0001674356-23-000011.txt : 20230512 0001674356-23-000011.hdr.sgml : 20230512 20230512165742 ACCESSION NUMBER: 0001674356-23-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 100 CONFORMED PERIOD OF REPORT: 20230331 FILED AS OF DATE: 20230512 DATE AS OF CHANGE: 20230512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Terra Property Trust, Inc. CENTRAL INDEX KEY: 0001674356 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 000000000 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-40496 FILM NUMBER: 23916772 BUSINESS ADDRESS: STREET 1: 805 THIRD AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 212-754-5100 MAIL ADDRESS: STREET 1: 805 THIRD AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 tpt-20230331.htm 10-Q tpt-20230331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2023
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number: 001-40496
Terra Property Trust, Inc.
(Exact name of registrant as specified in its charter)
Maryland81-0963486
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
205 West 28th Street, 12th Floor
New York, New York 10001
(Address of principal executive offices)
(212) 753-5100
(Registrant’s telephone number, including area code)
Securities registered pursuant to section 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading Symbol(s)Name of exchange on
which registered
6.00% Notes due 2026TPTANew York Stock Exchange
Securities registered pursuant to section 12(g) of the Securities Exchange Act of 1934:
Class B Common Stock, $0.01 par value per share
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨Accelerated filer ¨
Non-accelerated filer þSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 12, 2023, the registrant had 24,335,429 shares of Class B Common Stock, $0.01 par value, outstanding. No market value has been computed based upon the fact that no active trading market had been established as of the date of this document.




TABLE OF CONTENTS
Page
PART I
Item 1.
Item 2.
Item 3.
Item 4.
PART II
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

1


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Terra Property Trust, Inc.
Consolidated Balance Sheets
March 31, 2023December 31, 2022
(unaudited)
Assets
Cash and cash equivalents$28,869,594 $28,567,825 
Restricted cash4,611,794 4,633,204 
Cash held in escrow by lender3,571,083 3,268,563 
Loans held for investment, net of allowance for credit losses of $28,504,829
   and $25,471,890
571,176,710 584,417,939 
Loans held for investment acquired through participation, net of allowance for
    credit losses of $146,748 and none
38,772,079 42,072,828 
Equity investment in unconsolidated investments53,566,840 62,498,340 
Held-to-maturity debt securities20,025,024  
Real estate owned, net (Note 6)
Land, building and building improvements, net94,828,089 46,660,226 
Lease intangible assets, net6,605,936 2,568,461 
Operating lease right-of-use asset27,374,554 27,378,786 
Deal deposit 4,241,892 
Interest receivable5,227,742 4,100,501 
Other assets3,851,770 2,928,327 
Total assets$858,481,215 $813,336,892 
Liabilities and Equity
Liabilities:
Term loan payable$25,000,000 $25,000,000 
Unsecured notes payable, net of debt issuance cost116,976,542 116,530,673 
Repurchase agreements payable, net of deferred financing fees151,772,313 169,304,710 
Obligations under participation agreements (Note 8 )
13,209,982 12,680,594 
Mortgage loans payable, net of deferred financing fees and other60,768,698 29,488,326 
Revolving line of credit payable, net of deferred financing fees124,741,957 89,807,448 
Interest reserve and other deposits held on investments4,611,794 4,633,204 
Operating lease liability27,374,554 27,378,786 
Lease intangible liabilities, net (Note 6)
12,668,367 8,646,840 
Due to Manager (Note 8)
3,871,022 3,935,997 
Interest payable 1,482,773 1,058,001 
Accounts payable and accrued expenses1,854,679 1,452,236 
Unearned income378,018 378,018 
Other liabilities739,507 1,159,885 
Total liabilities545,450,206 491,454,718 
Commitments and contingencies (Note 10)
Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized and none issued
  
12.5% Series A Cumulative Non-Voting Preferred Stock at liquidation preference,
   125 shares authorized and no shares and 125 shares issued and outstanding at
   March 31, 2023 and December 31, 2022, respectively
 125,000 
Class A Common Stock, $0.01 par value, 450,000,000 shares authorized and no
   shares issued, at both March 31, 2023 and December 31, 2022
  
Class B Common Stock, $0.01 par value, 450,000,000 shares authorized and
   24,335,404 and 24,335,370 shares issued and outstanding at March 31, 2023 and
    December 31, 2022, respectively
243,354 243,354 
Additional paid-in capital444,450,291 444,449,813 
Accumulated deficit(131,662,636)(122,935,993)
Total equity313,031,009 321,882,174 
Total liabilities and equity$858,481,215 $813,336,892 
See notes to consolidated financial statements.
2


Terra Property Trust, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31,
20232022
Revenues
Interest income$15,615,807 $8,882,151 
Real estate operating revenue1,332,969 2,979,454 
Other operating income53,395 250,665 
17,002,171 12,112,270 
Operating expenses
Operating expenses reimbursed to Manager2,177,004 1,928,563 
Asset management fee 1,997,427 1,488,095 
Asset servicing fee 470,525 349,329 
(Reversal of) provision for credit losses(850,051)50,296 
Real estate operating expenses1,209,912 1,217,963 
Depreciation and amortization681,813 1,718,372 
Impairment charge 1,604,989 
Professional fees 979,895 742,518 
Directors fees96,464 36,252 
Other215,244 83,421 
6,978,233 9,219,798 
Operating income10,023,938 2,892,472 
Other income and expenses
Interest expense from obligations under participation agreements(532,146)(1,075,109)
Interest expense on repurchase agreements payable(3,056,506)(755,826)
Interest expense on mortgage loans payable(746,128)(518,617)
Interest expense on revolving line of credit(1,965,534)(524,294)
Interest expense on term loan payable(351,563)(164,969)
Interest expense on unsecured notes payable(2,394,306)(1,430,183)
Interest expense on secured borrowing (552,785)
Net unrealized gains (losses) on marketable securities6,584 (99,044)
(Loss) income from equity investment in unconsolidated investments(436,860)1,419,335
Realized gains on marketable securities51,133
(9,476,459)(3,650,359)
Net income (loss)$547,479 $(757,887)
Series A preferred stock dividend declared$(3,907)$(3,906)
Net income (loss) allocable to common stock$543,572 $(761,793)
Income (loss) per share basic and diluted
$0.02 $(0.04)
Weighted-average shares basic and diluted
24,335,373 19,487,460 
Distributions declared per common share$0.19 $0.20 

See notes to consolidated financial statements.
3


Terra Property Trust, Inc.
Consolidated Statements of Changes in Equity
(Unaudited)

Preferred Stock
12.5% Series A Cumulative Non-Voting Preferred Stock
Class A Common StockClass B Common StockAdditional
Paid-in
Capital
Accumulated Deficit
$0.01 Par Value
$0.01 Par Value
SharesAmountSharesAmountSharesAmountTotal equity
Balance at January 1, 2023$ 125$125,000 $ 24,335,370$243,354 $444,449,813 $(122,935,993)$321,882,174 
Cumulative effect of credit loss
    accounting standard effective
    January 1, 2023 (Note 2)
— — — (4,619,723)(4,619,723)
Shares issued from reinvestment of
     shareholder distributions
— — 34478 — 478 
Redemption of Series A Preferred
   Stock
— (125)(125,000)— — — — (125,000)
Distributions declared on common
   shares ($0.19 per share)
— — — — (4,650,492)(4,650,492)
Distributions declared on preferred
   shares
— — — — (3,907)(3,907)
Net income— — — — 547,479 547,479 
Balance at March 31, 2023$  $  $ 24,335,404 $243,354 $444,450,291 $(131,662,636)$313,031,009 


Preferred Stock
12.5% Series A Cumulative Non-Voting Preferred Stock
Common StockAdditional
Paid-in
Capital
Accumulated Deficit
$0.01 Par Value
SharesAmountSharesAmountTotal equity
Balance at January 1, 2022$ 125$125,000 19,487,460$194,875 $373,443,672 $(99,919,969)$273,843,578 
Distributions declared on common shares ($0.20 per share)
— — — — (3,893,595)(3,893,595)
Distributions declared on preferred shares— — — — (3,906)(3,906)
Net loss— — — — (757,887)(757,887)
Balance at March 31, 2022$ 125$125,000 19,487,460 $194,875 $373,443,672 $(104,575,357)$269,188,190 

See notes to consolidated financial statements.



4


Terra Property Trust, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
20232022
Cash flows from operating activities:
Net income (loss)$547,479 $(757,887)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization681,813 1,718,516 
(Reversal of) provision for credit losses(850,051)50,296 
Impairment charge 1,604,989 
Amortization of net purchase premiums on loans346,780 15,348 
Straight-line rent adjustments27,813 359,056 
Amortization of deferred financing costs535,276 520,991 
Amortization of discount on unsecured notes payable402,571 113,147 
Amortization of above- and below-market rent intangibles(34,764)(246,375)
Amortization and accretion of investment-related fees, net(4,745)(195,932)
Amortization of above-market rent ground lease(32,587)(32,588)
Realized gain on marketable securities (51,133)
Unrealized losses (gains) on marketable securities(6,584)99,044 
Distributions received in excess of equity income (equity income in excess of
   distributions received)
5,061,178 (1,119,913)
Changes in operating assets and liabilities:
Deal deposits4,241,892  
Interest receivable(1,127,241)(556,972)
Due from related party(138,508)2,605,639
Other assets(806,166)(705,897)
Due to Manager 336,805 
Unearned income 261,193
Interest payable424,772(428,783)
Accounts payable and accrued expenses402,443317,529 
Other liabilities(1,010,363)(797,996)
Net cash provided by operating activities8,661,008 3,109,077 
Cash flows from investing activities:
Origination and purchase of loans(46,214,722)(88,119,821)
Proceeds from repayments of loans59,177,506 750,000 
Purchase of real estate properties(48,798,273) 
Purchase of held-to-maturity debt securities(20,025,024) 
Return of capital on equity interests in unconsolidated investments3,870,322  
Purchase of equity interests in unconsolidated investments (21,164,384)
Proceeds from sale of marketable securities 628,715 
Distributions in excess equity income 336,000 
Net cash used in investing activities(51,990,191)(107,569,490)



5


Terra Property Trust, Inc.
Consolidated Statements of Cash Flows (Continued)
(Unaudited)

Three Months Ended March 31,
20232022
Cash flows from financing activities:
Proceeds from borrowings under repurchase agreements1,300,858 131,949,549 
Proceeds from borrowings under revolving line of credit34,864,135 26,377,654 
Proceeds from mortgage loan payable32,100,000  
Proceeds from obligations under participation agreements521,886 15,863,187 
Repayments of borrowings under repurchase agreements(19,230,071) 
Distributions paid(4,653,921)(3,893,595)
Change in interest reserve and other deposits held on investments(21,410)646,956 
Payment of financing costs(844,415)(895,247)
Redemption of Series A Preferred Stock(125,000) 
Repayment of borrowings under the term loan (93,763,471)
Proceeds from secured borrowing 2,850,520 
Repayment of mortgage principal (204,967)
Net cash provided by financing activities43,912,062 78,930,586 
Net increase (decrease) in cash, cash equivalents and restricted cash582,879 (25,529,827)
Cash, cash equivalents and restricted cash at beginning of period36,469,592 51,098,647 
Cash, cash equivalents and restricted cash at end of period (Note 2)
$37,052,471 $25,568,820 
Three Months Ended March 31,
20232022
Supplemental Disclosure of Cash Flows Information:
Cash paid for interest$7,683,565 $4,920,363 
Supplemental non-cash information:
Reinvestment of stockholder distributions$478 $ 


See notes to consolidated financial statements.

6


Terra Property Trust, Inc.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2023

Note 1. Business

    Terra Property Trust, Inc. (and, together with its consolidated subsidiaries, the “Company” or “Terra Property Trust”) was incorporated under the Maryland General Corporation Law on December 31, 2015. Terra Property Trust is a real estate credit focused company that originates, structures, funds and manages commercial real estate investments, including mezzanine loans, first mortgage loans, subordinated mortgage loans and preferred equity investments. The Company’s loans finance the acquisition, construction, development or redevelopment of quality commercial real estate in the United States. The Company focuses on the origination of middle market loans in the approximately $10 million to $50 million range, to finance properties in primary and secondary markets.
    On January 1, 2016, Terra Secured Income Fund 5, LLC (“Terra Fund 5”), the Company’s then parent, contributed its consolidated portfolio of net assets to the Company pursuant to a contribution agreement in exchange for shares of the Company’s common stock. Upon receipt of the contribution of the consolidated portfolio of net assets from Terra Fund 5, the Company commenced its operations on January 1, 2016. On March 2, 2020, the Company engaged in a series of transactions pursuant to which the Company issued an aggregate of 4,574,470.35 shares of its common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans held by the Company, cash of $25.5 million and other working capital.

    The Company has elected to be taxed, and to qualify annually thereafter, as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), commencing with the taxable year ended December 31, 2016. As a REIT, the Company is not subject to federal income taxes on income and gains distributed to the stockholders as long as certain requirements are satisfied, principally relating to the nature of income and the level of distributions, as well as other factors. The Company also operates its business in a manner that permits it to maintain its exemption from registration as an “investment company” under the Investment Company Act of 1940, as amended (the “1940 Act”).

    The Company’s investment activities are externally managed by Terra REIT Advisors, LLC (“Terra REIT Advisors” or the “Manager”), a subsidiary of the Company’s sponsor, Terra Capital Partners, LLC (“Terra Capital Partners”), pursuant to a management agreement (the “Management Agreement”), under the oversight of the Company’s board of directors (the “Board”) (Note 8). The Company does not currently have any employees and does not expect to have any employees. Services necessary for the Company’s business are provided by individuals who are employees of the Manager or by individuals who were contracted by the Company or by the Manager to work on behalf of the Company pursuant to the terms of the Management Agreement.

On October 1, 2022, pursuant to that certain Agreement and Plan of Merger, dated as of May 2, 2022 (the “Merger Agreement”), Terra Income Fund 6, Inc. (“Terra BDC”), merged with and into Terra Income Fund 6, LLC (“Terra LLC”), a wholly owned subsidiary of the Company, with Terra LLC continuing as the surviving entity of the merger (the “BDC Merger”) and as a wholly owned subsidiary of the Company (Note 3).

As of March 31, 2023, Terra JV, LLC (“Terra JV”), former shareholders of Terra BDC and Terra Offshore Funds REIT, LLC (“Terra Offshore REIT”) held 70.0%, 19.9% and 10.1% of the issued and outstanding shares of the Company’s common stock, respectively.
Note 2. Summary of Significant Accounting Policies

Principles of Consolidation

    The consolidated financial statements include all of the Company’s accounts and those of its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current period presentation.

The Company consolidates entities in which it has a controlling financial interest based on either the variable interest entity (“VIE”) or voting interest model. The Company is required to first apply the VIE model to determine whether it holds a variable interest in an entity, and if so, whether the entity is a VIE. If the Company determines it does not hold a variable
7


Notes to Unaudited Consolidated Financial Statements

interest in a VIE, it then applies the voting interest model. Under the voting interest model, the Company consolidates an entity when it holds a majority voting interest in an entity.

The Company accounts for investments in which it has significant influence but not a controlling financial interest using the equity method of accounting (see Note 5).

VIE Model

An entity is considered to be a VIE if any of the following conditions exist: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) the holders of the equity investment at risk, as a group, lack either the direct or indirect ability through voting rights or similar rights to make decisions that have a significant effect on the success of the entity or the obligation to absorb the entity’s expected losses or right to receive the entity’s expected residual returns, or (c) the voting rights of some equity investors are disproportionate to their obligation to absorb losses of the entity, their rights to receive returns from an entity, or both and substantially all of the entity’s activities either involve or are conducted on behalf of an investor with disproportionately few voting rights.

Under the VIE model, limited partnerships are considered VIEs unless a limited partner holds substantive kick-out or participating rights over a general partner. The Company consolidates entities that are VIEs when the Company determines it is the primary beneficiary. Generally, the primary beneficiary of a VIE is a reporting entity that has (a) the power to direct the activities that most significantly affect the VIE’s economic performance, and (b) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE.

Loans Held for Investment

    The Company originates, acquires, and structures, or acquires through participations, real estate-related loans generally to be held to maturity (collectively the “loans”). Loans held for investment are carried at the principal amount outstanding, adjusted for the accretion of discounts on investments and exit fees, and the amortization of premiums on investments and origination fees. The Company’s preferred equity investments, which are economically similar to mezzanine loans and subordinate to any loans but senior to common equity, are accounted for as loans held for investment. Loans are carried at amortized cost less allowance for credit losses.

Current Expected Credit Losses Reserve

Accounting Standards Codification (“ASC”) 326, Financial Instruments – Credit Losses, became effective for the Company on January 1, 2023. ASC 326 mandates the use of a current expected credit loss (“CECL”) model for estimating future credit losses of certain financial instruments measured at amortized cost, instead of the “incurred loss” credit model previously required under United States generally accepted accounting principles (“U.S. GAAP”). The CECL model requires the consideration of possible credit losses over the life of an instrument as opposed to only estimating credit losses upon the occurrence of a discrete loss event under the previous “incurred loss” methodology. The CECL model applies to the Company’s loan portfolio and the held-to-maturity debt securities which are carried at amortized cost, including future funding commitments for which the Company does not have the unconditional right to cancel. Amortized cost is defined as the principal amount outstanding, adjusted for the accretion of purchase discounts and disposition fees, and amortization of purchase premiums and origination fees, and includes accrued interest receivable related to these loans and securities. As permitted by ASC 326, the Company elected not to measure an allowance for credit losses on accrued interest receivable (which is presented separately on the consolidated balance sheet), but rather write off in a timely manner by reversing interest income that would likely be uncollectible. The Company’s adoption of the CECL model resulted in a $4.6 million increase to total reserve, including reserve on future funding commitments, which was recognized as a cumulative-effect adjustment to accumulated deficit as of January 1, 2023. Subsequent to the adoption of the CECL model, any increase or decrease to the CECL reserve is recorded in earnings on the consolidated statements of operations.

The Company utilizes information obtained from internal and external sources relating to past events, current conditions and reasonable and supportable forecasts about the future to determine the expected credit losses for its loan portfolio. The Company does not have a meaningful history of realized credit losses on its loan portfolio so it has subscribed to a third-party database service to provide the Company with industry losses for its loans. The Company utilizes a loan loss model that is widely used among banks and commercial mortgage REITs and is marketed by a leading commercial mortgage-based security data analytics provider. It employs logistic regression to forecast expected losses at the loan level based on a commercial real estate loan securitization database that contains activity dating back to 1998. The Company provides specific loan-level inputs which include loan-to-value and debt service coverage ratio metrics, as well as principal balances, property type, location, coupon rate, coupon rate type, original or remaining term, expected repayment dates and contractual future funding
8


Notes to Unaudited Consolidated Financial Statements

commitments. The Company selects from a group of independent five-year macroeconomic forecasts included in the model that are updated regularly based on current economic trends. Because the Company’s loan portfolio is comprised of a small number of loans, the Company measures the CECL reserve based on an evaluation of each loan as its own segregated asset. Based on the inputs, the loan loss model determines a loan loss rate through the generation of probability of defaults (PD) and loss given defaults (LGD) for each loan. The CECL reserve is then calculated by applying the loan loss rate to the total outstanding loan balance of each loan. These results require a significant amount of judgment applied in selecting inputs and analyzing the results produced by the models to determine the allowance for credit losses. Changes in such estimates can significantly affect the expected credit losses.

The calculation of the estimate of expected credit loss considers historical experience and current conditions for each loan and reasonable and supportable forecasts about the future. The reasonable and supportable forecast period is determined based on the Company’s assessment of the most likely scenario of assumptions and plausible outcomes for the U.S. economy, current portfolio composition, level of historical loss forecast estimates, material changes in growth and credit strategy and other factors that may affect its loss experience. The Company regularly evaluates the reasonable and supportable forecast period to determine if a change is needed.

Beyond the Company’s reasonable and supportable forecast period, the Company generally reverts to historical loss information, pooled by asset type and investment structure, over the remaining loan period, taken from a period that most accurately reflects the expectation of conditions expected to exist during the period of reversion. The Company may adjust historical loss information for differences in risk that may not reflect the characteristics of its current portfolio, including but not limited to, loan-to-value and debt service coverage ratios, among other relevant factors. The method of reversion selected represents the best estimate of the collectability of the investments and is reevaluated each reporting period. The Company generally expects to use an average historical loss for reversion, utilizing an immediate or straight-line method for the remaining life of the loans.

The Company also performs a qualitative assessment beyond model estimates and applies qualitative adjustments as necessary. The Company’s qualitative analysis includes a review of data that may directly impact its estimates including internal and external information about the loan or property including current market conditions, asset specific conditions, property operations or borrower/sponsor details (i.e., refinance, sale, bankruptcy) which allows the Company to determine the amount of the expected loss more accurately and reasonably for these investments. The Company also evaluates the contractual life of its loans to determine if changes are needed for contractual extension options, renewals, modifications, and prepayments.

During the loan review process, if the Company determines that it is not able to collect all amounts due for both principal and interest according to the contractual terms of a loan, the Company considers that loan non-performing. For all non-performing loans, such as those in default, collateral-dependent or modified loans, including historical troubled debt restructurings, the Company removes these loans from the industry loss rate approach described above and analyzes them separately. The credit loss reserve for these loans is calculated as any excess of the amortized cost of the loan over (i) the present value of expected future cash flows discounted at the appropriate discount rate or (ii) the fair value of collateral, if repayment is expected solely from the collateral.

Some of the Company’s loans include commitments to fund incremental proceeds to the borrowers over the life of the loan and these unfunded commitments are also subject to the CECL model because the Company does not have an unconditional right to cancel such commitments. The CECL reserve related to unfunded commitments is recorded as a component of other liabilities on the Company’s consolidated balance sheets. This CECL reserve is estimated using the same method outlined above for the Company’s outstanding loan balances, and increases or decreases in the CECL reserve relating to unfunded commitments are also recorded in earnings on the consolidated statements of operations.

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

Equity Investment in Unconsolidated Investments

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

9


Notes to Unaudited Consolidated Financial Statements

The Company evaluates its equity investment unconsolidated investments on a periodic basis to determine if there are any indicators that the value of its equity investments may be impaired and whether or not that impairment is other-than-temporary. To the extent an impairment has occurred and is determined to be other-than-temporary, the Company measures the charge as the excess of the carrying value of its investment over its estimated fair value, which is determined by calculating its share of the estimated fair market value of the underlying net assets based on the terms of the applicable partnership or joint venture agreements.

Marketable Securities

    The Company from time to time invests in short term debt and equity securities. These securities are classified as available-for-sale and are carried at fair value. Changes in the fair value of equity securities are recognized in earnings. Changes in the fair value of debt securities are reported in other comprehensive income until a gain or loss on the securities is realized.

Held-to-Maturity Debt Securities

The Company classifies debt securities for which it has both the positive intent and ability to hold until maturity of the security as held-to-maturity debt securities. These securities are recorded at amortized cost with changes in amortized cost recognized in earnings until realized. Held-to-maturity debt securities are subject to the CECL reserve described above.
    
Real Estate Owned, Net

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

    Acquisition of properties generally are accounted for as asset acquisitions. Under asset acquisition accounting, the costs to acquire real estate, including transaction costs, are accumulated and then allocated to individual assets and liabilities acquired based upon their relative fair value. The Company allocates the purchase price of its real estate acquisitions to land, building, tenant improvements, acquired in-place leases, intangibles for the value of any above or below market leases at fair value and to any other identified intangible assets or liabilities. The Company amortizes the value allocated to in-place leases over the remaining lease term, which is reported in depreciation and amortization expense on its consolidated statements of operations. The value allocated to above or below market leases are amortized over the remaining lease term as an adjustment to rental income.

    Real estate assets are depreciated using the straight-line method over their estimated useful lives: buildings and improvements - not to exceed 40 years, and tenant improvements - shorter of the lease term or life of the asset. Ordinary repairs and maintenance which are not reimbursed by the tenants are expensed as incurred. Major replacements and betterments which improve or extend the life of the asset are capitalized and depreciated over their estimated useful life.

    Management reviews the Company’s real estate for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The review of recoverability is based on estimated future cash flows and the estimated liquidation value of such real estate assets, and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the real estate assets. If impaired, the real estate asset will be written down to its estimated fair value.

Leases

    The Company determines if an arrangement is a lease at inception. Operating leases in which the Company is the lessee are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the consolidated balance sheets. 

    ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s lease typically does not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made in advance and excludes lease incentives if there were any. The Company’s lease term may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Lease expense is recognized on a straight-line basis over the lease term.
10


Notes to Unaudited Consolidated Financial Statements


Revenue Recognition

    Revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

    Interest Income: Interest income is accrued based upon the outstanding principal amount and contractual terms of the loans and preferred equity investments that the Company expects to collect, and it is accrued and recorded on a daily basis. Discounts and premiums on investments purchased are accreted or amortized over the expected life of the respective loan using the effective yield method, and are included in interest income in the consolidated statements of operations. Loan origination fees and exit fees, net of portions attributable to obligations under participation agreements, are capitalized and amortized or accreted to interest income over the life of the investment using the effective yield method. Outstanding interest receivable is assessed for recoverability. The Company generally reverses the accrued and unpaid interest against interest income and no longer accrues for the interest when, in the opinion of the Manager, recovery of income and principal becomes doubtful. Interest is then recorded on the basis of cash received until accrual is resumed when the loan becomes contractually current and performance is demonstrated. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability.

    The Company holds loans in its portfolio that contain paid-in-kind (“PIK”) interest provisions. The PIK interest, which represents contractually deferred interest that is added to the principal balance that is due at maturity, is recorded on the accrual basis.

    Real Estate Operating Revenues: Real estate operating revenue is derived from leasing of space to various types of tenants. The leases are for fixed terms of varying length and generally provide for annual rent increases and expense reimbursements to be paid in monthly installments. Lease revenue, or rental income from leases, is recognized on a straight-line basis over the term of the respective leases. Additionally, the Company recorded above- and below-market lease intangibles, which are included in real estate owned, net, in connection with the acquisition of the real estate properties. These intangible assets and liabilities are amortized to lease revenue over the remaining contractual lease term.
    
    Other Revenues: Prepayment fee income is recognized as prepayments occur. All other income is recognized when earned.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments, with original maturities of ninety days or less when purchased, as cash equivalents. Cash and cash equivalents are exposed to concentrations of credit risk. The Company maintains all of its cash at financial institutions which, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation.
    Restricted cash represents cash held as additional collateral by the Company on behalf of the borrowers related to the investments in loans or preferred equity instruments for the purpose of such borrowers making interest and property-related operating payments. Restricted cash is not available for general corporate purposes. The related liability is recorded in “Interest reserve and other deposits held on investments” on the consolidated balance sheets.

    Cash held in escrow by lender represents amounts funded to an escrow account for debt services and tenant improvements.

    The following table provides a reconciliation of cash, cash equivalents and restricted cash in the Company’s consolidated balance sheets to the total amount shown in its consolidated statements of cash flows as of:
March 31, 2023March 31, 2022
Cash and cash equivalents$28,869,594 $9,858,153 
Restricted cash4,611,794 8,058,767 
Cash held in escrow by lender3,571,083 7,651,900 
Total cash, cash equivalents and restricted cash shown in the consolidated
   statements of cash flows
$37,052,471 $25,568,820 
11


Notes to Unaudited Consolidated Financial Statements


 Participation Interests

Loan participations from the Company which do not qualify for sale treatment remain on the Company’s consolidated balance sheets and the proceeds are recorded as obligations under participation agreements. For the investments for which participation has been granted, the interest earned on the entire loan balance is recorded within “Interest income” and the interest related to the participation interest is recorded within “Interest expense from obligations under participation agreements” in the consolidated statements of operations. Interest expense from obligations under participation agreement is reversed when recovery of interest income on the related loan becomes doubtful. See “Obligations under Participation Agreements” in Note 9 for additional information.

Term Loan

    The Company previously financed certain of its senior loans through borrowings under an indenture and credit agreement. The Company accounted for the borrowings as a term loan, which was carried at the contractual amount (cost), net of unamortized deferred financing fees. On February 18, 2022, the Company refinanced the Term Loan (as defined below) with a new repurchase agreement. See “Goldman Master Purchase Agreement” in Note 9 for additional information. In connection with the BDC Merger, the Company assumed a $25.0 million term loan. The Company classified this term loan as term loan payable on the consolidated balance sheets.

Repurchase Agreements

The Company finances certain of its senior loans held for investment through repurchase transactions under master repurchase agreements. The Company accounts for the repurchase transactions as secured borrowing transactions, which are carried at their contractual amounts (cost), net of unamortized deferred financing fees. See “Repurchase Agreements” in Note 9 for additional information.

Fair Value Measurements

    U.S. GAAP establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The Company has not elected the fair value option for its financial instruments, including loans held for investment, loans held for investment acquired through participation, obligations under participation agreements, secured borrowing, unsecured notes, mortgage loan payable, term loan payable, repurchase agreement payment and revolving line of credit. Such financial instruments are carried at cost, less impairment, where applicable. Marketable securities are financial instruments that are reported at fair value.

Deferred Financing Costs

    Deferred financing costs represent fees and expenses incurred in connection with obtaining financing for investments. These costs are presented in the consolidated balance sheets as a direct deduction of the debt liability to which the costs pertain. These costs are amortized using the effective interest method and are included in interest expense on the applicable borrowings in the consolidated statements of operations over the life of the borrowings.

Income Taxes

    The Company has elected to be taxed as a REIT under the Internal Revenue Code commencing with the taxable year ended December 31, 2016. In order to qualify as a REIT, the Company is required, among other things, to distribute dividends equal to at least 90% of its REIT net taxable income to the stockholders and meet certain tests regarding the nature of its income and assets. As a REIT, the Company is not subject to federal income taxes on income and gains distributed to the stockholders as long as certain requirements are satisfied, principally relating to the nature of income and the level of distributions, as well as other factors. If the Company fails to continue to qualify as a REIT in any taxable year and does not qualify for certain statutory relief provisions, the Company will be subject to U.S. federal and state income taxes at regular corporate rates (including any applicable alternative minimum tax) beginning with the year in which it fails to qualify and may be precluded from being able to elect to be treated as a REIT for the Company’s four subsequent taxable years. Any gains from the sale of foreclosed properties within two years are subject to U.S. federal and state income taxes at regular corporate rates. As of March 31, 2023, the Company has satisfied all the requirements for a REIT.

The Company did not have any uncertain tax positions that met the recognition or measurement criteria of Accounting Standards Codification (“ASC”) 740-10-25, Income Taxes, nor did the Company have any unrecognized tax benefits as of the
12


Notes to Unaudited Consolidated Financial Statements

periods presented herein. The Company recognizes interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in its consolidated statements of operations. For the three months ended March 31, 2023 and 2022, the Company did not incur any interest or penalties. Although the Company files federal and state tax returns, its major tax jurisdiction is federal. The Company’s 2019-2022 federal tax returns remain subject to examination by the Internal Revenue Service.

Earnings Per Share

    The Company has a simple equity capital structure with only common stock outstanding as of March 31, 2023 and common stock and preferred stock outstanding as of December 31, 2022. As a result, earnings per share, as presented, represent both basic and dilutive per-share amounts for the periods presented in the consolidated financial statements. Income per basic share of common stock is calculated by dividing net income allocable to common stock by the weighted-average number of shares of common stock issued and outstanding during such period.

Use of Estimates

    The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may ultimately differ from those estimates, and those differences could be material.

Segment Information

    The Company’s primary business is originating, acquiring and structuring real estate-related loans related to high quality commercial real estate. From time to time, the Company may acquire real estate encumbering the senior loans through foreclosure, may invest in real estate related joint ventures and may directly acquire real estate properties. The Company operates in a single segment focused on mezzanine loans, other loans and preferred equity investments, and to a lesser extent, owning and managing real estate.
    
Recent Accounting Pronouncements

    In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. In April 2019, the FASB issued additional amendments to clarify the scope of ASU 2016-13 and address issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other things. In May 2019, the FASB issued ASU 2019-05 — Targeted Transition Relief, which provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. In October 2019, the FASB decided that for smaller reporting companies, ASU 2016-13 and related amendments will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company meets the definition of a smaller reporting company under the regulation of the Securities and Exchange Commission. The Company adopted this ASU and related amendments on January 1, 2023. The adoption of ASU 2016-13 resulted in an incremental reserve of approximately $4.6 million, which included reserve on future loan funding commitments. The Company recorded the cumulative effect of initially applying this guidance as an adjustment to Accumulated deficit using the modified retrospective method of adoption.

    London Interbank Offered Rate (“LIBOR”) is a benchmark interest rate referenced in a variety of agreements that are used by all types of entities. In July 2017, the U.K. Financial Conduct Authority, which regulates the LIBOR administrator, ICE Benchmark Administration Limited (“IBA”), announced that it would cease to compel banks to participate in setting LIBOR as a benchmark by the end of 2021, which has subsequently been delayed to June 30, 2023. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) — Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments in ASU 2020-04 provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), which expanded the scope of Topic 848 to include derivative instruments impacted by discounting transition (“ASU 2021-01”). In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848) — Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”). ASU 2022-06 deferred the sunset date of ASU 2020-04 to December 31, 2024. In the event LIBOR is unavailable, the Company’s investment documents provide for a substitute index, on a basis generally consistent with market practice, intended to put the Company in substantially the same economic position
13


Notes to Unaudited Consolidated Financial Statements

as LIBOR. As a result, the Company does not expect the reference rate reform and the adoption of ASU 2020-04 and ASU 2021-01 to have a material impact on its consolidated financial statements and disclosures.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”). ASU 2022-02 eliminates troubled debt restructuring guidance for organizations that adopted the amendments in ASU 2016-13 while providing for additional disclosures for loan modifications. ASU 2022-02 also amends the vintage disclosure guidance for public business entities. The Company adopted the provisions of ASU 2022-02 concurrently with the adoption of ASU 2016-03. The adoption of ASU 2022-02 did not have any material impact on the Company’s financial condition and results of operations.

Note 3. BDC Merger

BDC Merger

On October 1, 2022 (the “Closing Date”), pursuant to the Merger Agreement, Terra BDC merged with and into Terra LLC, with Terra LLC surviving as a wholly owned subsidiary of the Company. The Certificate of Merger and Articles of Merger with respect to the BDC Merger were filed with the Secretary of State of the State of Delaware and State Department of Assessments and Taxation of Maryland (the “SDAT”), respectively, with an effective time and date of 12:02 a.m., Eastern Time, on the Closing Date (the “Effective Time”).

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

Pursuant to the terms of the transactions described in the Merger Agreement, approximately 4,847,910 shares of Class B Common Stock were issued to former Terra BDC stockholders in connection with the BDC Merger, based on the number of outstanding shares of Terra BDC Common Stock as of the Closing Date. Following the consummation of the BDC Merger, former Terra BDC stockholders owned approximately 19.9% of the common equity of the Company.

The Company and Terra BDC prepared their respective financial statements in accordance with generally accepted accounting principles in the United States. The BDC Merger is accounted for using the acquisition method of accounting, with the Company being treated as the accounting acquirer. In identifying the Company as the acquiring entity for accounting purposes, the Company and Terra BDC took into account a number of factors, including the relative size of the merging companies, which entity issues additional shares in conjunction with the BDC Merger, the relative voting interests of the respective stockholders after consummation of the BDC Merger, and the composition of the Board and senior management of the combined company after consummation of the BDC Merger.

The Company, as the acquirer, accounted for the BDC Merger as an asset acquisition and all direct acquisition-related costs are capitalized to the total cost of the assets acquired and liabilities assumed. Pursuant to Accounting Standard Codification Topic 805, Business Combination, total cost is allocated to the assets acquired and liabilities assumed on a relative fair value basis.
14


Notes to Unaudited Consolidated Financial Statements


The following table summarizes the total consideration and the fair values of assets acquired and liabilities assumed in the BDC Merger:
Total Consideration
Fair value of Terra Property Trust shares of common stock issued
$71,054,620 
Cash paid for fractional shares12,920 
Transaction costs2,283,785 
$73,351,325 
Assets Acquired and Liabilities Assumed at Fair Value
Cash and cash equivalents$24,321,951 
Restricted cash260,614 
Loans held for investment77,562,528 
Loans held for investment acquired through participation36,793,313 
Interest receivable1,367,044 
Other assets55,465 
Term loan payable(25,000,000)
Unsecured notes payable(33,770,000)
Obligations under participation agreements(6,114,979)
Interest reserve and other deposits held on investments(260,614)
Due to manager(682,541)
Interest payable (53,186)
Accounts payable and accrued expenses(740,824)
Other liabilities(387,446)
Net assets acquired $73,351,325 

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

Net Gain on Extinguishment of Obligations Under Participation Agreements

As discussed in Note 8, in the normal course of business, the Company may enter into participation agreements with related parties, primarily other affiliated funds managed by the Manager, and to a lesser extent, unrelated parties. As a result of the BDC Merger, the obligations under participation agreements with Terra BDC totaling $37.0 million were effectively extinguished and the Company recognized a net gain of $3.4 million, representing the difference between the carrying value of the Company’s obligations under participation agreements and the fair value of Terra BDC’s investments acquired through participation agreements.

Appointment of Directors

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

Voting Support Agreement

On the Closing Date, the Company, Terra JV and Terra Offshore REIT entered into a Voting Support Agreement (the “2022 Voting Agreement”). Pursuant to the 2022 Voting Agreement, effective as of the Closing Date, Terra JV and Terra Offshore REIT have agreed to, at any meeting of the Company’s stockholders called for the purpose of electing directors (or by
15


Notes to Unaudited Consolidated Financial Statements

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

Indemnification Agreements

The Company has entered into customary indemnification agreements with each member of the Board (including each Terra BDC Designee). These agreements, among other things, require the Company to indemnify each director to the maximum extent permitted by Maryland law, including indemnification of expenses such as attorney’s fees, judgments, fines and settlement amounts incurred in any action or proceeding, including any action or proceeding by or in right of the Company, arising out of his or her service as a director.

Note 4. Loans Held for Investment

The Company elected the practical expedient under ASC 326 to exclude accrued interest from amortized cost. As of March 31, 2023 and December 31, 2022, accrued interest receivable of $4.8 million and $4.1 million, respectively, is included in interest receivable on the consolidated balance sheets, and is excluded from the amortized cost of loans held for investment.

Portfolio Summary

The following table provides a summary of the Company’s loan portfolio as of:
March 31, 2023December 31, 2022
Fixed Rate
Floating
Rate
(1)(2)(3)
TotalFixed Rate
Floating
Rate
(1)(2)(3)
Total
Number of loans6 24 30 8 23 31 
Principal balance$59,726,205 $573,106,467 $632,832,672 $90,990,183 $554,805,276 $645,795,459 
Carrying value$60,121,950 $549,826,839 $609,948,789 $92,274,998 $534,215,769 $626,490,767 
Fair value$59,314,040 $553,011,148 $612,325,188 $90,729,098 $532,416,656 $623,145,754 
Weighted-average coupon rate13.17 %11.78 %11.92 %13.82 %11.23 %11.59 %
Weighted-average remaining
 term (years)
1.711.031.091.351.101.14
_______________
(1)These loans pay a coupon rate of LIBOR or Secured Overnight Financing Rate (“SOFR”), as applicable, plus a fixed spread. Coupon rate shown was determined using LIBOR of 4.86%, average SOFR of 4.63% and forward-looking term rate based on SOFR (“Term SOFR”) of 4.80% as of March 31, 2023 and LIBOR of 4.39%, average SOFR of 4.06% and Term SOFR of 4.36% as of December 31, 2022.
(2)As of March 31, 2023 and December 31, 2022, amount included $427.3 million and $413.1 million of senior mortgages used as collateral for $277.9 million and $261.0 million of borrowings under credit facilities, respectively (Note 9).
(3)As of March 31, 2023 and December 31, 2022, twenty-two and twenty-one of these loans, respectively, are subject to a LIBOR or SOFR floor, as applicable.

16


Notes to Unaudited Consolidated Financial Statements

Lending Activities

The following tables present the activities of the Company’s loan portfolio:
Loans Held for InvestmentLoans Held for Investment through Participation InterestsTotal
Balance, January 1, 2023$584,417,939 $42,072,828 $626,490,767 
Cumulative effect of credit loss accounting standard effective
   January 1, 2023 (Note 2)
(4,250,052) (4,250,052)
New loans made46,214,722  46,214,722 
Principal repayments received(55,895,298)(3,282,208)(59,177,506)
Net amortization of premiums on loans(346,780) (346,780)
Accrual, payment and accretion of investment-related fees and other,
   net
(34,186)(18,541)(52,727)
Reversal of provision for credit losses1,070,365  1,070,365 
Balance, March 31, 2023$571,176,710 $38,772,079 $609,948,789 
Loans Held for InvestmentLoans Held for Investment through Participation InterestsTotal
Balance, January 1, 2022$457,329,582 $12,343,732 $469,673,314 
New loans made87,538,133 581,688 88,119,821 
Principal repayments received(750,000) (750,000)
Net amortization of premiums on loans(15,348) (15,348)
Accrual, payment and accretion of investment-related fees and other,
   net
1,029,625 11,884 1,041,509 
Provision for credit losses(50,296) (50,296)
Balance, March 31, 2022$545,081,696 $12,937,304 $558,019,000 

Portfolio Information

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

March 31, 2023December 31, 2022
Loan StructurePrincipal BalanceCarrying Value% of Total Principal BalanceCarrying Value% of Total
First mortgages$473,858,731 $478,713,612 78.4 %$456,408,889 $461,299,182 73.7 %
Preferred equity investments122,131,455 122,948,116 20.2 %121,231,434 122,132,177 19.5 %
Mezzanine loans36,842,486 36,938,638 6.1 %39,352,303 39,451,115