Terra Property Trust Inc.

11/07/2025 | Press release | Distributed by Public on 11/07/2025 16:17

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.
The information contained in this section should be read in conjunction with our unaudited consolidated financial statements and related notes thereto and other financial information included elsewhere in this quarterly report on Form 10-Q. In this report, "we," "us" and "our" refer to Terra Property Trust, Inc. (and, together with its consolidated subsidiaries, the "Company" or "Terra Property Trust").
FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this quarterly report on Form 10-Q within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For these statements, we claim the protections of the safe harbor for forward-looking statements contained in such Sections. The forward-looking statements contained in this quarterly report on Form 10-Q may include, but are not limited to, statements as to:
•our expected financial performance, operating results and our ability to make distributions to our stockholders in the future;
•risks associated with achieving expected synergies, cost savings and other benefits from our increased scale;
•the availability of attractive risk-adjusted investment opportunities in our target asset class and other real estate-related investments that satisfy our objectives and strategies;
•the origination or acquisition of our targeted assets, including the timing of originations or acquisitions;
•volatility in our industry, interest rates and spreads, the debt or equity markets, the general economy or the real estate market specifically, whether the results of market events or otherwise;
•changes in our investment objectives and business strategy;
•the availability of financing on acceptable terms or at all;
•our ability to fund our liquidity needs and upcoming debt maturities through ordinary course loan repayments, asset sales and distributions and debt or equity capital sources or facilities, including exchange offers;
•the performance and financial condition of our borrowers;
•changes in interest rates and the market value of our assets;
•borrower defaults or decreased recovery rates from our borrowers;
•changes in prepayment rates on our loans;
•our use of financial leverage;
•actual and potential conflicts of interest with any of the following affiliated entities: Terra Fund Advisors, LLC, Terra REIT Advisors, LLC (our "Manager"); Terra Capital Partners, LLC ("Terra Capital Partners"), our sponsor; Terra Secured Income Fund 5 International; Terra Income Fund International; Terra Secured Income Fund 7, LLC ("Terra Fund 7"); Terra Offshore Funds REIT, LLC ("Terra Offshore REIT"); Mavik Real Estate Special Opportunities Fund, LP ("RESOF"); Mavik Real Estate Special Opportunities VS2, LP ("VS2"); or any of their affiliates;
•our dependence on our Manager or its affiliates and the availability of its senior management team and other personnel;
•liquidity transactions that may be available to us in the future, including a liquidation of our assets, a sale of our company, a listing of our shares of common stock on a national securities exchange, an amendment of our charter to incorporate certain provisions generally required by state securities regulators to allow us to publicly sell unlisted shares (provided that such provisions would only take effect when a registration statement related to the publicly
offered unlisted shares is declared effective), an adoption of a share repurchase plan or a strategic business combination, in each case, which may include the distribution of our common stock indirectly owned by certain of our affiliate funds (the "Terra Funds") to the ultimate investors in the Terra Funds, and the timing of any such transactions;
•actions and initiatives of the U.S. federal, state and local government and changes to the U.S., federal, state and local government policies and the execution and impact of these actions, initiatives and policies;
•limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our exemption exclusion or from registration under the Investment Company Act of 1940, as amended (the "1940 Act"), and to maintain our qualification as a real estate investment trust ("REIT") for U.S. federal income tax purposes; and
•the degree and nature of our competition.
In addition, words such as "anticipate," "believe," "expect" and "intend" indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in "Part I - Item 1A. Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2024. Other factors that could cause actual results to differ materially include:
•changes in the economy;
•tariffs imposed by the current presidential administration and the threat of such tariffs;
•the availability of financing on acceptable terms or at all;
•risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters; and
•future changes in laws or regulations and conditions in our operating areas.
We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. Stockholders are advised to consult any additional disclosures that we may make directly to stockholders or through reports that we may file in the future with the Securities and Exchange Commission (the "SEC"), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
Overview
We are a real estate investment trust that originates, invests in and manages a diverse portfolio of real estate and real estate-related assets. We focus primarily on commercial real estate credit investments, including first mortgage loans, subordinated loans (including B-notes, mezzanine and preferred equity) and credit facilities throughout the United States, which we collectively refer to as our targeted assets. Our loans finance the acquisition, development or recapitalization of high-quality commercial real estate in the United States. We focus on middle market loans in the approximately $10 million to $50 million range, which we believe are subject to less competition, offer higher risk-adjusted returns than larger loans with similar risk metrics and facilitate portfolio diversification. Our investment objective is to provide attractive risk-adjusted returns to our stockholders, primarily by earning high current income that allows for regular distributions, and, in certain instances, benefiting from potential capital appreciation. There can be no assurances that we will be successful in meeting our investment objective. We may also make strategic real estate equity and non-real estate-related investments that align with our investment objectives and criteria.
As of September 30, 2025, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of ten loans in eight states with an aggregate net principal balance of $235.2 million, a weighted average coupon rate of 13.2% and a weighted average remaining term to maturity of 0.8 years.
Each of our loans was originated by Terra Capital Partners or its affiliates. Our portfolio is diversified based on location of the underlying properties, loan structure and property type. As of September 30, 2025, our portfolio included underlying properties located in ten markets, across eight states and includes property types such as multifamily housing, student housing, commercial offices, medical offices, retail, mixed-use and infill properties. The profile of these properties ranges from
stabilized and value-added properties to pre-development and construction. Our loans are structured across mezzanine debt, first mortgages, preferred equity investments and credit facilities.
We were incorporated under the Maryland General Corporation Law on December 31, 2015. 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 (the "REIT Formation Transaction"). Following the REIT Formation Transaction, Terra Secured Income Fund 5, LLC ("Terra Fund 5") contributed the consolidated portfolio of net assets of certain Terra Funds to our company in exchange for all of the shares of our common stock. On March 2, 2020, we engaged in a series of transactions pursuant to which we issued an aggregate of 4,574,470.35 shares of common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans held by us, cash of $25.5 million and other working capital.
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 September 30, 2025, 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. federal income tax purposes commencing with our taxable year ended December 31, 2016. So long as we qualify as a REIT, we generally are not subject to U.S. federal income tax on our net taxable income to the extent that we annually distribute all of our net taxable income to our stockholders.
Portfolio Summary
Net Loan Portfolio
The following tables provide a summary of our net loan portfolio. Carrying value represents the amortized cost of loan, net of applicable allowance for credit losses.
September 30, 2025
Fixed Rate
Floating
Rate (1)(2)(3)
Total Gross Loans Obligations under Participation Agreements Total Net Loans
Number of loans 3 7 10 1 10
Principal balance $ 13,962,852 $ 239,260,675 $ 253,223,527 $ 18,000,000 $ 235,223,527
Carrying value 13,173,349 190,318,700 203,492,049 18,177,137 185,314,912
Fair value 13,045,132 190,686,761 203,731,893 18,177,137 185,554,756
Weighted average coupon rate (4)
9.38 % 14.01 % 13.81 % 19.31 % 13.18 %
Weighted-average remaining term (years) (5)
1.73 0.76 0.83 - 0.83
December 31, 2024
Fixed Rate
Floating
Rate (1)(2)(3)
Total Gross Loans Obligations under Participation Agreements Total Net Loans
Number of loans 2 11 13 1 13
Principal balance $ 12,680,463 $ 304,574,560 $ 317,255,023 $ 18,000,000 $ 299,255,023
Carrying value 12,106,695 262,542,450 274,649,145 18,177,107 256,472,038
Fair value 11,740,671 264,796,547 276,537,218 18,254,853 258,282,365
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
_______________
(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 average SOFR of 4.31% and Term SOFR of 4.13% as of September 30, 2025 and average SOFR of 4.53% and Term SOFR of 4.33% as of December 31, 2024.
(2)As of September 30, 2025 and December 31, 2024, amount included $123.7 million and $208.0 million of senior mortgages used as collateral for $60.2 million and $123.2 million of borrowings under secured financing agreements, respectively (Note 8).
(3)As of September 30, 2025 and December 31, 2024, six and ten loans, respectively, were subject to a SOFR or Term SOFR floor, as applicable.
(4)Excludes non-performing loans for which recovery of interest income was not probable.
(5)Excludes loans that are in maturity default and represents current effective maturity as of September 30, 2025 and December 31, 2024, exclusive of any extension available.
Real Estate Owned
In addition to our net loan portfolio, we own four industrial buildings. As of September 30, 2025 and December 31, 2024, the real estate and related lease intangible assets and liabilities had a net carrying value of $47.6 million and $125.3 million, respectively, and the mortgage loans payable encumbering the real estate properties had an outstanding principal amount of $20.7 million and $74.4 million, respectively.
Equity Interest in Unconsolidated Investments
As of both September 30, 2025 and December 31, 2024, 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 September 30, 2025 and December 31, 2024, these equity interests had total carrying value of $106.5 million and $106.8 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 Common Stock as of September 30, 2025 and December 31, 2024 was $6.56 and $7.63, respectively.
Portfolio Investment Activity
Net Loan Portfolio
For the three months ended September 30, 2025 and 2024, we invested $7.4 million and $15.3 million in new and add-on investments and had $5.4 million and $21.7 million of repayments, resulting in net investment of $2.0 million and net repayments of $6.4 million, respectively. Amounts are net of obligations under participation agreements and secured financing agreements.
For the nine months ended September 30, 2025 and 2024, we invested $17.6 million and $73.1 million in new and add-on investments and had $38.9 million and $103.8 million of repayments, resulting in net repayments of $21.2 million and $30.8 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. Percentages of total represented below are calculated as a percentage of the total carrying value.
September 30, 2025 December 31, 2024
Loan Structure Principal Balance Carrying
Value 		% of Total Principal Balance Carrying
Value 		% of Total
First mortgages $ 123,742,975 $ 125,559,696 67.8 % $ 207,985,740 $ 209,496,879 81.6 %
Preferred equity investments 80,179,704 28,414,638 15.3 % 76,224,551 31,937,149 12.5 %
Mezzanine loans 31,300,848 31,340,578 16.9 % 15,044,732 15,038,010 5.9 %
Total $ 235,223,527 $ 185,314,912 100.0 % $ 299,255,023 $ 256,472,038 100.0 %
September 30, 2025 December 31, 2024
Property Type Principal Balance Carrying
Value 		% of Total Principal Balance Carrying
Value 		% of Total
Multifamily $ 75,396,135 $ 75,100,897 40.5 % $ 60,969,051 $ 60,662,514 23.7 %
Office 101,445,260 50,616,476 27.3 % 116,539,650 72,991,791 28.4 %
Infill land 47,206,938 48,399,963 26.1 % 56,307,815 57,050,952 22.2 %
Industrial 7,000,000 6,992,009 3.8 % 7,000,000 6,966,233 2.7 %
Mixed-use 3,240,060 3,271,945 1.8 % 30,438,507 29,890,548 11.7 %
Retail 935,134 933,622 0.5 % - - - %
Student housing - - - % 28,000,000 28,910,000 11.3 %
Total $ 235,223,527 $ 185,314,912 100.0 % $ 299,255,023 $ 256,472,038 100.0 %
September 30, 2025 December 31, 2024
Geographic Location Principal Balance Carrying
Value 		% of Total Principal Balance Carrying
Value 		% of Total
United States
Washington $ 38,653,822 $ 38,834,990 21.0 % $ 26,894,593 $ 26,907,157 10.5 %
California 33,954,655 34,290,134 18.4 % 53,006,023 53,096,008 20.6 %
Georgia 31,468,468 31,655,123 17.1 % 30,562,858 30,586,450 11.9 %
New York 76,004,510 24,209,071 13.1 % 75,657,255 31,536,808 12.3 %
Arizona 24,300,848 24,348,569 13.1 % 33,407,815 33,005,952 12.9 %
New Jersey 22,906,090 24,051,394 13.0 % 22,900,000 24,045,000 9.4 %
Massachusetts 7,000,000 6,992,009 3.8 % 7,000,000 6,966,233 2.7 %
Illinois 935,134 933,622 0.5 % - - - %
North Carolina - - - % 21,826,479 21,418,430 8.4 %
Utah - - - % 28,000,000 28,910,000 11.3 %
Total $ 235,223,527 $ 185,314,912 100.0 % $ 299,255,023 $ 256,472,038 100.0 %
Factors Impacting Operating Results
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. Our operating results may also be impacted by conditions in the financial markets and unanticipated credit events experienced by borrowers under our loan assets.
Credit Risk
Our loans and investments are subject to credit risk. The performance and value of our loans and investments depend upon the owners' ability to operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. To monitor this risk, our asset management team reviews our investment portfolios and is in regular contact with our borrowers, monitoring performance of the collateral and enforcing our rights as necessary.
In addition, we are exposed to the risks generally associated with the commercial real estate market, including variances in occupancy rates, capitalization rates, absorption rates, and other macroeconomic factors beyond our control. We seek to manage these risks through our Manager's underwriting and asset management processes.
We maintain all of our cash at financial institutions which, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation.
Concentration Risk
We hold real estate and real estate-related loans. Thus, our investment portfolio may be subject to a more rapid change in value than would be the case if it were required to maintain a wide diversification among industries, companies and types of loans. The result of such concentration in real estate assets is that a loss in such investments could materially reduce our capital.
Interest Rate Risk
Interest rate risk represents the effect from a change in interest rates, which could result in an adverse change in the fair value of our interest-bearing financial instruments. With respect to our business operations, increases in interest rates, in general, may over time cause: (i) the interest expense associated with variable rate borrowings to increase; (ii) the value of real estate and real estate-related loans to decline; (iii) coupons on variable rate loans to reset, although on a delayed basis, to higher interest rates; (iv) to the extent applicable under the terms of our investments, prepayments on real estate-related loans to slow; and (v) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to increase.
Conversely, decreases in interest rates, in general, may over time cause: (i) the interest expense associated with variable rate borrowings to decrease; (ii) the value of real estate and real estate-related loans to increase; (iii) coupons on variable rate real estate-related loans to reset, although on a delayed basis, to lower interest rates; (iv) to the extent applicable under the terms of our investments, prepayments on real estate-related loans to increase; and (v) to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to decrease.
Prepayment Risk
Prepayments can either positively or adversely affect the yields on our loans. Prepayments on debt instruments, where permitted under the debt documents, are influenced by changes in current interest rates and a variety of economic, geographic and other factors beyond our control, and consequently, such prepayment rates cannot be predicted with certainty. If we do not collect a prepayment fee in connection with a prepayment or are unable to invest the proceeds of such prepayments received, the yield on the portfolio will decline. In addition, we may acquire assets at a discount or premium and if the asset does not repay when expected, the anticipated yield may be impacted. Under certain interest rate and prepayment scenarios we may fail to recoup fully our cost of acquisition of certain loans.
Extension Risk
Extension risk is the risk that our assets will be repaid at a slower rate than anticipated and generally increases when interest rates rise. In which case, to the extent we have financed the acquisition of an asset, we may have to finance our asset at potentially higher costs without the ability to reinvest principal into higher yielding securities because borrowers prepay their mortgages at a slower pace than originally expected, adversely impacting our net interest spread, and thus our net interest income.
Real Estate Risk
The market values of commercial and residential mortgage assets are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; retroactive changes to building or similar codes; pandemics; natural disasters; and other Acts of God. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans, which could also cause us to suffer losses.
Use of Leverage
We deploy moderate amounts of leverage as part of our operating strategy, which may consist of borrowings under first mortgage financings, warehouse facilities, term loans, repurchase agreements and other credit facilities. While borrowing and leverage present opportunities for increasing total return, they may have the effect of potentially creating or increasing losses.
Market Risk
Our loans are highly illiquid, and there is no assurance that we will achieve our investment objectives, including targeted returns. Due to the illiquidity of the loans, valuation of our loans may be difficult, as there generally will be no established markets for these loans.
Results of Operations
The following table presents the comparative results of our operations:
Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 Change 2025 2024 Change
Revenues
Interest income $ 5,569,747 $ 9,404,033 $ (3,834,286) $ 22,359,781 $ 29,987,792 $ (7,628,011)
Real estate operating revenue 1,641,585 2,736,881 (1,095,296) 5,794,243 8,175,207 (2,380,964)
Other operating income 83,907 65,385 18,522 208,075 226,165 (18,090)
7,295,239 12,206,299 (4,911,060) 28,362,099 38,389,164 (10,027,065)
Operating expenses
Operating expenses reimbursed to
Manager 		881,382 1,341,587 (460,205) 3,272,181 5,852,522 (2,580,341)
Asset management fee 1,171,222 1,504,536 (333,314) 3,819,677 4,839,549 (1,019,872)
Asset servicing fee 281,735 360,606 (78,871) 920,900 1,162,126 (241,226)
Provision for (reversal of provision for) credit losses 2,425,296 (687,598) 3,112,894 5,919,213 3,761,838 2,157,375
Real estate operating expenses 201,980 586,293 (384,313) 2,739,007 2,059,570 679,437
Depreciation and amortization 680,481 1,746,737 (1,066,256) 3,251,414 5,610,538 (2,359,124)
Professional fees 940,911 573,526 367,385 2,218,692 2,285,175 (66,483)
Impairment charge - - - 3,399,684 - 3,399,684
Directors' fees 68,750 83,750 (15,000) 234,272 259,060 (24,788)
Other 152,702 89,286 63,416 453,777 452,791 986
6,804,459 5,598,723 1,205,736 26,228,817 26,283,169 (54,352)
Operating income 490,780 6,607,576 (6,116,796) 2,133,282 12,105,995 (9,972,713)
Other income and expenses
Interest expense on secured
financing 		(3,728,682) (6,487,146) 2,758,464 (11,768,739) (20,357,898) 8,589,159
Interest expense on unsecured notes
payable 		(2,521,155) (2,465,390) (55,765) (7,520,199) (7,358,342) (161,857)
Interest expense on obligations
under participation agreements 		(950,836) (779,793) (171,043) (2,780,479) (2,168,936) (611,543)
Unrealized (loss) gain on
investments, net 		- (74,849) 74,849 (75) 103,721 (103,796)
Income from equity interest in
unconsolidated investments 		795,029 1,025,176 (230,147) 5,620,736 2,223,759 3,396,977
Loss on sale of real estate, net (823,995) - (823,995) (2,880,545) - (2,880,545)
Loss on repayment of loan - (5,629,510) 5,629,510 - (5,629,510) 5,629,510
Realized loss on investments, net - - - - (446,009) 446,009
(7,229,639) (14,411,512) 7,181,873 (19,329,301) (33,633,215) 14,303,914
Net loss $ (6,738,859) $ (7,803,936) $ 1,065,077 $ (17,196,019) $ (21,527,220) $ 4,331,201
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 and secured financing agreements.
The following table presents a reconciliation of our loan portfolio on a weighted average basis from gross to net:
Three Months Ended September 30, 2025 Three Months Ended September 30, 2024
Weighted Average Principal Amount (1)
Weighted Average Coupon Rate (2)
Weighted Average Principal Amount (1)
Weighted Average Coupon Rate (2)
Total portfolio
Gross loans $ 250,326,968 13.5 % $ 394,158,779 12.7 %
Obligations under participation agreements (20,057,753) 19.3 % (15,000,000) 20.2 %
Secured borrowing (31,250,000) 9.5 % - - %
Promissory notes payable (28,517,735) 9.3 % (52,264,913) 10.1 %
Repurchase agreements payable - - % (75,061,487) 8.6 %
Revolving line of credit payable - - % (34,761,111) 8.2 %
Net loans (3)
$ 170,501,480 14.2 % $ 217,071,268 15.0 %
Senior loans
Gross loans $ 166,789,792 14.1 % $ 301,309,122 12.7 %
Secured borrowing (31,250,000) 9.5 % - - %
Promissory notes payable (28,517,735) 9.3 % (52,264,913) 10.1 %
Repurchase agreements payable - - % (75,061,487) 8.6 %
Revolving line of credit payable - - % (34,761,111) 8.2 %
Net loans (3)
$ 107,022,057 16.8 % $ 139,221,611 17.0 %
Subordinated loans (4)
Gross loans $ 83,537,176 12.2 % $ 92,849,657 12.9 %
Obligations under participation agreements (20,057,753) 19.3 % (15,000,000) 20.2 %
Net loans (3)
$ 63,479,423 9.9 % $ 77,849,657 13.0 %
Nine Months Ended September 30, 2025 Nine Months Ended September 30, 2024
Weighted Average Principal Amount (1)
Weighted Average Coupon Rate (2)
Weighted Average Principal Amount (1)
Weighted Average Coupon Rate (2)
Total portfolio
Gross loans $ 274,224,477 13.3 % $ 446,837,869 12.7 %
Obligations under participation agreements (19,208,612) 18.9 % (14,014,599) 18.8 %
Secured borrowing (20,476,557) 9.5 % - - %
Promissory notes payable (32,548,889) 9.3 % (66,227,552) 10.1 %
Repurchase agreements payable (22,984,903) 9.0 % (76,680,105) 8.6 %
Revolving line of credit payable (8,736,345) 7.5 % (38,786,372) 8.2 %
Net loans (3)
$ 170,269,171 14.8 % $ 251,129,241 15.0 %
Senior loans
Gross loans $ 190,332,555 13.7 % $ 343,982,323 12.6 %
Secured borrowing (20,476,557) 9.5 % - - %
Promissory notes payable (32,548,889) 9.3 % (66,227,552) 10.1 %
Repurchase agreements payable (22,984,903) 9.0 % (76,680,105) 8.6 %
Revolving line of credit payable (8,736,345) 7.5 % (38,786,372) 8.2 %
Net loans (3)
$ 105,585,861 17.4 % $ 162,288,294 16.6 %
Subordinated loans (4)
Gross loans $ 83,891,922 12.2 % $ 102,855,546 13.3 %
Obligations under participation agreements (19,208,612) 18.9 % (14,014,599) 18.8 %
Net loans (3)
$ 64,683,310 10.2 % $ 88,840,947 12.4 %
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(1)Amount is calculated based on the number of days each loan is outstanding.
(2)Amount is calculated based on the underlying principal amount of each loan.
(3)The weighted average coupon rate represents net interest income over the period calculated using the weighted average coupon rate and weighted average principal amount shown on the table (interest income on the loans less interest expense) divided by the weighted average principal amount of the net loans during the period.
(4)Subordinated loans include mezzanine loans, preferred equity investments and credit facilities.
Interest Income
For the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024, interest income decreased by $3.8 million and $7.6 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.
Real Estate Operating Revenue
For the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, real estate operating revenue decreased by $1.1 million, primarily due to the sale of four industrial buildings in 2025, as well as the expiration of a lease in December 2024.
For the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, real estate operating revenue decreased by $2.4 million, primarily due to the sale of four industrial buildings in 2025, the expiration of a lease in December 2024, and the write off of an unamortized below-market rent intangible in January 2024 in connection with a lease termination.
Operating Expenses Reimbursed to Manager
Under the terms of a management agreement (as amended, the "Management Agreement") with our Manager, we reimburse our Manager for operating expenses incurred in connection with services provided to us, including our allowable share of our Manager's overhead, such as rent, employee costs, utilities and technology costs.
For the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024, operating expenses reimbursed to our Manager decreased by $0.5 million and $2.6 million, respectively, 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 investment and cash held by us.
For the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024, asset management fees decreased by $0.3 million and $1.0 million, respectively, primarily due to a decrease in total assets under management resulting from repayment of loans as well as the sale of four industrial buildings in 2025.
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 investment held by us.
For the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024, 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 as well as the sale of four industrial buildings in 2025.
Provision for (Reversal of Provision for) Credit Losses
We follow the provisions of Accounting Standards Codification ("ASC") 326, Financial Instruments - Credit Losses, which requires entities to recognize credit losses on financial instruments based on an estimate of current expected credit losses.
For the three and nine months ended September 30, 2025, provision for credit losses was $2.4 million and $5.9 million, respectively, primarily due to a decline in our estimated recoverable amount on a non-performing subordinated loan due to an increase in funding on the senior loan.
For the three months ended September 30, 2024, we recorded a reversal of provision for credit losses of $0.7 million, primarily due to an increase in modeled economic forecasts for commercial real estate and the overall shortening duration of loans in the portfolio, partially offset by a decline in our estimated recoverable amount on a non-performing subordinated loan due to an increase in funding on the senior loan.
For the nine months ended September 30, 2024, provision for credit losses was $3.8 million, primarily due to a decline in our estimated recoverable amount on a non-performing subordinated loan due to an increase in funding on the senior loan as well as a decline in modeled macroeconomic forecasts for commercial real estate.
Real Estate Operating Expenses
For the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, real estate operating expenses decreased by $0.4 million, primarily due to the sale of three industrial buildings.
For the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, real estate operating expenses increased by $0.7 million, primarily due to an increase in real estate taxes as well as an increase in repairs and maintenance, partially offset by a reduction in operating expenses driven by the sale of four industrial buildings in 2025.
Depreciation and Amortization
For the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024, depreciation and amortization decreased by $1.1 million and $2.4 million, respectively, primarily due to the sale of four industrial buildings in 2025, as well as the write off of the unamortized in-place lease intangibles in January 2024 in connection with a lease termination.
Professional Fees
For the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, professional fees increased by $0.4 million, primarily due to legal fees incurred in connection with a review of strategic financings and alternatives for our company in 2025.
For the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, professional fees remained substantially the same.
Impairment Charge
For the nine months ended September 30, 2025, in connection with the pending sale of two industrial buildings, we recorded an impairment charge of $3.4 million to reduce the carrying value of these industrial buildings to their estimated selling price less the costs to sell. There was no such impairment charge for the three months ended September 30, 2025 or for the three and nine months ended September 30, 2024.
Interest Expense on Secured Financing
Our secured financing agreements consisted of two repurchase agreements, revolving line of credit, term loan, promissory notes, secured borrowings and property mortgages. The outstanding amounts under the two repurchase agreements and the revolving line of credit were repaid in full and the facilities were terminated in February 2024, June 2025 and July 2025, respectively.
For the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024, interest expense on secured financing decreased by $2.8 million and $8.6 million, respectively, as a result of a decrease in the weighted average principal amount outstanding.
Interest Expense on Unsecured Notes Payable
In June 2021, we issued $85.1 million in aggregate principal amount of 6.00% notes due 2026. In connection with the BDC Merger, we assumed $38.4 million in aggregate principal amount of 7.00% notes due in 2026.
For the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024, interest expense on unsecured notes payable increased by $0.1 million and $0.2 million, respectively, 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 three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024, interest expense from obligations under participation agreements increased by $0.2 million and $0.6 million, respectively, primarily as a result of an increase in the weighted average principal amount outstanding.
Unrealized (Loss) Gain on Investments, Net
For the three months ended September 30, 2024, we recorded an unrealized loss on investments of $0.1 million, primarily due to a decrease in the fair value of our marketable securities during the period.
For the nine months ended September 30, 2024, we recorded an unrealized gain on investments of $0.1 million, primarily due to an increase in the fair value of our marketable securities during the period.
There was no such unrealized gain or loss for the three and nine months ended September 30, 2025.
Income (Loss) from Equity Interest in Unconsolidated Investments
As of both September 30, 2025 and December 31, 2024, 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. We 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:
Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
Income from equity interest in RESOF $ 2,734,999 $ 1,932,624 $ 7,754,538 $ 4,706,892
Loss from equity interest in the joint ventures(1)
(2,608,870) (1,488,677) (4,036,327) (3,140,340)
Income from other equity investment 668,900 581,229 1,902,525 657,207
$ 795,029 $ 1,025,176 $ 5,620,736 $ 2,223,759
For the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024, equity income from RESOF increased as a result of an increase in RESOF's net income generated by an increase in the amount of invested capital.
For the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, equity loss from the joint ventures increased primarily due to a loss recognized by a joint venture in connection with a loss incurred on a portfolio investment. For the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, equity loss from the joint ventures increased primarily due to a loss recognized by a joint venture in connection with a loss incurred on a portfolio investment, partially offset by a gain recognized by a joint venture in connection with the sale of property in 2024.
Other equity investment relates to a preferred equity agreement we acquired in June 2024 in which we also share residual profit from the sale of underlying property with the borrower. For the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, equity income from the other equity investment increased primarily due to an increase in interest income resulting from increased outstanding principal balance. For the nine months ended September 30,
2025 as compared to the nine months ended September 30, 2024, the increase in income from other equity investment is due to holding the investment for a longer period of time in the current period.
Loss on Sale of Real Estate, Net
For the three and nine months ended September 30, 2025, we sold three and four industrial buildings, respectively, and recognized a net loss on sale of $0.8 million and $2.9 million, respectively. There was no such loss for the three and nine months ended September 30, 2024.
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 three and nine months ended September 30, 2024, which included the write-off of interest receivable of $4.8 million. There was no such loss for the three and nine months ended September 30, 2025.
Realized Loss On Investments, Net
For the nine months ended September 30, 2024, we sold a portion of our investments in trading securities and recognized a net loss on sale of $0.4 million. There was no such realized loss for the three months ended September 30, 2024 and three and nine months ended September 30, 2025.
Net Loss
For the three and nine months ended September 30, 2025 as compared to the three and nine months ended September 30, 2024, the resulting net loss decreased by $1.1 million and by $4.3 million, respectively.
Financial Condition, Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, funding and maintaining our assets and operations, making distributions to our stockholders and other general business needs. 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. 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 and term loan. We may use other sources to finance our target assets, including bank financing and arranged financing facilities with domestic or international financing providers. In addition, we may divide the loans we originate into senior and junior tranches and dispose of the more senior tranches as an additional means of providing financing to our business.
We may also issue additional equity, equity-related and debt securities to fund our investment strategies. We may issue these securities to unaffiliated third parties or to vehicles advised by affiliates of Terra Capital Partners or third parties. 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. These distribution requirements limit our ability to retain earnings and thereby replenish or increase capital for our business.
We expect to fund approximately $5.6 million of the unfunded commitments to borrowers 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. Obligations under participation agreements of $18.0 million will mature in the next twelve months. We will use the proceeds from the repayment of the corresponding investment to repay the participation obligations. Additionally, two promissory notes payable with a total outstanding principal balance of $28.9 million that are collateralized by senior loans with an aggregate principal balance of $61.6 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. Finally, Terra LLC's 7.00% unsecured senior notes due 2026 (the "7.00% Senior Notes Due 2026") and our 6.00% unsecured senior notes due 2026 (the "6.00% Senior Notes Due 2026") with an outstanding principal balance of $38.4 million and $85.1 million, respectively, are scheduled to mature on March 31, 2026 and June 30, 2026, respectively. We intend to repay the 6.00% Senior Notes Due 2026, and intend to cause Terra LLC, our wholly owned subsidiary, to repay the 7.00% Senior Notes Due 2026, through ordinary course loan repayments, asset sales and distributions and may also use debt or equity capital
sources or facilities, including exchange offers. However, no assurance can be given that we will be able to obtain additional liquidity when needed or under acceptable terms, if at all. As previously disclosed, we may repurchase certain of our 6.00% Senior Notes Due 2026 and the 7.00% Senior Notes Due 2026. 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.
Summary of Financing
The table below summarizes our debt financing as of September 30, 2025:
Type of Financing Maximum Amount Available Outstanding Balance Amount Remaining Available Interest Rate Maturity Date
Fixed Rate:
Unsecured notes payable N/A $ 85,125,000 N/A 6.00% June 2026
Unsecured notes payable N/A 38,375,000 N/A 7.00% March 2026
Property mortgages N/A 20,700,000 N/A 6.25% June 2028
Term loan payable N/A 10,000,000 N/A 9.00% December 2027
$ 154,200,000
Variable Rate:
Promissory notes payable N/A 28,904,992 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 2026
Secured borrowing N/A 31,250,000 N/A Term SOFR + 5%, (combined floor rate ranging from 9.32% to 9.85%) Nov 2026 - Jun 2027
N/A $ 60,154,992
Cash Flows Used in Operating Activities
For the nine months ended September 30, 2025, cash flows used in operating activities were $2.2 million compared to $5.6 million for the nine months ended September 30, 2024. The decrease in cash flows used in operating activities was primarily due to a decrease in contractual interest expense, partially offset by a decrease in contractual interest income.
Cash Flows Provided by Investing Activities
For the nine months ended September 30, 2025, cash flows provided by investing activities were $133.5 million, primarily related to proceeds from repayment of loans of $89.7 million and proceeds from sale of real estate of $69.1 million, partially offset by origination, purchase and funding of loans of $25.7 million and capital contributions to and purchase of equity interests in unconsolidated investments of $1.8 million.
For the nine months ended September 30, 2024, cash flows provided by investing activities were $117.9 million, primarily related to proceeds from repayment of loans of $206.0 million and promissory note receivable of $9.5 million, partially offset by origination, purchase and funding of loans of $49.8 million and capital contributions to and purchase of equity interests in unconsolidated investments of $47.2 million.
Cash Flows Used in Financing Activities
For the nine months ended September 30, 2025, cash flows used in financing activities were $128.2 million, primarily related to principal repayments on secured financing of $141.9 million, distributions paid of $9.3 million, repayments on obligations under participation agreements of $2.6 million and a decrease in interest reserve and other deposits held on investments of $1.7 million, partially offset by proceeds from secured financing of $24.8 million and proceeds from obligations under participation agreements of $2.6 million.
For the nine months ended September 30, 2024, cash flows used in financing activities were $98.7 million, primarily related to principal repayments on secured financing of $159.1 million, distributions paid of $13.9 million and payment for
financing costs of $1.1 million, partially offset by proceeds from secured financing of $60.7 million and proceeds from obligations under participation agreements of $15.0 million.
Distribution Reinvestment Plan
On January 20, 2023, our Board adopted a distribution reinvestment plan (the "Plan"), pursuant to which our stockholders may elect to reinvest cash distributions payable by us in additional shares of Class A Common Stock and Class B Common Stock, at the price per share determined pursuant to the Plan.
Critical Accounting Policies and Use of Estimates
Our consolidated financial statements are prepared in conformity with United States generally accepted accounting principles, which require 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. In preparing the consolidated financial statements, management has utilized available information, including industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. As we execute our expected operating plans, we will describe additional critical accounting policies in the notes to our future consolidated financial statements in addition to those discussed below.
Allowance for Credit Losses
We follow the provisions of ASC 326, 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.
We use a model-based approach for estimating the allowance for credit losses on performing loans on a collective basis, including future funding commitments for which we do not have the unconditional right to cancel, as these loans share similar risk characteristics. We utilize information obtained from internal and external sources relating to past events, current economic conditions and reasonable and supportable forecasts about the future to determine the expected credit losses for our loan portfolio. We utilize a commercial mortgage-based, third-party loan loss model and because we do not have a meaningful history of realized credit losses on our loan portfolio, we subscribe to a database service to provide historical proxy loan loss information. We employ logistic regression to forecast expected losses at the loan level based on a commercial real estate loan securitization database that contains activity dating back to 1998. We have chosen to incorporate a weighted average macroeconomic forecast that encompasses baseline, 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. The specific loan level information input into the model includes loan-to-value and debt service coverage ratio metrics, as well as principal balances, property type, location, coupon rate, coupon rate type, original or remaining term, expected repayment dates and contractual future funding commitments. Based on the inputs, the loan loss model determines a loan loss rate through the generation of a probability of default (PD) and loss given default (LGD) for each loan. The allowance for credit losses on performing loans is then calculated by applying the loan loss rate to the total outstanding loan balance of each loan. These results require a significant amount of judgment applied in selecting inputs and analyzing the results produced by the models to determine the allowance for credit losses. Changes in such estimates can significantly affect the expected credit losses.
Management Agreement with our Manager
We currently pay the following fees to our Manager pursuant to the Management Agreement:
Origination and Extension Fee. An origination fee in the amount of 1.0% of the amount used to originate, acquire, fund or structure investments, including any third-party expenses related to such investments. In the event that the term of any loan is extended, our Manager also receives an origination fee equal to the lesser of (i) 1.0% of the principal amount of the loan being extended or (ii) the amount of the fee paid by the borrower in connection with such extension.
Asset Management Fee. A monthly asset management fee at an annual rate equal to 1.0% of the aggregate funds under management, which includes the loan origination amount or aggregate gross acquisition cost, as applicable, for each investment and cash held by us.
Asset Servicing Fee. A monthly asset servicing fee at an annual rate equal to 0.25% of the aggregate gross origination price or aggregate gross acquisition price for each investment then held by us (inclusive of closing costs and expenses).
Disposition Fee. A disposition fee in the amount of 1.0% of the gross sale price received by our company from the disposition of an investment, 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.
Transaction Breakup Fee. In the event that we receive 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 investment or disposition transaction, our 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 our Manager with respect to its evaluation and pursuit of such transactions.
In addition to the fees described above, we reimburse our Manager for operating expenses incurred in connection with services provided to the operations of our company, including our allocable share of our Manager's overhead, such as rent, employee costs, utilities, and technology costs.
The following table presents a summary of fees paid and costs reimbursed to our Manager in connection with providing services to us:
Three Months Ended September 30, Nine Months Ended September 30,
2025 2024 2025 2024
Origination and extension fee expense(1)
$ 130,952 $ 207,631 $ 1,386,688 $ 839,795
Asset management fee 1,171,222 1,504,536 3,819,677 4,839,549
Asset servicing fee 281,735 360,606 920,900 1,162,126
Operating expenses reimbursed to Manager 881,382 1,341,587 3,272,181 5,852,522
Disposition fee (2)
876,331 432,224 1,468,020 907,224
Total $ 3,341,622 $ 3,846,584 $ 10,867,466 $ 13,601,216
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(1)Origination and extension fee expense is generally offset with origination and extension fee income. Any excess is deferred and amortized to interest income over the term of the loan.
(2)Disposition fee is generally offset with exit fee income and included in interest income on the consolidated statements of operations.
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 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 month 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 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 September 30, 2025 and December 31, 2024, amount outstanding under the promissory note payable was $38.1 million and $45.1 million, respectively. 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
We have entered into a cost sharing and reimbursement agreement with Terra LLC, effective October 1, 2022 pursuant to which Terra LLC will be responsible for its allocable share of our expenses, including fees paid by us to our Manager based on relative assets under management. These fees are eliminated in consolidation and therefore have no impact on our consolidated financial statements.
Participation Agreements
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 September 30, 2025, 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. 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. The affiliated fund participant pays related expenses also based on their respective pro rata participation interest (i.e., asset management and asset servicing fees, disposition fees) directly to our Manager, as per the terms of each respective affiliate's management agreement.
Other than for U.S. federal income tax purposes, our loan participations do not qualify for sale treatment. 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 nine months ended September 30, 2025 and 2024, the weighted average outstanding principal balance on obligations under participation agreements was approximately $19.2 million and $14.0 million, respectively, and the weighted average interest rate was approximately 18.9% and 18.8%, respectively.
Terra Property Trust Inc. published this content on November 07, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 07, 2025 at 22:17 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]