RESOF as new investors were admitted in 2022 and 2023.

For the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, equity loss from the joint ventures decreased primarily due to a gain on sale of a real estate property, partially offset by an increase in depreciation and amortization and interest expense recognized by the joint ventures.

For the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, equity loss from the joint ventures increased primarily due to an increase in depreciation and amortization and interest expense recognized by the joint ventures, partially offset by a gain on sale of a real estate property.

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.

For the three and six months ended June 30, 2024, we sold a portion of our investments in marketable equity securities and recognized a net loss on sale of $0.3 million and $0.4 million, respectively.

For both the three and six months ended June 30, 2023, our held-to-maturity debt securities that we purchased at a premium was redeemed at par and we recognized a net loss investment of $0.03 million.

For the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023, the resulting net loss decreased by $11.7 million and $5.0 million, respectively.

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.

We expect to fund approximately $21.8 million of the unfunded commitments to borrowers during the next twelve months.

We expect to fund approximately $19.1 million of the unfunded commitments to borrowers as well as $15.0 million of the unfunded commitment on a subscription agreement during the next twelve months.

We expect to maintain sufficient liquidity to fund such commitments through matching these commitments with principal repayments on outstanding loans or draw downs on our credit facilities.

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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.

Our revolving line of credit with outstanding principal balance of $34.8 million is to come due on December 31, 2024 and our Goldman Sachs Bank repurchase agreement with outstanding principal balance of $76.3 million is to come due on February 18, 2025.

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.

Additionally, two promissory notes payable with a total outstanding principal balance of $68.5 million that is collateralized by senior loans with aggregate principal balance of $113.9 million will mature within the next twelve months.

We expect to use proceeds from the repayment of the underlying loans to repay the promissory notes payable.

Summary of Financing

The table below summarizes our debt financing as of March 31, 2024:

The table below summarizes our debt financing as of June 30, 2024:

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

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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

credit $ 34,761,111 34,761,111 $ — Term SOFR + 3.5% (combined floor rate of 7.0%) December 2024

Goldman Sachs Bank

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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.

For the six months ended June 30, 2024, cash flows used in operating activities was $7.3 million, compared to cash flow from operating activities of $12.0 million for the six months ended June 30, 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 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.

For the six months ended June 30, 2024, cash flows provided by investing activities were $39.4 million, primarily related to proceeds from repayment of loans of $110.4 million and promissory note receivable of $9.0 million, partially offset by origination and purchase of loans of $42.6 million and purchase of equity interests in unconsolidated investments of $36.6 million.

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

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.

For the six months ended June 30, 2024, cash flows used in financing activities were $21.2 million, primarily related to principal repayments on secured financing of $84.8 million, distributions paid of $9.3 million and payment for financing costs of $1.1 million, partially offset by proceeds from secured financing of $58.2 million and proceeds from obligations under participation agreements of $15.0 million.

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

Distribution Reinvestment Plan

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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”).

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.

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.

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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 have chosen to incorporate a weighted average macroeconomic forecast that encompasses baseline, upside and downside 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.

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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.

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.

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The following table presents a summary of fees paid and costs reimbursed to our Manager in connection with providing services to us:

Three Months Ended March 31,

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

2024 2023 2024 2023

Origination and extension fee expense (1)

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(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.

Promissory Note Payable with Terra LLC

On January 24, 2024, we, as borrower, entered into a revolving promissory note payable with Terra LLC.

The promissory note matures on March 31, 2027.

As of June 30, 2024, amount outstanding under the promissory note payable was $34.3 million.

The activity associated with this agreement is eliminated in consolidation and therefore has no impact on our consolidated financial statements.

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.

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.

As of June 30, 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 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.

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

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

For the three and six months ended June 30, 2024, the weighted average outstanding principal balance on obligations under participation agreements was approximately $15.0 million and $13.5 million, respectively, and the weighted average interest rate was approximately 20.3% and 18.3%, respectively.

For the three and six months ended June 30, 2023, the weighted average outstanding principal balance on obligations under participation agreements of approximately $13.5 million and $13.2 million, respectively, and the weighted average interest rate was approximately 17.1 and 17.1%, respectively.

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