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Item 5. Market for Registrant’s Common Equity

2025-03-14 compared with 2024-03-15 · 127 added, 153 removed, 331 unchanged (46% of the section changed)

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

As of December 31, 2023, our portfolio included underlying properties located in 21 markets, across nine states and includes property types such as multifamily housing, student housing, commercial offices, medical offices, mixed-use, industrial and infrastructure properties.

As of December 31, 2024, our portfolio included underlying properties located in 13 markets, across nine states and includes property types such as multifamily housing, student housing, commercial offices, medical offices, mixed-use and infill properties.

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

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Through December 31, 2015, our business was conducted through a series of predecessor private partnerships.

At the beginning of 2016, we completed the merger of these private partnerships into a single entity as part of our plan to reorganize our business as a REIT for federal income tax purposes.

At the beginning of 2016, we completed the

merger of these private partnerships into a single entity as part of our plan to reorganize our business as a REIT for federal income tax purposes.

Following the REIT Formation Transaction, Terra Fund 5 contributed the consolidated portfolio of net assets of certain Terra Funds to our company in exchange for all of the shares of our common stock.

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

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

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

Pursuant to the terms of the transactions described in the Merger Agreement, approximately 4,847,910 shares of our Class B Common Stock, $0.01 par value per share ("Class B Common Stock"), were issued to former Terra BDC stockholders in connection with the BDC Merger, based on the number of outstanding shares of Terra BDC Common Stock as of October 1, 2022.

As of December 31, 2024, Terra Fund 7 and Terra Offshore REIT held approximately 8.7% and 10.1%, respectively, of our issued and outstanding Class B Common Stock.

As previously disclosed, we continue to explore alternative liquidity transactions on an opportunistic basis to maximize stockholder value.

Examples of the alternative liquidity transactions that, depending on market conditions, may be available to us include a listing of our shares of common stock on a national securities exchange, adoption of a share repurchase plan, a liquidation of our assets, a sale of our company or a strategic business combination, in each case, which may include the further in-kind distribution of our shares of common stock indirectly owned by certain of our affiliate funds to the ultimate investors in such affiliate funds.

We cannot provide any assurance that any alternative liquidity transaction will be available or, if available, that we will pursue or be successful in completing any such alternative liquidity transaction.

One of the potential future liquidity transactions that we continue to evaluate is a “direct listing” of its Class A Common Stock, $0.01 par value per share (“Class A Common Stock”), on a national securities exchange (i.e., a listing not involving a concurrent public offering of newly issued shares).

If market conditions are not supportive of a direct listing that would in our view lead to a constructive trading environment for the Class A Common Stock, we will explore alternative paths to pursue our investment strategy and provide liquidity to our investors, including converting our company into a traditional “non-traded REIT.” As part of a potential conversion to a non-traded REIT, we would adopt a customary share repurchase plan pursuant to which our investors could request to have their shares of its common stock redeemed for cash.

We have elected to be taxed as a REIT for U.S.

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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

Merger Agreements

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

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

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

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

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

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

Distribution of Class B Common Stock by Terra Fund 5

Prior to undertaking the REIT Formation Transaction, the Terra Funds distributed a consent solicitation memorandum disclosing the details of the proposed transactions and received the requisite consent of investors in each of the Terra Funds to engage in the REIT Formation Transaction.

The consent solicitation memorandum disclosed that Terra Fund 5 could in the future make a distribution-in-kind to its members of shares of our company, rather than a cash distribution.

The limited liability company agreement of Terra Fund 5 provides that the term of Terra Fund 5 expires on December 31, 2023.

On December 20, 2023, Terra Fund 5 announced that effective December 29, 2023, Terra Fund 5 would distribute all its shares of Class B Common Stock to its members as part of the winding up of Terra Fund 5.

On the Distribution Date, each member of Terra Fund 5 received 2,252.02 shares of Class B Common Stock for each unit of membership interest in Terra Fund 5 held by such member.

Because Terra Fund 5 previously owned its interests in the shares of Class B Common Stock indirectly through its ownership of interests in Terra JV, prior to the Distribution Date, Terra JV first distributed the shares of Class B Common Stock to Terra Fund 5, and Terra Fund 5 then distributed those shares to its members on the Distribution Date.

On February 8, 2024, each of Terra Fund 5 and Terra JV were dissolved.

Portfolio Summary

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Weighted average coupon rate (4)

8.50 % 13.18 % 13.04 % 19.53 % 12.52 %

Weighted-average remaining term (years) (5)

2.68 0.84 0.91 0.10 0.99

December 31, 2023

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Weighted average coupon rate (4)

13.03 % 13.05 % 13.05 % — % 13.05 %

Weighted-average remaining term (years) (5)

1.18 0.70 0.77 — 0.77

(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 5.47%, average SOFR of 5.34% and Term SOFR of 5.35% as of December 31, 2023, and LIBOR of 4.39%, average SOFR of 4.06% and Term SOFR of 4.36% as of December 31, 2022.

_______________

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

Coupon rates shown were determined using average SOFR of 4.53% and Term SOFR of 4.33% as of December 31, 2024, and average SOFR of 5.34% and Term SOFR of 5.35% as of December 31, 2023.

(2) As of December 31, 2024 and 2023, amount included $208.0 million and $342.9 million of senior mortgages used as collateral for $123.2 million and $204.9 million of borrowings under credit facilities, respectively.

(3) As of December 31, 2023 and 2022, 14 and 21 loans, respectively, are subject to a LIBOR, SOFR, or Term SOFR floor, as applicable.

(3) As of December 31, 2024 and 2023, 10 and 14 loans, respectively, are subject to a SOFR, or Term SOFR floor, as applicable.

(4) Excludes nonperforming loans for which recovery of interest income was not probable.

(5) Represents current effective maturity as of December 31, 2024 and 2023, exclusive of any extension options available.

Real Estate Ownership

In addition to our net loan portfolio, as of December 31, 2023, through two investments, we owned eight industrial buildings acquired in 2023;

and as of December 31, 2022, we owned a multi-tenant office building acquired pursuant to a foreclosure.

In addition to our net loan portfolio, we own eight industrial buildings.

As of December 31, 2024 and 2023, the real estate and related lease intangible assets and liabilities had a net carrying value of $125.3 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 December 31, 2023 and 2022, we owned 14.9% and 27.9%, respectively, of equity interest in a limited partnership that invests primarily in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets.

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

In 2022, in connection with a $10.0 million mezzanine loan we originated, we entered into a residual profit sharing arrangement with the borrower.

We accounted for this arrangement as an equity investment.

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

In November 2023, in connection with a loan restructuring, we contributed $5.0 million to another joint venture that owns a real estate property.

We account for our equity interest in the joint ventures as equity method investments because we do not have a

controlling financial interest in the entities.

As of both December 31, 2024 and 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, non-real estate operating companies, 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 December 31, 2024 and 2023, these equity investments had total carrying value of $106.8 million and $37.2 million, respectively.

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Net Loan Portfolio

For the years ended December 31, 2023 and 2022, we invested $19.2 million and $126.9 million in new and add-on investments and had $10.3 million and $33.3 million of repayments, resulting in net investments of $8.9 million and $93.6 million, respectively.

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

Real Estate Ownership

For the year ended December 31, 2023, we made two investments for eight industrial buildings for a total capital cost of $132.1 million.

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

For the years ended December 31, 2024 and 2023, we invested $95.8 million and $37.1 million in new and add-on investments and had $112.7 million and $29.8 million of repayments, resulting in net repayments of $16.9 million and net investments of $7.3 million, respectively.

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

Net Loan Portfolio Information

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Mezzanine loans 15,044,732 15,038,010 5.9 % 17,444,357 17,245,527 3.8 %

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

Allowance for credit losses — (56,976,025) (12.5) % — (25,471,890) (4.1) %

Total $ 299,255,023 $ 256,472,038 100.0 % $ 509,460,826 $ 456,472,258 100.0 %

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Office $ 116,539,650 $ 72,991,791 28.4 % $ 144,812,619 $ 106,462,535 23.3 %

Infill land 56,307,815 57,050,952 22.2 % 52,839,509 54,024,545 11.8 %

Multifamily 60,969,051 60,662,514 23.7 % 85,660,082 84,417,184 18.5 %

Industrial 67,579,869 67,612,621 14.8 % 147,796,164 148,891,742 24.3 %

Mixed-use 30,438,507 29,890,548 11.7 % 63,096,365 47,362,653 10.4 %

Infill land 52,839,509 54,172,663 11.9 % 48,860,291 49,565,437 8.1 %

Hotel - full/select service 43,222,382 43,801,303 9.6 % 43,222,382 43,758,804 7.1 %

Student housing 28,000,000 28,910,000 11.3 % 31,000,000 31,758,493 7.0 %

Industrial 7,000,000 6,966,233 2.7 % 67,579,869 67,543,553 14.8 %

Hotel - full/select service — — — % 43,222,382 43,460,206 9.5 %

Infrastructure — — — % 21,250,000 21,443,089 4.7 %

Allowance for credit losses — (56,976,025) (12.5) % — (25,471,890) (4.1) %

Total $ 299,255,023 $ 256,472,038 100.0 % $ 509,460,826 $ 456,472,258 100.0 %

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California $ 53,006,023 $ 53,096,008 20.6 % $ 119,093,246 $ 117,955,109 25.9 %

Arizona 33,407,815 33,005,952 12.9 % 31,000,000 31,151,623 6.8 %

New York 75,657,255 31,536,808 12.3 % 90,483,672 49,041,668 10.7 %

New Jersey 82,419,378 83,489,049 18.3 % 62,228,622 62,958,482 10.3 %

Georgia 30,562,858 30,586,450 11.9 % 74,335,828 62,564,770 13.8 %

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Washington 26,894,593 26,907,157 10.5 % 34,052,223 33,908,737 7.4 %

Arizona 31,000,000 31,296,235 6.9 % 31,000,000 31,276,468 5.1 %

New Jersey 22,900,000 24,045,000 9.4 % 82,419,378 83,485,543 18.3 %

North Carolina 21,826,479 21,418,430 8.4 % 21,826,479 21,140,026 4.6 %

Massachusetts 7,000,000 6,966,233 2.7 % 7,000,000 6,930,932 1.5 %

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

Allowance for credit losses — (56,976,025) (12.5) % — (25,471,890) (4.1) %

Total $ 299,255,023 $ 256,472,038 100.0 % $ 509,460,826 $ 456,472,258 100.0 %

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local real estate conditions;

changes or continued weakness in specific industry segments;

changes or continued weakness in specific

industry segments;

construction quality, age and design;

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Depreciation and amortization 7,357,295 6,968,985 388,310

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

Professional fees 3,012,046 3,741,720 (729,674)

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Other 558,638 539,957 18,681

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

45,751,554 92,398,284 (46,646,730)

Operating (loss) income (24,484,250) 10,829,221 (35,313,471)

Operating income (loss) 3,937,940 (24,484,250) 28,422,190

Other income and expenses

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Interest expense on obligations under participation agreements (2,971,924) (1,353,006) (1,618,918)

Gain on extinguishment of participation liability 14,079,379 3,435,902 10,643,477

Unrealized losses on investments, net (316,573) (122,299) (194,274)

(Loss) income from equity investment in unconsolidated investments (2,383,938) 2,731,477 (5,115,415)

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

Unrealized gain (loss) on investments, net 100,149 (316,573) 416,722

Income (loss) from equity interest in unconsolidated investments 2,738,410 (2,383,938) 5,122,348

Loss on repayment of loan (5,629,510) — (5,629,510)

Loss on disposal of real estate — (4,211,153) 4,211,153

Realized (losses) gains on investments, net (459,279) 83,411 (542,690)

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

Realized loss on investments, net (446,009) (459,279) 13,270

(41,097,895) (32,401,789) (8,696,106)

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Net Loan Portfolio

In assessing the performance of our loans, we believe it is appropriate to evaluate the loans on an economic basis, that is, gross loans net of obligations under participation agreements, notes payable, term loan payable, revolving credit facility and repurchase agreements payable.

In assessing the performance of our loans, we believe it is appropriate to evaluate the loans on an economic basis, that is, gross loans net of obligations under participation agreements, promissory notes payable, revolving credit facility, secured borrowing and repurchase agreements payable.

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

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Obligations under participation agreements (14,450,820) 18.6 % (9,987,566) 17.4 %

and secured borrowing (9,987,566) 17.4 % (59,931,021) 12.1 %

Secured borrowing (2,311,475) 9.9 % — — %

Promissory notes payable (66,170,732) 9.8 % (13,002,573) 10.7 %

Repurchase agreements payable (69,518,266) 8.1 % (134,030,835) 8.3 %

Term loan payable — — % (10,303,678) 5.3 %

Revolving line of credit payable (35,411,716) 7.7 % (87,114,331) 8.7 %

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Obligations under participation agreements — — % (9,987,566) 17.4 %

and secured borrowing (9,987,566) 17.4 % (24,800,580) 8.1 %

Secured borrowing (2,311,475) 9.9 % — — %

Promissory notes payable (66,170,732) 9.8 % (13,002,573) 10.7 %

Repurchase agreements payable (69,518,266) 8.1 % (134,030,835) 8.3 %

Term loan payable — — % (10,303,678) 5.3 %

Revolving line of credit payable (35,411,716) 7.7 % (87,114,331) 8.7 %

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Interest Income

For the year ended December 31, 2023 as compared to the year ended December 31, 2022, interest income increased by $13.5 million, primarily due to an increase in contractual interest income as a result of an increase in the weighted average principal balance of gross loans due to loans originated in 2022 and loans we acquired in connection with the BDC Merger, as well as an increase in the weighted average coupon rate due to increases in the underlying index rates.

For the year ended December 31, 2024 as compared to the year ended December 31, 2023, interest income decreased by $17.9 million, 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.

Real Estate Operating Revenue

For the year ended December 31, 2023 as compared to the year ended December 31, 2022, real estate operating revenue decreased by $0.4 million, primarily due to lease termination income recognized in 2022 (there was no such lease termination income recognized in 2023), partially offset by rental income contributed by the industrial buildings acquired in 2023.

For the year ended December 31, 2024 as compared to the year ended December 31, 2023, real estate operating revenue decreased by $0.3 million, primarily due to a reduction in lease revenue resulting from the disposal of the office building in October 2023, partially offset by an increase in lease revenue contributed by the five industrial buildings acquired in May 2023.

Prepayment Fee Income

For the year ended December 31, 2023, there was no early repayment of loans and we did not recognize any prepayment fee income.

For the year ended December 31, 2022, we recognized prepayment fee income of $2.0 million on loans with minimum yield provisions repaid before maturity.

For the year ended December 31, 2024 prepayment fee income was $0.4 million, related to the early repayment of one of our loans.

There was no such prepayment fee income for the year ended December 31, 2023.

Other Operating Income

For the year ended December 31, 2023 as compared to the year ended December 31, 2022, 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 year ended December 31, 2024 as compared to the year ended December 31, 2023, other operating income decreased by $0.5 million, primarily due to a decline in dividend income earned on our marketable securities.

Operating Expenses Reimbursed to Manager

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

For the year ended December 31, 2023 as compared to the year ended December 31, 2022, operating expenses reimbursed to our Manager increased by $1.2 million, primarily due to an increase in the allocation ratio resulting from an increase in total assets under management primarily due to loans acquired in connection with the BDC Merger.

For the year ended December 31, 2024 as compared to the year ended December 31, 2023, operating expenses reimbursed to our Manager decreased by $1.8 million, primarily due to a decrease in the allocation ratio as a result of a decrease in our total funds under management.

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 year ended December 31, 2023 as compared to the year ended December 31, 2022, asset management fees increased by $1.3 million, primarily due to an increase in total assets under management primarily resulting from loans acquired in connection with the BDC Merger.

For the year ended December 31, 2024 as compared to the year ended December 31, 2023, asset management fees decreased by $1.6 million, primarily due to a decrease in total assets under management 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 year ended December 31, 2023 as compared to the year ended December 31, 2022, asset servicing fees increased by $0.3 million, primarily due to an increase in total assets under management resulting from loans acquired in connection with the BDC Merger.

For the year ended December 31, 2024 as compared to the year ended December 31, 2023, asset servicing fees decreased by $0.4 million, primarily due to a decrease in total assets under management resulting from the repayment of loans.

Provision for Credit Losses

On January 1, 2023, we adopted the provisions of ASU 2016-13, which requires entities to recognize credit losses on financial instruments based on an estimate of current expected credit losses.

Prior to the adoption of ASU 2016-13, we recorded an allowance for credit losses equal to (i) 1.5% of the aggregate carrying amount of loans rated as a “4”, plus (ii) 5% of the aggregate carrying amount of loans rated as a “5”, plus (iii) past due loan reserves, if any.

For the year ended December 31, 2023, provision for credit losses increased by $33.7 million, primarily related to the decline in fair value of collateral underlying three loans in the investment portfolio due to a decline in the macroeconomic outlook for commercial real estate.

On January 1, 2023, we adopted the provisions of Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326):

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

For the year ended December 31, 2024, provision for credit losses was $16.6 million, primarily related to a decline in our estimated recoverable amount on a non-performing subordinated loan due to an increase in senior funding.

For the year ended December 31, 2023, provision for credit losses was $45.5 million, primarily related to the decline in our estimated recoverable amount on three non-performing loans in the investment portfolio due to a decline in the macroeconomic outlook for commercial real estate.

Real Estate Operating Expenses

For the year ended December 31, 2023 as compared to the year ended December 31, 2022, real estate operating expenses increased by $0.4 million, primarily due to expenses incurred on the industrial buildings that we acquired in 2023, partially offset by a reduction in expenses due to the disposal of the office building in October 2023 and a real estate tax refund related to the overpayment of real estate tax in the prior year.

For the year ended December 31, 2024 as compared to the year ended December 31, 2023, real estate operating expenses decreased by $1.9 million, primarily due to the disposal of the office building in October 2023 which resulted in a reduction in rent expense of $1.5 million.

Depreciation and Amortization

For the year ended December 31, 2023 as compared to the year ended December 31, 2022, depreciation and amortization increased by $0.4 million, primarily due to the industrial buildings that we acquired in 2023, partially offset by a reduction in depreciation and amortization due to the disposal of the office building in October 2023.

For the year ended December 31, 2024 as compared to the year ended December 31, 2023, depreciation and amortization increased by $0.4 million, primarily due to the five industrial buildings that we acquired in May 2023, partially offset by a reduction in depreciation and amortization related to the disposal of the office building in October 2023.

Professional Fees

For the year ended December 31, 2024 as compared to the year ended December 31, 2023, professional fees decreased by $0.7 million, primarily due to legal fees incurred in connection with a review of strategic alternatives for our company in 2023.

Impairment Charge

For the year ended December 31, 2023, we recognized an impairment charge of $11.8 million on the multi-tenant office building located in California in order to reduce the carrying value of the building to its estimated fair value.

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

For the year ended December 31, 2022, we recognized an impairment charge of $1.6 million, on 4.9 acres of the development land located in Pennsylvania in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost of sale.

The development land was sold in the second quarter of 2022.

Directors’ Fees

For the year ended December 31, 2023 as compared to the year ended December 31, 2022, directors’ fees increased by $0.2 million, as a result of an increase in the size of our Board due to the BDC Merger.

For the year ended December 31, 2023 as compared to the year ended December 31, 2022, other expenses decreased by $0.2 million, primarily as a result of a fee paid in 2022 to a third-party in connection with the sale of a parcel of land in June 2022.

There was no impairment charge for the year ended December 31, 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 year ended December 31, 2023 as compared to the year ended December 31, 2022, interest expense on secured financing increased by $13.3 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 year ended December 31, 2024 as compared to the year ended December 31, 2023, interest expense on secured financing decreased by $3.1 million, as a result of a decrease in the weighted average principal amount outstanding as well as a decrease in the index rate on secured financing agreements.

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 year ended December 31, 2023 as compared to the year ended December 31, 2022, interest expense on unsecured notes payable increased by $3.0 million, as a result of an increase in the weighted average principal amount outstanding due to the assumption of unsecured notes payable in connection with the BDC Merger.

For the year ended December 31, 2024 as compared to the year ended December 31, 2023, interest expense on unsecured notes payable increased by $0.2 million, primarily due to an increase in the amortization of financing costs using the effective interest rate method.

Interest from Obligations under Participation Agreements

For the year ended December 31, 2023 as compared to the year ended December 31, 2022, interest expense from obligations under participation agreements decreased by $1.8 million, as a result of a decrease in the weighted average principal amount outstanding, primarily due to the release of obligations under participation agreements with Terra BDC in connection with the BDC Merger, partially offset by an increase in the index rate on the outstanding obligations under participation agreements.

Gain on Extinguishment of Participation Liability

In September 2023, the counterparty to a participation agreement conveyed its interest in the obligation under participation agreement to us and we recognized a gain on extinguishment of participation liability of $10.6 million for the year ended December 31, 2023.

In connection with the BDC Merger, the obligations under participation agreements with Terra BDC totaling $37.0 million were effectively extinguished and we recognized a net gain of $3.4 million for the year ended December 31, 2022, representing the difference between the carrying value of the Company’s obligations under participation agreements and the fair value of Terra BDC’s investments acquired through participation agreements.

Unrealized Losses on Investments, Net

For the year ended December 31, 2023, as compared to the year ended December 31, 2022, unrealized losses on investments, net increased by $0.2 million, primarily due to a decrease in the fair value of our marketable securities at period end.

(Loss) Income from Equity Investment in Unconsolidated Investments

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

RESOF’s primary investment objective is to generate attractive risk-adjusted returns by purchasing performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets.

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

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

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

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

We account for this arrangement as an equity investment.

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

In November 2023, we contributed $5.0 million to a joint venture that owns a real estate property.

We account for our equity interest in the joint ventures as equity method investments because we do not have a controlling financial interest in the entities.

For the year ended December 31, 2023, we recognized loss from equity investment in unconsolidated investments of $2.4 million, which consisted of net equity loss from the joint ventures and the mezzanine loan of $3.5 million, partially offset by equity income from RESOF of $1.1 million.

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

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

For the year ended December 31, 2022, we recognized income from equity investment in unconsolidated investments of $2.7 million, which consisted of equity income from RESOF of $5.2 million, partially offset by equity loss from the joint ventures of $2.5 million.

Gain on Sale of Interests in Unconsolidated Investments

In September 2022, we sold a 53% effective interest in two joint ventures and 59% effective interest in another joint venture for a total of $33.7 million and recognized a gain on sale of $0.8 million for the year ended December 31, 2022.

There was no such gain for the year ended December 31, 2023.

For the year ended December 31, 2024 as compared to the year ended December 31, 2023, interest expense from obligations under participation agreements increased by $1.6 million, primarily as a result of an increase in the weighted average principal amount outstanding as well as an increase in the weighted average interest rate on the obligations under participation agreements.

Unrealized Gain (Loss) on Investments, Net

For the year ended December 31, 2024, we recognized an unrealized gain on investment of $0.1 million, compared to an unrealized loss on investment of $0.3 million for the year ended December 31, 2023, primarily due to an increase in the fair value of our marketable securities as of December 31, 2024.

Income (Loss) from Equity Interest in Unconsolidated Investments

As of both December 31, 2024 and December 31, 2023, we owned a 14.9% equity interest in RESOF, an affiliated 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, non-real estate operating companies, and a preferred equity investment with residual profit-sharing.

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

Years Ended December 31,

Income from equity interest in RESOF $ 6,977,386 $ 1,125,790

Loss from equity interest in the joint ventures (5,483,997) (3,509,728)

Income from other equity investment 1,245,021 —

$ 2,738,410 $ (2,383,938)

For the year ended December 31, 2024 as compared to the year ended December 31, 2023, equity income from RESOF increased as a result of an increase in RESOF’s net income associated with increased investments.

For the year ended December 31, 2024 as compared to the year ended December 31, 2023, equity loss from the joint ventures increased primarily due to an increase in operating expenses, depreciation and amortization, and interest expense recognized by the joint ventures, partially offset by an increase in revenues and a gain on sale of real estate recognized by the joint ventures.

Other equity investment relates to a preferred equity agreement in which we also share residual profit from the sale of underlying property with the borrower.

There was no such investment during the year ended December 31, 2023.

Loss on Repayment of Loan

In August 2024, a $65.0 million senior loan was repaid, resulting in a loss on repayment of $5.6 million for the year ended December 31, 2024, which included the write-off of interest receivable of $4.8 million.

There was no such loss for the year ended December 31, 2023.

Loss on Disposal of Real Estate

In October 2023, we conveyed our interest in an office building to the lender by deed in lieu of foreclosure and recognized a net loss on disposal of real estate of $4.2 million for the year ended December 31, 2023.

In June 2022, we sold 4.9 acres of adjacent land located in Pennsylvania for net proceeds of $8.6 million, and recognized a net loss on sale of $0.1 million for the year ended December 31, 2022.

Realized (Losses) Gains On Investments, Net

There was no such loss for the year ended December 31, 2024.

Gain on Extinguishment of Participation Liability

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

There was no such gain for the year ended December 31, 2024

Realized Loss On Investments, Net

For the year ended December 31, 2024, we sold a portion of our investments in marketable equity securities and recognized a net loss on sale of $0.4 million.

For the year ended December 31, 2023, we sold a portion of our investments in common stock and recognized a net loss on sale of $0.5 million.

For year ended December 31, 2022, we sold our investments in common and preferred stocks and recognized a net gain on sale of $0.1 million.

For the year ended December 31, 2023 as compared to the year ended December 31, 2022, the resulting net loss increased by $49.9 million.

For the year ended December 31, 2024 as compared to the year ended December 31, 2023, the resulting net loss decreased by $19.7 million.

Financial Condition, Liquidity and Capital Resources

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

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

Our primary sources of cash generally consist of payments of principal

and interest we receive on our portfolio of investments, cash generated from our operating results and unused borrowing capacity under our financing sources.

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

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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.

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

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

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

Our revolving line of credit with outstanding principal balance of $47.5 million was to come due on March 12, 2024 and our Goldman Sachs Bank repurchase agreement with outstanding principal balance of $75.5 million was to come due on February 18, 2024 (see “ Summary of Financing” below).

On March 7, 2024, the facility term of our revolving line of credit was extended to September 12, 2024 with an option to extend the facility term for an additional 12-month period and the facility term of the Goldman Sachs Bank facility was extended to February 18, 2025.

Obligation under participation agreement of $18.0 million will mature in the next twelve months.

We use the proceeds from the repayment of the corresponding investment to repay the participation obligation.

Our revolving line of credit with outstanding principal balance of $16.4 million and our Goldman Sachs Bank repurchase agreement with outstanding principal balance of $48.2 million was scheduled to mature on December 31, 2024 and February 18, 2025, respectively.

In January and February 2025, the maturity of the revolving line of credit and the Goldman Sachs Bank repurchase agreement was extended to June 30, 2025 and February 18, 2027, respectively.

We expect to use proceeds from repayment of the underlying loan to repay the outstanding principal or refinance with another lender.

Additionally, two promissory notes payable with a total outstanding principal balance of $22.3 million that is collateralized by senior loans with aggregate principal balance of $50.9 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

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Property mortgages N/A 40,250,000 N/A 6.25% June 2028

Term loan payable N/A 10,000,000 N/A Interest free until 6/30/2025, after that 9.00% December 2027

$ 173,750,000

Variable Rate:

Property mortgages N/A $ 33,256,885 N/A Term SOFR +3.5% (Term SOFR

Floor of 3.75%) April 2027

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

Promissory notes payable N/A 63,509,518 N/A Term SOFR plus a spread ranging from 4.75% to 5.6% with a combined floor rate ranging from 9.0% to 10.9%.

March 2025 - March 2026

Property mortgages N/A $ 34,100,000 N/A Term SOFR +3.5% (Term SOFR Floor of 3.75%) April 2027

Promissory notes payable N/A 40,694,390 N/A Term SOFR plus a spread ranging from 4.75% to 5.98% with a combined floor rate ranging from 9.0% to 11.28% March 2025 - March 2026

Secured borrowing N/A 18,000,000 N/A Term SOFR + 5%, (combined floor rate of 9.85% November 2026

Revolving line of

$ 125,000,000 47,461,730 $ 77,538,270 Term SOFR + 3.35% (combined floor rate of 6.0%) March 2024

UBS AG repurchase

agreement (2)

195,000,000 18,480,000 176,520,000 Term SOFR + 1.965% November 2024

16,361,111 16,361,111 — Term SOFR + 3.5% (combined floor rate of 7.0%) December 2024

Goldman Sachs Bank

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_______________

(1) On March 7, 2024, we amended the facility agreement to waive the quarterly minimum net worth covenant for the purposes of the December 31, 2023 measurement date, decrease the minimum net worth covenant for future quarterly measurement dates, reduce the credit line, increase the coupon rate, revise the minimum profitability covenant and extend the facility term to September 12, 2024 with an option to extend the facility term for an additional 12-month period.

(2) In February 2024, the outstanding balance was repaid.

On March 7, 2024, we amended the side letter to the UBS AG facility agreement to reduce the maximum amount available under the facility to zero.

In connection with this amendment, UBS AG waived the payment of any fees and the meeting of any representations, warranties or covenants for the period commencing on December 31, 2023 until such time as there are amounts outstanding under the UBS AG facility agreement.

(3) On March 7, 2024, we amended the Goldman Sachs Bank facility agreement to extend the maturity date to February 18, 2025 and to reduce the minimum interest coverage ratio covenant.

Cash Flows Provided by Operating Activities

For the year ended December 31, 2023, as compared to the year ended December 31, 2022, cash flows provided by operating activities increased by $8.2 million, primarily due to an increase in net contractual interest income.

Cash Flows Used in Investing Activities

(1) In January 2025, the maturity of the facility was extended to June 30, 2025.

(2) In February 2025, the maturity of the facility was extended to February 18, 2027.

Cash Flows (Used in) Provided by Operating Activities

For the year ended December 31, 2024, cash flows used in operating activities was $3.3 million, compared to cash flow from operating activities of $8.6 million for the year ended December 31, 2023.

The decrease in operating cash flows was primarily due to a decrease in net contractual interest income.

Cash Flows Provided by (Used in) Investing Activities

For the year ended December 31, 2024, cash flows provided by investing activities were $101.6 million, primarily related to proceeds from repayment of loans of $215.1 million and promissory note receivable of $9.6 million, partially offset by origination and purchase of loans of $57.2 million, purchase of equity interests in unconsolidated investments of $65.6 million and funding for promissory note receivable of $5.0 million.

For the year ended December 31, 2023, cash flows used in investing activities were $10.0 million, primarily related to origination and purchase of loans of $78.9 million, purchase of real estate properties of $52.5 million, purchase of held-to-maturity securities of $20.0 million, purchase of marketable securities of $7.9 million, purchase of equity interests in unconsolidated investments of $7.3 million, and funding for promissory note receivable of $3.8 million, partially offset by proceeds from repayments of loans of $126.1 million, proceeds from redemption of held-to-maturity securities of $20.0 million, return of capital on unconsolidated investments of $11.3 million, and proceeds from sale of marketable equity securities of $2.4 million.

For the year ended December 31, 2022, cash flows used in investing activities were $49.1 million, primarily related to origination and purchase of loans of $290.0 million and purchase of equity interests in unconsolidated investments of $25.5 million, partially offset by proceeds from repayments of loans of $197.5 million, proceeds from sale of interests in joint ventures of $33.7 million, cash and restricted cash acquired in connection with the BDC Merger of $24.6 million, proceeds from sale of real estate of $8.6 million and proceeds from sale of marketable securities of $1.3 million.

Cash Flows (Used in) Provided by Financing Activities

Cash Flows Used in Financing Activities

For the year ended December 31, 2024, cash flows used in financing activities were $99.0 million, primarily related to principal repayments on secured financing of $177.5 million, distributions paid of $18.6 million and payment for financing costs of $1.1 million, partially offset by proceeds from secured financing of $81.3 million and proceeds from obligations under participation agreements of $18.0 million.

For the year ended December 31, 2023, cash flows used in financing activities were $15.5 million, primarily related to principal repayments on secured financing of $205.3 million, distributions paid of $18.6 million and payment for financing costs of $3.3 million, partially offset by proceeds from secured financing of $211.0 million.

For the year ended December 31, 2022, cash flows provided by financing activities were $34.1 million, primarily due to proceeds from secured financing of $286.6 million and proceeds from obligations under participation agreements of $29.6 million, partially offset by principal repayments on secured financing of $239.7 million, repayments of obligations under participation agreements of $22.2 million and distributions paid of $16.1 million.

Distribution Reinvestment Plan

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Our consolidated financial statements are prepared in conformity with United States generally accepted accounting principles, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may

change in subsequent periods.

In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

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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.

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

Management Agreement with Terra REIT Advisors

We currently pay the following fees to Terra REIT Advisors pursuant to the Management Agreement:

Management Agreement with our Manager

We currently pay the following fees to our Manager pursuant to the Management Agreement:

Origination and Extension Fee .

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A disposition fee in the amount of 1.0% of the gross sale price received by our company from the disposition of each loan, but not upon the maturity, prepayment, workout, modification or extension of a loan unless there is a corresponding fee paid by the borrower, in which case the disposition fee will be the lesser of (i) 1.0% of the principal amount of the loan and (ii) the amount of the fee paid by the borrower in connection with such transaction.

If we take ownership of a

property as a result of a workout or foreclosure of a loan, we will pay a disposition fee upon the sale of such property equal to 1.0% of the sales price.

If we take ownership of a property as a result of a workout or foreclosure of a loan, we will pay a disposition fee upon the sale of such property equal to 1.0% of the sales price.

Transaction Breakup Fee .

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(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).

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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.

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.

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).

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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 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 December 31, 2024, amount outstanding under the promissory note payable was $45.1 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.

We have also sold a portion of a loan to a third party that did not qualify for sale accounting.

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

As of December 31, 2023, there was no participation obligation.

As of December 31, 2024, the principal balance of our participation obligation was $18.0 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.

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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 year ended December 31, 2023, the weighted average outstanding principal balance on obligations under participation agreements was approximately $10.0 million and the weighted average interest rate was approximately 17.4%, compared to the weighted average outstanding principal balance on obligations under participation agreements and secured borrowing of approximately $59.9 million and the weighted average interest rate was approximately 12.1% for the year ended December 31, 2022.

The secured borrowing was repaid in August 2022.

For the years ended December 31, 2024 and 2023, the weighted average outstanding principal balance on obligations under participation agreements was approximately $14.5 million and $10.0 million, respectively, and the weighted average interest rate was approximately 18.6% and 17.4%, 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-K

Item 5. Market for Registrant’s Common Equity