Terra Property Trust, Inc.
For the period ended Dec 31, 2024. Filed Mar 14, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Mar 14, 2025
TPTS$13.00+0.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-03-15.
0001674356-24-000009
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-03-14.
0001674356-25-000007
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 169 previous paragraphs and 161 current paragraphs.
94 unchanged; 41 reworded; 24 added; 31 removed; 3 previous and 2 current paragraphs rearranged.
Tables are not compared: 9 previous and 10 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (24)
Current report
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.
Current report
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.
Current report
(4)Excludes nonperforming loans for which recovery of interest income was not probable.
Current report
(5)Represents current effective maturity as of December 31, 2024 and 2023, exclusive of any extension options available.
Current report
For the year ended December 31, 2024, provision for credit losses was $16.6 million, primarily related to a decline in our estimated recoverable amount on a non-performing subordinated loan due to an increase in senior funding.
Current report
Professional Fees
Current report
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, professional fees decreased by $0.7 million, primarily due to legal fees incurred in connection with a review of strategic alternatives for our company in 2023.
Current report
Unrealized Gain (Loss) on Investments, Net
Current report
Income (Loss) from Equity Interest in Unconsolidated Investments
Current report
Our income (loss) from equity interest in unconsolidated investments are as follows:
Current report
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, equity income from RESOF increased as a result of an increase in RESOF’s net income associated with increased investments.
Current report
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, equity loss from the joint ventures increased primarily due to an increase in operating expenses, depreciation and amortization, and interest expense recognized by the joint ventures, partially offset by an increase in revenues and a gain on sale of real estate recognized by the joint ventures.
Current report
Other equity investment relates to a preferred equity agreement in which we also share residual profit from the sale of underlying property with the borrower. There was no such investment during the year ended December 31, 2023.
Current report
Loss on Repayment of Loan
Current report
In August 2024, a $65.0 million senior loan was repaid, resulting in a loss on repayment of $5.6 million for the year ended December 31, 2024, which included the write-off of interest receivable of $4.8 million. There was no such loss for the year ended December 31, 2023.
Current report
Realized Loss On Investments, Net
Current report
(1)In January 2025, the maturity of the facility was extended to June 30, 2025.
Current report
(2)In February 2025, the maturity of the facility was extended to February 18, 2027.
Current report
Cash Flows Provided by (Used in) Investing Activities
Current report
For the year ended December 31, 2024, cash flows provided by investing activities were $101.6 million, primarily related to proceeds from repayment of loans of $215.1 million and promissory note receivable of $9.6 million, partially offset by origination and purchase of loans of $57.2 million, purchase of equity interests in unconsolidated investments of $65.6 million and funding for promissory note receivable of $5.0 million.
Current report
Management Agreement with our Manager
Current report
Promissory Note Payable with Terra LLC
Current report
On January 24, 2024, we, as borrower, entered into a revolving promissory note payable with Terra LLC. The promissory note payable bears interest at the Prime Rate, as such Prime Rate is published in the Wall Street Journal, computed on the basis of the actual number of days elapsed and a year of 365 days. The promissory note matures on March 31, 2027. As of December 31, 2024, amount outstanding under the promissory note payable was $45.1 million. The activity associated with this agreement is eliminated in consolidation and therefore has no impact on our consolidated financial statements.
Current report
As of December 31, 2024, the principal balance of our participation obligation was $18.0 million, which was a participation obligation to a related-party managed by the Manager.
Removed paragraphs (31)
Previous report
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Previous report
Recent Developments
Previous report
Merger Agreements
Previous report
At the Effective Time, except for any shares of Terra BDC Common Stock held by us or any of our wholly owned subsidiaries or Terra BDC, which shares were automatically retired and ceased to exist with no consideration paid therefor, each issued and outstanding share of Terra BDC Common Stock was automatically cancelled and retired and converted into the right to receive (i) 0.595 shares of our newly designated Class B Common Stock, and (ii) cash, without interest, in lieu of any fractional shares of Class B Common Stock otherwise issuable in an amount, rounded to the nearest whole cent, determined by multiplying (x) the fraction of a share of Class B Common Stock to which such holder would otherwise be entitled by (y) $14.38.
Previous report
On June 28, 2023, we announced we entered into an Agreement and Plan of Merger, dated as of June 27, 2023 (the “WMC Merger Agreement”), with Western Asset Mortgage Capital Corporation, a Delaware corporation (“WMC”). On August 8, 2023, WMC terminated the WMC Merger Agreement pursuant to its terms (the “Termination”), and we were paid a termination fee of $3.0 million.
Previous report
Distribution of Class B Common Stock by Terra Fund 5
Previous report
Prior to undertaking the REIT Formation Transaction, the Terra Funds distributed a consent solicitation memorandum disclosing the details of the proposed transactions and received the requisite consent of investors in each of the Terra Funds to engage in the REIT Formation Transaction. The consent solicitation memorandum disclosed that Terra Fund 5 could in the future make a distribution-in-kind to its members of shares of our company, rather than a cash distribution. The limited liability company agreement of Terra Fund 5 provides that the term of Terra Fund 5 expires on December 31, 2023.
Previous report
On December 20, 2023, Terra Fund 5 announced that effective December 29, 2023, Terra Fund 5 would distribute all its shares of Class B Common Stock to its members as part of the winding up of Terra Fund 5. On the Distribution Date, each member of Terra Fund 5 received 2,252.02 shares of Class B Common Stock for each unit of membership interest in Terra Fund 5 held by such member. Because Terra Fund 5 previously owned its interests in the shares of Class B Common Stock indirectly through its ownership of interests in Terra JV, prior to the Distribution Date, Terra JV first distributed the shares of Class B Common Stock to Terra Fund 5, and Terra Fund 5 then distributed those shares to its members on the Distribution Date. On February 8, 2024, each of Terra Fund 5 and Terra JV were dissolved.
Previous report
Real Estate Ownership
Previous report
For the year ended December 31, 2023, we made two investments for eight industrial buildings for a total capital cost of $132.1 million. In connection with these acquisitions, we obtained mortgage financing totaling $72.6 million.
Previous report
Results of Operations
Previous report
Directors’ Fees
Previous report
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, directors’ fees increased by $0.2 million, as a result of an increase in the size of our Board due to the BDC Merger.
Previous report
Other
Previous report
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, other expenses decreased by $0.2 million, primarily as a result of a fee paid in 2022 to a third-party in connection with the sale of a parcel of land in June 2022.
Previous report
In connection with the BDC Merger, the obligations under participation agreements with Terra BDC totaling $37.0 million were effectively extinguished and we recognized a net gain of $3.4 million for the year ended December 31, 2022, representing the difference between the carrying value of the Company’s obligations under participation agreements and the fair value of Terra BDC’s investments acquired through participation agreements.
Previous report
Unrealized Losses on Investments, Net
Previous report
(Loss) Income from Equity Investment in Unconsolidated Investments
Previous report
In August 2020, we entered into a subscription agreement with RESOF, an affiliate managed by our Manager, whereby we committed to fund up to $50.0 million to purchase partnership interest in RESOF. RESOF’s primary investment objective is to generate attractive risk-adjusted returns by purchasing performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets. RESOF may also opportunistically originate high-yield mortgages or loans in real estate special situations including rescue financings, bridge loans, restructurings and bankruptcies (including debtor-in-possession loans). As of December 31, 2023 and 2022, we owned 14.9% and 27.9% of the equity interest in RESOF, respectively.
Previous report
We also own beneficial equity interests in three joint ventures that invest in real estate properties. In 2022, in connection with a mezzanine loan we originated, we entered into a residual profit sharing arrangement with the borrower. We account for this arrangement as an equity investment. In May 2023, the mezzanine loan that was accounted for as an equity investment and five senior loans that were held for investment were settled and exchanged for five industrial buildings. In November 2023, we contributed $5.0 million to a joint venture that owns a real estate property. We account for our equity interest in the joint ventures as equity method investments because we do not have a controlling financial interest in the entities.
Previous report
For the year ended December 31, 2023, we recognized loss from equity investment in unconsolidated investments of $2.4 million, which consisted of net equity loss from the joint ventures and the mezzanine loan of $3.5 million, partially offset by equity income from RESOF of $1.1 million. The equity loss from the joint ventures was the result of depreciation and amortization and interest expense recognized by the joint ventures. The equity income from RESOF included adjustments made due to the dilution of our ownership interest in RESOF as new investors were admitted in 2022 and 2023. For the year ended December 31, 2022, we recognized income from equity investment in unconsolidated investments of $2.7 million, which consisted of equity income from RESOF of $5.2 million, partially offset by equity loss from the joint ventures of $2.5 million.
Previous report
Gain on Sale of Interests in Unconsolidated Investments
Previous report
In September 2022, we sold a 53% effective interest in two joint ventures and 59% effective interest in another joint venture for a total of $33.7 million and recognized a gain on sale of $0.8 million for the year ended December 31, 2022. There was no such gain for the year ended December 31, 2023.
Previous report
Realized (Losses) Gains On Investments, Net
Previous report
(1)On March 7, 2024, we amended the facility agreement to waive the quarterly minimum net worth covenant for the purposes of the December 31, 2023 measurement date, decrease the minimum net worth covenant for future quarterly measurement dates, reduce the credit line, increase the coupon rate, revise the minimum profitability covenant and extend the facility term to September 12, 2024 with an option to extend the facility term for an additional 12-month period.
Previous report
(2)In February 2024, the outstanding balance was repaid. On March 7, 2024, we amended the side letter to the UBS AG facility agreement to reduce the maximum amount available under the facility to zero. In connection with this amendment, UBS AG waived the payment of any fees and the meeting of any representations, warranties or covenants for the period commencing on December 31, 2023 until such time as there are amounts outstanding under the UBS AG facility agreement.
Previous report
(3)On March 7, 2024, we amended the Goldman Sachs Bank facility agreement to extend the maturity date to February 18, 2025 and to reduce the minimum interest coverage ratio covenant.
Previous report
For the year ended December 31, 2022, cash flows used in investing activities were $49.1 million, primarily related to origination and purchase of loans of $290.0 million and purchase of equity interests in unconsolidated investments of $25.5 million, partially offset by proceeds from repayments of loans of $197.5 million, proceeds from sale of interests in joint ventures of $33.7 million, cash and restricted cash acquired in connection with the BDC Merger of $24.6 million, proceeds from sale of real estate of $8.6 million and proceeds from sale of marketable securities of $1.3 million.
Previous report
Management Agreement with Terra REIT Advisors
Previous report
On March 11, 2024, we and our Manager entered into an amendment to the Management Agreement, effective as of January 1, 2024 (the “Amendment”), in order to extend the term of the Management Agreement and modify the terms upon which the Management Agreement may be terminated. Except as discussed below, the terms of the Management Agreement remain unchanged by the Amendment. Except where the context requires otherwise, all references herein to the “Management Agreement” are to the Management Agreement as modified by the Amendment.
Previous report
As of December 31, 2023, there was no participation obligation.
Reworded paragraphs (41)
Previous wording
As of December 31, 2023, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 21 loans in nine states with an aggregate net principal balance of $509.5 million, a weighted average coupon rate of 12.9% and a weighted average remaining term to maturity of 0.8 years.
Current wording
As of December 31, 2024, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 13 loans in nine states with an aggregate net principal balance of $299.3 million, a weighted average coupon rate of 12.5% and a weighted average remaining term to maturity of 1.0 years.
Previous wording
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 December 31, 2023, our portfolio included underlying properties located in 21 markets, across nine states and includes property types such as multifamily housing, student housing, commercial offices, medical offices, mixed-use, industrial and infrastructure properties. 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.
Current wording
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 December 31, 2024, our portfolio included underlying properties located in 13 markets, across nine states and includes property types such as multifamily housing, student housing, commercial offices, medical offices, mixed-use and infill properties. The profile of these properties ranges from stabilized and value-added properties to pre-development and construction. Our loans are structured across mezzanine debt, first mortgages, preferred equity investments and credit facilities.
Previous wording
Pursuant to the terms of the transactions described in the Merger Agreement, approximately 4,847,910 shares of Class B Common Stock were issued to former Terra BDC stockholders in connection with the BDC Merger, based on the number of outstanding shares of Terra BDC Common Stock as of the Closing Date. Following the consummation of the BDC Merger, former Terra BDC stockholders owned approximately 19.9% of our common equity.
Current wording
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.
Previous wording
(1)These loans pay a coupon rate of London Interbank Offered Rate (“LIBOR”), Secured Overnight Financing Rate (“SOFR”), or forward-looking term rate SOFR (“Term SOFR”) plus a fixed spread. Coupon rates shown were determined using LIBOR of 5.47%, average SOFR of 5.34% and Term SOFR of 5.35% as of December 31, 2023, and LIBOR of 4.39%, average SOFR of 4.06% and Term SOFR of 4.36% as of December 31, 2022.
Current wording
(1)These loans pay a coupon rate of Secured Overnight Financing Rate (“SOFR”), or forward-looking term rate SOFR (“Term SOFR”) plus a fixed spread. Coupon rates shown were determined using average SOFR of 4.53% and Term SOFR of 4.33% as of December 31, 2024, and average SOFR of 5.34% and Term SOFR of 5.35% as of December 31, 2023.
Previous wording
(2)As of December 31, 2023 and 2022, amount included $342.9 million and $413.1 million of senior mortgages used as collateral for $204.9 million and $261.0 million of borrowings under credit facilities, respectively.
Current wording
(2)As of December 31, 2024 and 2023, amount included $208.0 million and $342.9 million of senior mortgages used as collateral for $123.2 million and $204.9 million of borrowings under credit facilities, respectively.
Previous wording
(3)As of December 31, 2023 and 2022, 14 and 21 loans, respectively, are subject to a LIBOR, SOFR, or Term SOFR floor, as applicable.
Current wording
(3)As of December 31, 2024 and 2023, 10 and 14 loans, respectively, are subject to a SOFR, or Term SOFR floor, as applicable.
Previous wording
In addition to our net loan portfolio, as of December 31, 2023, through two investments, we owned eight industrial buildings acquired in 2023; and as of December 31, 2022, we owned a multi-tenant office building acquired pursuant to a foreclosure. As of December 31, 2023 and 2022, the real estate and related lease intangible assets and liabilities had a net carrying value of $129.8 million and $40.6 million, respectively, and the mortgage loans payable encumbering the real estate properties had an outstanding principal amount of $73.5 million and $29.3 million, respectively.
Current wording
In addition to our net loan portfolio, we own eight industrial buildings. As of December 31, 2024 and 2023, the real estate and related lease intangible assets and liabilities had a net carrying value of $125.3 million and $129.8 million, respectively, and the mortgage loans payable encumbering the real estate properties had an outstanding principal amount of $74.4 million and $73.5 million, respectively.
Previous wording
Additionally, as of December 31, 2023 and 2022, we owned 14.9% and 27.9%, respectively, of equity interest in a limited partnership that invests primarily in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets. We also beneficially owned equity interests in three joint ventures that invest in real estate properties. In 2022, in connection with a $10.0 million mezzanine loan we originated, we entered into a residual profit sharing arrangement with the borrower. We accounted for this arrangement as an equity investment. In May 2023, we purchased the underlying assets and the $10.0 million mezzanine loan was settled in connection with the purchase. In November 2023, in connection with a loan restructuring, we contributed $5.0 million to another joint venture that owns a real estate property. We account for our equity interest in the joint ventures as equity method investments because we do not have a controlling financial interest in the entities. As of December 31, 2023 and 2022, these equity investments had total carrying value of $37.2 million and $62.5 million, respectively.
Current wording
As of both December 31, 2024 and 2023, we owned 14.9% of equity interest in a limited partnership that invests primarily in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets. We also beneficially own equity interests in joint ventures that invest in real estate properties, opportunistic debt and equity securities and, indirectly, together with other non-affiliated entities, non-real estate operating companies, as well as a preferred equity investment with residual profit sharing from sale of the underlying property. These investments are accounted for using the equity method of accounting. As of December 31, 2024 and 2023, these equity investments had total carrying value of $106.8 million and $37.2 million, respectively.
Previous wording
We calculate our book value per share by dividing our net equity by the number of outstanding shares of our common stock, unless otherwise determined by our Board. Our book value per share of Class B Stock Common Stock as of December 31, 2023 and 2022 was $9.93 and $13.23, respectively.
Current wording
We calculate our book value per share by dividing our net equity by the number of outstanding shares of our common stock, unless otherwise determined by our Board. Our book value per share of Class B Stock Common Stock as of December 31, 2024 and 2023 was $7.63 and $9.93, respectively.
Previous wording
For the years ended December 31, 2023 and 2022, we invested $19.2 million and $126.9 million in new and add-on investments and had $10.3 million and $33.3 million of repayments, resulting in net investments of $8.9 million and $93.6 million, respectively. Amounts are net of obligations under participation agreements and secured financing.
Current wording
For the years ended December 31, 2024 and 2023, we invested $95.8 million and $37.1 million in new and add-on investments and had $112.7 million and $29.8 million of repayments, resulting in net repayments of $16.9 million and net investments of $7.3 million, respectively. Amounts are net of obligations under participation agreements and secured financing agreements.
Previous wording
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;
Current wording
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.
Previous wording
In assessing the performance of our loans, we believe it is appropriate to evaluate the loans on an economic basis, that is, gross loans net of obligations under participation agreements, notes payable, term loan payable, revolving credit facility and repurchase agreements payable.
Current wording
In assessing the performance of our loans, we believe it is appropriate to evaluate the loans on an economic basis, that is, gross loans net of obligations under participation agreements, promissory notes payable, revolving credit facility, secured borrowing and repurchase agreements payable.
Previous wording
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, interest income increased by $13.5 million, primarily due to an increase in contractual interest income as a result of an increase in the weighted average principal balance of gross loans due to loans originated in 2022 and loans we acquired in connection with the BDC Merger, as well as an increase in the weighted average coupon rate due to increases in the underlying index rates.
Current wording
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, interest income decreased by $17.9 million, primarily due to a decrease in contractual interest income as a result of a decrease in the weighted average principal balance of performing loans as well as an increase in suspended interest income accrual on non-performing loans of $3.0 million.
Previous wording
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, real estate operating revenue decreased by $0.4 million, primarily due to lease termination income recognized in 2022 (there was no such lease termination income recognized in 2023), partially offset by rental income contributed by the industrial buildings acquired in 2023.
Current wording
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, real estate operating revenue decreased by $0.3 million, primarily due to a reduction in lease revenue resulting from the disposal of the office building in October 2023, partially offset by an increase in lease revenue contributed by the five industrial buildings acquired in May 2023.
Previous wording
For the year ended December 31, 2023, there was no early repayment of loans and we did not recognize any prepayment fee income. For the year ended December 31, 2022, we recognized prepayment fee income of $2.0 million on loans with minimum yield provisions repaid before maturity.
Current wording
For the year ended December 31, 2024 prepayment fee income was $0.4 million, related to the early repayment of one of our loans. There was no such prepayment fee income for the year ended December 31, 2023.
Previous wording
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, other operating income increased by $0.1 million, primarily due to an increase in dividend income recognized on marketable securities, partially offset by a decrease in application fees income on deals under application.
Current wording
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, other operating income decreased by $0.5 million, primarily due to a decline in dividend income earned on our marketable securities.
Previous wording
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, operating expenses reimbursed to our Manager increased by $1.2 million, primarily due to an increase in the allocation ratio resulting from an increase in total assets under management primarily due to loans acquired in connection with the BDC Merger.
Current wording
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, operating expenses reimbursed to our Manager decreased by $1.8 million, primarily due to a decrease in the allocation ratio as a result of a decrease in our total funds under management.
Previous wording
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, asset management fees increased by $1.3 million, primarily due to an increase in total assets under management primarily resulting from loans acquired in connection with the BDC Merger.
Current wording
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, asset management fees decreased by $1.6 million, primarily due to a decrease in total assets under management resulting from repayment of loans.
Previous wording
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, asset servicing fees increased by $0.3 million, primarily due to an increase in total assets under management resulting from loans acquired in connection with the BDC Merger.
Current wording
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, asset servicing fees decreased by $0.4 million, primarily due to a decrease in total assets under management resulting from the repayment of loans.
Previous wording
On January 1, 2023, we adopted the provisions of ASU 2016-13, which requires entities to recognize credit losses on financial instruments based on an estimate of current expected credit losses. Prior to the adoption of ASU 2016-13, we recorded an allowance for credit losses equal to (i) 1.5% of the aggregate carrying amount of loans rated as a “4”, plus (ii) 5% of the aggregate carrying amount of loans rated as a “5”, plus (iii) past due loan reserves, if any.
Current wording
On January 1, 2023, we adopted the provisions of Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to recognize credit losses on financial instruments based on an estimate of current expected credit losses.
Previous wording
For the year ended December 31, 2023, provision for credit losses increased by $33.7 million, primarily related to the decline in fair value of collateral underlying three loans in the investment portfolio due to a decline in the macroeconomic outlook for commercial real estate.
Current wording
For theyear ended December 31, 2023, provision for credit losses was $45.5 million, primarily related to the decline in our estimated recoverable amount on three non-performing loans in the investment portfolio due to a decline in the macroeconomic outlook for commercial real estate.
Previous wording
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, real estate operating expenses increased by $0.4 million, primarily due to expenses incurred on the industrial buildings that we acquired in 2023, partially offset by a reduction in expenses due to the disposal of the office building in October 2023 and a real estate tax refund related to the overpayment of real estate tax in the prior year.
Current wording
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, real estate operating expenses decreased by $1.9 million, primarily due to the disposal of the office building in October 2023 which resulted in a reduction in rent expense of $1.5 million.
Previous wording
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, depreciation and amortization increased by $0.4 million, primarily due to the industrial buildings that we acquired in 2023, partially offset by a reduction in depreciation and amortization due to the disposal of the office building in October 2023.
Current wording
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, depreciation and amortization increased by $0.4 million, primarily due to the five industrial buildings that we acquired in May 2023, partially offset by a reduction in depreciation and amortization related to the disposal of the office building in October 2023.
Previous wording
For the year ended December 31, 2023, we recognized an impairment charge of $11.8 million on the multi-tenant office building located in California in order to reduce the carrying value of the building to its estimated fair value. In October 2023, we conveyed our interest in the office building to the lender by deed-in-lieu of foreclosure and accordingly, we no longer own the office building. For the year ended December 31, 2022, we recognized an impairment charge of $1.6 million, on 4.9 acres of the development land located in Pennsylvania in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost of sale. The development land was sold in the second quarter of 2022.
Current wording
For the year ended December 31, 2023, we recognized an impairment charge of $11.8 million on the multi-tenant office building located in California in order to reduce the carrying value of the building to its estimated fair value. There was no impairment charge for the year ended December 31, 2024.
Previous wording
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, interest expense on secured financing increased by $13.3 million as a result of an increase in the weighted average principal amount outstanding as well as an increase in the index rate on secured financing agreements.
Current wording
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, interest expense on secured financing decreased by $3.1 million, as a result of a decrease in the weighted average principal amount outstanding as well as a decrease in the index rate on secured financing agreements.
Previous wording
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, interest expense on unsecured notes payable increased by $3.0 million, as a result of an increase in the weighted average principal amount outstanding due to the assumption of unsecured notes payable in connection with the BDC Merger.
Current wording
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, interest expense on unsecured notes payable increased by $0.2 million, primarily due to an increase in the amortization of financing costs using the effective interest rate method.
Previous wording
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, interest expense from obligations under participation agreements decreased by $1.8 million, as a result of a decrease in the weighted average principal amount outstanding, primarily due to the release of obligations under participation agreements with Terra BDC in connection with the BDC Merger, partially offset by an increase in the index rate on the outstanding obligations under participation agreements.
Current wording
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, interest expense from obligations under participation agreements increased by $1.6 million, primarily as a result of an increase in the weighted average principal amount outstanding as well as an increase in the weighted average interest rate on the obligations under participation agreements.
Previous wording
For the year ended December 31, 2023, as compared to the year ended December 31, 2022, unrealized losses on investments, net increased by $0.2 million, primarily due to a decrease in the fair value of our marketable securities at period end.
Current wording
For the year ended December 31, 2024, we recognized an unrealized gain on investment of $0.1 million, compared to an unrealized loss on investment of $0.3 million for the year ended December 31, 2023, primarily due to an increase in the fair value of our marketable securities as of December 31, 2024.
Previous wording
In October 2023, we conveyed our interest in an office building to the lender by deed in lieu of foreclosure and recognized a net loss on disposal of real estate of $4.2 million for the year ended December 31, 2023. In June 2022, we sold 4.9 acres of adjacent land located in Pennsylvania for net proceeds of $8.6 million, and recognized a net loss on sale of $0.1 million for the year ended December 31, 2022.
Current wording
In October 2023, we conveyed our interest in an office building to the lender by deed in lieu of foreclosure and recognized a net loss on disposal of real estate of $4.2 million for the year ended December 31, 2023. There was no such loss for the year ended December 31, 2024.
Previous wording
In September 2023, the counterparty to a participation agreement conveyed its interest in the obligation under participation agreement to us and we recognized a gain on extinguishment of participation liability of $10.6 million for the year ended December 31, 2023.
Current wording
In September 2023, an unrelated counterparty to a participation agreement conveyed its interest in the obligation under participation agreement to us and we recognized a gain on debt extinguishment of $14.1 million. There was no such gain for the year ended December 31, 2024
Previous wording
For the year ended December 31, 2023, we sold a portion of our investments in common stock and recognized a net loss on sale of $0.5 million. For year ended December 31, 2022, we sold our investments in common and preferred stocks and recognized a net gain on sale of $0.1 million.
Current wording
For the year ended December 31, 2023, we sold a portion of our investments in common stock and recognized a net loss on sale of $0.5 million.
Previous wording
For the year ended December 31, 2023 as compared to the year ended December 31, 2022, the resulting net loss increased by $49.9 million.
Current wording
For the year ended December 31, 2024 as compared to the year ended December 31, 2023, the resulting net loss decreased by $19.7 million.
Previous wording
We expect to fund approximately $22.4 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. In connection with the BDC Merger, we assumed a $25.0 million term loan. The term loan currently bears interest at an annual rate of SOFR plus 7.375% with a SOFR floor of 5.0% and matures on March 31, 2024. We expect to either maintain sufficient liquidity to repay the facility or refinance the facility. Our revolving line of credit with outstanding principal balance of $47.5 million was to come due on March 12, 2024 and our Goldman Sachs Bank repurchase agreement with outstanding principal balance of $75.5 million was to come due on February 18, 2024 (see “Summary of Financing” below). On March 7, 2024, the facility term of our revolving line of credit was extended to September 12, 2024 with an option to extend the facility term for an additional 12-month period and the facility term of the Goldman Sachs Bank facility was extended to February 18, 2025.
Current wording
We expect to fund approximately $18.7 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. Obligation under participation agreement of $18.0 million will mature in the next twelve months. We use the proceeds from the repayment of the corresponding investment to repay the participation obligation. Our revolving line of credit with outstanding principal balance of $16.4 million and our Goldman Sachs Bank repurchase agreement with outstanding principal balance of $48.2 million was scheduled to mature on December 31, 2024 and February 18, 2025, respectively. In January and February 2025, the maturity of the revolving line of credit and the Goldman Sachs Bank repurchase agreement was extended to June 30, 2025 and February 18, 2027, respectively. We expect to use proceeds from repayment of the underlying loan to repay the outstanding principal or refinance with another lender. Additionally, two promissory notes payable with a total outstanding principal balance of $22.3 million that is collateralized by senior loans with aggregate principal balance of $50.9 million will mature within the next twelve months. We expect to use proceeds from the repayment of the underlying loans to repay the promissory notes payable.
Previous wording
Cash Flows (Used in) Provided by Financing Activities
Current wording
Cash Flows (Used in) Provided by Operating Activities
Previous wording
For the year ended December 31, 2023, as compared to the year ended December 31, 2022, cash flows provided by operating activities increased by $8.2 million, primarily due to an increase in net contractual interest income.
Current wording
For the year ended December 31, 2024, cash flows used in operating activities was $3.3 million, compared to cash flow from operating activities of $8.6 million for the year ended December 31, 2023. The decrease in operating cash flows was primarily due to a decrease in net contractual interest income.
Previous wording
Cash Flows Used in Investing Activities
Current wording
Cash Flows Used in Financing Activities
Previous wording
For the year ended December 31, 2022, cash flows provided by financing activities were $34.1 million, primarily due to proceeds from secured financing of $286.6 million and proceeds from obligations under participation agreements of $29.6 million, partially offset by principal repayments on secured financing of $239.7 million, repayments of obligations under participation agreements of $22.2 million and distributions paid of $16.1 million.
Current wording
For the year ended December 31, 2024, cash flows used in financing activities were $99.0 million, primarily related to principal repayments on secured financing of $177.5 million, distributions paid of $18.6 million and payment for financing costs of $1.1 million, partially offset by proceeds from secured financing of $81.3 million and proceeds from obligations under participation agreements of $18.0 million.
Previous wording
We use a model based approach for estimating the allowance for credit losses on performing loans on a collective basis, including future funding commitments for which we do not have the unconditional right to cancel, as these loans share similar risk characteristics. We utilize information obtained from internal and external sources relating to past events, current economic conditions and reasonable and supportable forecasts about the future to determine the expected credit losses for our loan portfolio. We utilize a commercial mortgage based, third-party loan loss model and because we do not have a meaningful history of realized credit losses on our loan portfolio, we subscribe to a database service to provide historical proxy loan loss information. We employ logistic regression to forecast expected losses at the loan level based on a commercial real estate loan securitization database that contains activity dating back to 1998. We have chosen to incorporate a weighted average macroeconomic forecast that encompasses baseline, optimistic and pessimistic scenarios, into our allowance for credit losses on performing loans estimate during the reasonable and supportable forecast period which is currently eight quarters. We select certain economics variables from a group of independent variables such as Commercial Real Estate Price Index, unemployment and interest rate which are included in the model as part of macroeconomic forecast and updated regularly based on current economic trends. 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.
Current wording
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.
Previous wording
We currently pay the following fees to Terra REIT Advisors pursuant to the Management Agreement:
Current wording
We currently pay the following fees to our Manager pursuant to the Management Agreement:
Previous wording
We have further diversified our exposure to loans and borrowers by entering into participation agreements whereby we transferred a portion of certain of our loans on a pari passu basis to related parties, primarily other affiliated funds managed by our Manager or its affiliates, and to a lesser extent, unrelated parties. We have also sold a portion of a loan to a third party that did not qualify for sale accounting. In connection with the BDC Merger, the obligations under participation agreements with Terra BDC totaling $37.0 million were effectively extinguished.
Current wording
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.
Showing the first 40 of 41 pairs. Open the source sections for the rest.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
As of both December 31, 2024 and December 31, 2023, we owned a 14.9% equity interest in RESOF, an affiliated limited partnership that invests primarily in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets. 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.
Current report — wording carried from elsewhere
For the year ended December 31, 2024, we sold a portion of our investments in marketable equity securities and recognized a net loss on sale of $0.4 million.
Rearranged previous paragraphs (3)
Previous report — wording carried elsewhere
On October 1, 2022, pursuant to that certain Agreement and Plan of Merger, dated as of May 2, 2022, Terra BDC merged with and into Terra LLC, our wholly owned subsidiary, with Terra LLC continuing as the surviving entity of the merger and as our wholly owned subsidiary.
Previous report — wording carried elsewhere
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.
Previous report — wording carried elsewhere
Cash Flows Provided by Operating Activities