TPTS 10-K & 10-Q changes, risk factors and insider trading

Before making an investment decision, you should carefully consider the following risk factors together with all of the other information contained in this Annual Report on Form 10-K. The risks set forth below are not the only risks we face, and the risks to which we are exposed may change or evolve over time. We may face other risks that we have not yet identified, which we do not currently deem material or which are not yet predictable. If any of the following risks occur, our results of operations, financial condition and cash flows could be materially adversely affected. Some statements in this section constitute forward-looking statements. See “Forward-Looking Statements.”

Manager Compensation: We expect we will enter into a new management agreement with our Manager or an affiliate of our Manager. The baserecurring management fees, incentive distributions or other amounts that would be payable to our Manager in the case of any such transaction are expected to be market-based fees determined in the case of any initial public offering by discussions between our Manager and the underwriters involved in the initial public offering. Any such fees are expected to be paid in lieu of the fees currently payable to our Manager.

Transfer Restrictions: We expect that shares currently held by our stockholders will constitute restricted securities under the Securities Act and will be subject to restrictions on transfer under applicable U.S. securities lawslaws.

Our Board has the power, without further stockholder approval, to authorize us to issue additional authorized shares of common stock and preferred stock on the terms and for the consideration it deems appropriate subject, if applicable, to the rules of any stock exchange on which our securities may be listed or traded and the terms of any class or series of our stock. We cannot predict the effect, if any, of future sales of our common stock, or the availability of shares for future sales, on the market price of our common stock. Sales of substantial amounts of common stock or the perception that such sales could occur may adversely affect the prevailing market price for our common stock. As of December 31, 2024, Terra Fund 7 and Terra Offshore REIT held approximately 8.7% and 10.1% of our issued and outstanding Class B Common Stock, respectively.

As of December 31, 2025, Terra Fund 7 and Terra Offshore REIT hold approximately 8.7% and 10.1% of our issued and outstanding Class B Common Stock, respectively. Our Manager also serves as manager to Terra Offshore REIT. As a result, our Manager and its affiliates (for the period that such shares continue to be held by Terra Fund 7 and Terra Offshore REIT and not distributed to their respective equity owners), subject to a voting agreement as described below, hold significant voting power over matters submitted to our stockholders for approval, including:

Our Manager values our real estate-related loans based on an initial credit analysis and the investment’s expected risk-adjusted return relative to other comparable investment opportunities available to us, taking into account estimated future losses on the loans, and the estimated impact of these losses on expected future cash flows. Our Manager’s loss estimates may not prove accurate, as actual results may vary from estimates. In thecertain event thatcases, our Manager underestimateshas underestimated the losses relative to the price we pay for a particular investment, and if such underestimation were to continue, we maycould experience losses with respect to such investment, which in turn may have a material adverse effect on our results of operations, financial condition and cash flows.

Further, from time to time and in the ordinary course of business, our Manager may make exceptions to our predetermined loan underwriting guidelines. Loans originated with exceptions have resulted and may continue to result in a higher number of delinquencies and defaults, which could have a material and adverse effect on our results of operations, financial condition and cash flows.

We may,have, in certain cases, provideprovided a defaulting borrower with concessions that we would not typically offer.offer Theseand modificationsmay continue to do so in the future. Modifications may include interest rate reductions, principal adjustments, term extensions, deferral of payments, or the capitalization of interest. Such adjustments are intended to mitigate potential losses and avoid foreclosure or asset repossession. However, these modifications may impact our liquidity and could have a material adverse effect on our operating results.

Foreclosure can be an expensive and lengthy process, and foreclosing on certain properties where we directly hold the mortgage loan and the borrower’s default under the mortgage loan is continuing could result in actions that could be costly to our operations, in addition to having a substantial negative effect on our anticipated return on the foreclosed mortgage loan. If property securing or underlying loans become real estate owned as a result of foreclosure, we bear the risk of not being able to sell the property and recovering our investment at all or on a timely basis, and of being exposed to the risks attendant to the ownership of real property.

Our loans are concentrated in California, New York, Arizona,California, GeorgiaGeorgia, New Jersey and UtahArizona representing approximately 17.7%,39.5%, 25.3%,18.8%, 11.2%,16.5%, 10.2%11.9% and 9.4%,9.2%, respectively, of our net loan portfolio as of December 31, 2024.2025. Additionally, we own eightfour industrial buildings in Texas. If economic conditions in these or in any other state in which we have a significant concentration of borrowers were to deteriorate, such adverse conditions could have a material and adverse effect on our business by reducing demand for new financings, limiting the ability of customers to repay existing loans and impairing the value of our real estate collateral and real estate owned properties.

Further, our loans are concentrated in office, multifamilyinfill land and infill landmultifamily property types representing approximately 38.9%,52.9%, 20.4%21.1% and 18.8%,19.7%, respectively, of our net loan portfolio as of December 31, 2024.2025. As a result, a downturn in any particular industry in which we are heavily invested may significantly impact the aggregate returns we realize. If an industry in which we are heavily invested suffers from adverse business or economic conditions, a material portion of our investment could be affected adversely, which, in turn, could adversely affect our results of operations, financial condition and cash flows.

In addition, from time to time, there have been proposals to base property taxes on commercial properties on their current market value, without any limit based on purchase price. In California, pursuant to an existing state law commonly referred to as Proposition 13, properties are reassessed to market value only at the time of change in ownership or completion of construction, and thereafter, annual property reassessments are generally limited to 2% of previously assessed values. As a result, Proposition 13 generally results in significant below-market assessed values over time. From time to time, lawmakers and political coalitions have initiated efforts to repeal or amend Proposition 13 to eliminate its application to commercial and industrial properties. If successful, a repeal of Proposition 13 could substantially increase the assessed values and property taxes for our customers in California which in turn could limit their ability to borrow funds.

OurInvestments investmentswe may make in B-notes are generally subject to losses. The B-notes in which we may invest from time to time may be subject to additional risks relating to the privately negotiated structure and terms of the transaction, which may result in losses to us.

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrityintegrity, security or availability of our information resources. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The result of these incidents may include additional regulatory scrutiny and exposing us to civil litigation, enforcement actions, government fines, sanctions, or penalties (which may not be covered by our insurance policies), increased expenses and lost revenue, disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance cost, litigation and damage to our relationships. As our reliance on technology has increased, so have the risks posed to our information systems both internal and those provided by our Manager, Terra Capital Partners, its affiliates and third-party service providers. With respect to cybersecurity risk oversight, our Board and our audit committee receive periodic reports and updates from management on the primary cybersecurity risks facing us and our Manager and the measures our Manager is taking to mitigate such risks. In addition to such periodic reports, our Board and our audit committee receive updates from management as to changes to our and our Manager’s and its affiliates’ cybersecurity risk profile or certain newly identified risks. However, these measures, as well as our increased awareness of the nature and extent of a risk of a cyber incident, do not guarantee that our financial results, operations or confidential information will not be negatively impacted by such an incident. While we believe our cybersecurity risk management processes are reasonable and appropriate, they may not be effective against all emerging or future threats.

Various bankruptcy legislation hasmay beenbe proposed that, among other provisions, could allow judges to modify the terms of residential mortgages in bankruptcy proceedings, could hinder the ability of the servicer to foreclose promptly on defaulted mortgage loans or permit limited assignee liability for certain violations in the mortgage loan origination process, any or all of which could adversely affect our business or result in us being held responsible for violations in the mortgage loan origination process even where we were not the originator of the loan. We do not know what impact this type of legislation, which has been primarily, if not entirely, focused on residential mortgage originations, would have on the commercial loan market. We are unable to predict whether U.S. federal, state or local authorities, or other pertinent bodies, will enact legislation, laws, rules, regulations, handbooks, guidelines or similar provisions that will affect our business or require changes in our practices in the future, and any such changes could have a material adverse effect on our results of operations, financial condition and cash flows.

InWe June 2016,follow the FASBprovisions issued anof Accounting Standards UpdateCodification (“ASUASC”), Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on326, Financial Instruments (“ASU– 2016-13”),Credit Losses, which replacesrequires theentities “incurredto loss” model for recognizingrecognize credit losses withon financial instruments based on an “estimate of current expected loss”credit model referred to as the CECL model. The new CECL standard became effective for us on January 1, 2023.losses. Under the CECL model, we are required to present certain financial assets carried at amortized cost, such as performing loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required previously under current U.S. GAAP, which delaysdelayed recognition until it is probable a loss hashad been incurred. Under the CECL model, if we are required to materially increase our level of allowance for credit losses for any reason, such increase could adversely affect our business, financial condition and results of operations.

Although we monitor our portfolio periodically and prior to each acquisition and disposition, we may not be able to maintain an exclusion from registration as an investment company. If we were required to register as an investment company, but failed to do so, we would be prohibited from engaging in our business, and legal proceedings could be instituted against us. In addition, our contracts may be unenforceable, and a court could appoint a receiver to take control of us and liquidate our business, all of which could have a material adverse effect on our results of operations, financial condition and cash flows.

Specifically, the tax treatment of REITs could be altered at any time through legislative, regulatory, or judicial action, possibly with retroactive application. We cannot assure our stockholders that such changes will not negatively impact their tax treatment. Any such modifications could have adverse consequences for an investment in our securities. Our stockholders are encouraged to consult their tax advisors regarding the potential implications of legislative, regulatory, or administrative developments on their investment and to stay informed about any proposed changes to applicable tax laws.

We have no employees and do not intend to have employees in the future. We rely entirely on the management team and employees of our Manager for our day-to-day operations, and our Manager has significant discretion as to the implementation of our operating policies and strategies. Our success depends substantially on the efforts and abilities of the management team of our Manager, including Messrs. Uppal, Pinkus and Cooperman, Ms. Schwarzschild and our Manager’s investment professionals. The loss of any of such individuals could have a material adverse effect on our results of operations, financial condition and cash flowsflows.

The baserecurring asset management and asset servicing fees we pay our Manager may reduce its incentive to devote its time and effort to seeking attractive assets for our portfolio because the fees are payable regardless of our performance.

We pay our Manager baserecurring asset management and asset servicing fees regardless of the performance of our portfolio. Our Manager’s entitlement to thethese baserecurring management fee,fees, which is not based upon performance metrics or goals, might reduce its incentive to devote its time and effort to seeking assets that provide attractive risk-adjusted returns for our portfolio. We would be required to pay theour Manager thethese baserecurring management feefees in a particular period even if we experienced a net loss or a decline in the value of our portfolio during that period. In addition, our Manager is entitled to certain transaction-based fees, including origination and extension fees, disposition fees and transaction breakup fees, which may incentivize our Manager to recommend or pursue originations, acquisitions, dispositions, loan modifications, extensions or other transactions, even if such transactions do not result in improved financial performance or results of operations.

We currently have outstanding indebtedness and expect to deploy moderate amounts of additional leverage as part of our operating strategy. Our governing documents contain no limit on the amount of debt we may incur, and, subject to compliance with financial covenants under our borrowings, including under the term loan, the unsecured notes, the repurchase agreementnotes and the revolvingsecured line of credit,borrowings, we may significantly increase the amount of leverage we utilize at any time without approval of our stockholders. Depending on market conditions, additional borrowings may include credit facilities, senior notes (including both a reopening of the unsecured notes or the issuance of a new series),notes, repurchase agreements, additional first mortgage loans and securitizations.securitizations, and offers to exchange outstanding indebtedness. In addition, we may divide the loans we originate into senior and junior tranches and dispose of the more senior tranches as an additional means of providing financing to our business. To the extent that we use leverage to finance our assets, we would expect to have a larger portfolio of loan assets, but our financing costs relating to our borrowings will reduce our net income. We may not be able to meet our financing obligations and, to the extent that we cannot, we risk the loss of some or all of our assets to liquidation or sale to satisfy such obligations. Any reduction in our ability to make principal and interest payments on our debt obligations, including the term loan, the unsecured notes and the revolving line of credit, may have a material adverse effect on our results of operations, financial condition and cash flows.

We may use additional credit facilities, senior notes (including both a reopening of the unsecured notes or the issuance of a new series),notes, term loans, repurchase agreements, first mortgage loans or other borrowings to finance the origination and/or structuring of real estate-related loans until a sufficient quantity of eligible assets has been accumulated, at which time we may decide to refinance these short-term facilities or repurchase agreements through the securitization market which could include the creation of CMBS, collateralized debt obligations (“CDOs”), or the private placement of loan participations or other long-term financing. If we employ this strategy, we are subject to the risk that we would not be able to obtain, during the period that our short-term financing arrangements are available, a sufficient amount of eligible assets to maximize the efficiency of a CMBS, CDO or private placement issuance. We are also subject to the risk that we are not able to obtain short-term financing arrangements or are not able to renew any short-term financing arrangements after they expire should we find it necessary to extend such short-term financing arrangements to allow more time to obtain the necessary eligible assets for a long-term financing.

The remedies available to a purchaser of loans are generally broader than those available to us against the originating broker or correspondent. Further, if a purchaser enforces its remedies against us, we may not be able to enforce the remedies we have against the sellers. The repurchased loans typically can only be financed at a steep discount to their repurchase price, if at all. They are also typically sold at a significant discount to the unpaid principal balance (“UPB”).balance. Significant repurchase activity could have a material adverse effect on our results of operations, financial condition and cash flows.

Our debt agreements contain various financial and operating covenants, including, among other things, certain coverage ratios and limitations on our ability to incur secured and unsecured debt. These restrictive covenants and operating restrictions could have a material adverse effect on our operating results, cause us to lose our REIT status, restrict our ability to finance or securitize new originations and acquisitions, force us to liquidate collateral and negatively affect our financial condition and our ability to pay dividends. WeIn the past, we have received waivers of certain covenants in our debt agreements, but there can be no assurance we will receive similar waivers in the future. For additional information concerning these waivers, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition, Liquidity and Capital Resources — Summary of Financing” included in this Annual Report on Form 10-K. The breach of any of these covenants, if not cured within any applicable cure period, could result in a default, including a cross-default, and acceleration of certain of our indebtedness. Accelerating repayment and terminating the agreements will require immediate repayment by us of the borrowed funds, which may require us to liquidate assets at a disadvantageous time, causing us to incur further losses and adversely affecting our results of operations and financial condition, which may impair our ability to make principal and interest payments on our debt obligations. Any failure to make payments when due or upon acceleration could result in the foreclosure upon our assets by our lenders.

Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from certain activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes, such as mortgage recording taxes. In addition, we could, in certain circumstances, be required to pay an excise or penalty tax (which could be significant in amount) in order to utilize one or more relief provisions under the Code to maintain our qualification as a REIT. Any of these taxes would reduce cash available for principal and interest payments on our outstanding indebtedness or distributions to our stockholders. In addition, we will be subject to a 100% tax on gains derived from the disposition of dealer property or inventory. In order to meet the REIT qualification requirements, we may hold some of our assets or engage in certain activities that would otherwise be nonqualifying for REIT purposes through a TRS or other subsidiary corporation that will be subject to corporate-level income tax at regular rates. In addition, although the BDC Merger was intended to be treated as a “reorganization” within the meaning of Section 368(a) of the Code for U.S. federal income tax purposes, if the BDC Merger is determined not to have qualified as a reorganization, or if Terra BDC is determined to have failed to qualify as a REIT, we could be subject to additional tax liabilities. In addition, we would inherit any liability with respect to unpaid taxes of Terra BDC for any periods prior to the BDC Merger for which Terra BDC did not qualify as a REIT. Any resulting taxes would decrease the cash available for distributions to our stockholders.

Further, at the end of each calendar quarter, at least 75% of the value of our total assets must consist of cash, cash items, government securities, shares in other REITs and other qualifying real estate assets, including certain mortgage loans, mezzanine loans and certain mortgage-backed securities. The remainder of our investment in securities (other than government securities, TRS securities and securities that are qualifying real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our total assets (other than government securities, TRS securities and securities that are qualifying real estate assets) can consist of the securities of any one issuer, no more than 20% of the value of our total assets can be represented by securities of one or more TRSs, and no more than 25% of the value of our assets can consist of debt instruments issued by publicly offered REITs that are not otherwise secured by real property. Furthermore, for taxable years ending before January 1, 2026, no more than 20% of the value of our total assets can be represented by securities of one or more TRSs. For taxable years beginning on or after January 1, 2026, no more than 25% of the value of our total assets can be represented by securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences.

Overall, for taxable years ending before January 1, 2026, no more than 20% of the value of a REIT’s total assets may consist of stock or securities of one or more TRSs. For taxable years beginning on or after January 1, 2026, no more than 25% of the value of a REIT’s total assets may consist of stock or securities of one or more TRSs. We intend to limit the aggregate value of the stock and securities of our TRSs, if any, to less than 20% or 25%, as applicable, of the value of our total assets (including such TRS stock and securities). Furthermore, we will monitor the value of our respective investments in our TRSs for the purpose of ensuring compliance with TRS ownership limitations.

We may engage in transactions with a TRS, in which case we intend to conduct our affairs so that we will not be subject to the 100% excise tax with respect to transactions with such TRS and so that we will comply with all other requirements applicable to our ownership of TRSs. There can be no assurance, however, that we will be able to comply with the 20%TRS limitation discussed above or to avoid application of the 100% excise tax discussed above.

In recent years, financial markets werehave been affected by significant uncertainty relating to the stability of U.S. fiscal and political policy. OnFor example, on August 1, 2023, Fitch Ratings Inc. downgraded the U.S. government’s sovereign credit rating to AA+, down one notch from its highest rating of AAA, citing the country’s growing debt obligations, deterioration in governanceobligations and political polarization. ConcernsOngoing relatedconcerns toover federal budgeting, debt ceilings, fiscal policy priorities and political turmoil,polarization federalcontinues borrowing and the federal budget deficit have increased the possibility of future credit rating downgrades and economic slowdowns in the U.S. Any continuing uncertainty, together with the continuing U.S. debt and budget deficit concerns, couldto contribute to amarket U.S. economic slowdown. The impact of U.S. fiscal and political uncertainty is inherently unpredictable and could adversely affect U.S. and global financial markets and economic conditions. These developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms. Continued adverse economic conditions could have a material adverse effect on our business, financial condition and results of operations.volatility.

Cybersecurity risk and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of the security, confidentiality, integrity, or integrityavailability of our company, employee, customer or third-party confidential information and/or damage to our reputation or business relationships, any of which could negatively impact our financial results.

Risk of a cyber incident or disruption, particularly through cyber-attacks or cyber intrusions, including by computer hackers, nation-state affiliated actors and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. The result of these incidents may include disrupted operations, misstated or unreliable financial data, misappropriation of assets, liability for stolen assets or information, increased cybersecurity protection and insurance cost, increased expenses and lost revenue, regulatory enforcement, governmental fines, sanctions, or penalties (which may not be covered by our insurance policies), civil litigation and damage to our relationships and reputation. These risks require continuous and likely increasing attention and other resources from us to, among other actions, identify and quantify these risks, upgrade and expand our technological capabilities, systems and processes to adequately address them. Such attention diverts time and other resources from other activities and there is no assurance that our efforts will be effective. Potential sources for disruption, damage or failure of our information technology systems include, without limitation, computer viruses, cyber incidents, human error, natural disasters and defects in design. In addition, we cannot be certain that our existing cyber insurance coverage will continue to be available on acceptable terms or that our insurers will not deny coverage as to all or part of any future claim or loss.

Further, the SEC has recently adopted rules requiring public companies to disclose material cybersecurity incidents that they experience on a Current Report on Form 8-K within four business days of determining that a material cybersecurity incident has occurred and to disclose on an annual basis material information regarding their cybersecurity risk management, strategy and governance. These new reporting requirements became effective for us on June 15, 2024. If we fail to comply with these requirements, we could incur regulatory fines and our reputation, business, financial condition and results of operations could be harmed.

As of December 31, 2024,2025, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of 13nine loans in nineseven states with an aggregate net principal balance of $299.3$192.4 million, a weighted average coupon rate of 12.5%13.4% and a weighted average remaining term to maturity of 1.00.7 years.

Each of our loans was originated by Terra Capital Partners or its affiliates. Our portfolio is diversified based on location of the underlying properties, loan structure and property type. As of December 31, 2024,2025, our portfolio included underlying properties located in 13nine markets, across nineseven states and includes property types such as multifamily housing, student housing, commercial offices, medicalindustrial, offices,retail, mixed-use and infill properties. The profile of these properties ranges from stabilized and value-added properties to pre-development and construction. Our loans are structured across mezzanine debt, first mortgages, preferred equity investments and credit facilities.

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

One of the potential future liquidity transactions that we continue to evaluate is a “direct listing” of itsour 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 itsour common stock redeemed for cash.

The following tables provide a summary of our net loan portfolioportfolio. asCarrying value represents the amortized cost of: loan, net of applicable allowance for credit losses.

(1)These loans pay a coupon rate of Secured Overnight Financing Rate (“SOFR”), or forward-looking term rate based on SOFR (“Term SOFR”), as applicable, plus a fixed spread. Coupon rates shown were determined using the average SOFR of 3.79% and Term SOFR of 3.69% as of December 31, 2025 and 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, 2023.2024.

(2)As of December 31, 20242025 and 2023,2024, amount included $208.0$63.6 million and $342.9$208.0 million of senior mortgages used as collateral for $123.2$31.3 million and $204.9$123.2 million of borrowings under creditsecured facilities,financing respectively.agreements, respectively (Note 8).

(3)As of December 31, 20242025 and 2023,2024, 10five and 14ten loans, respectively, arewere subject to a SOFR,SOFR or Term SOFR floor, as applicable.

(4)Excludes nonperformingnon-performing loans for which recovery of interest income was not probable.

(5)RepresentsExcludes loans that are in maturity default and represents current effective maturity as of December 31, 20242025 and 2023,2024, exclusive of any extension options available.

Real Estate OwnershipOwned

In addition to our net loan portfolio, we own eightfour industrial buildings. As of December 31, 20242025 and 2023,2024, the real estate and related lease intangible assets and liabilities had a net carrying value of $125.3$47.4 million and $129.8$125.3 million, respectively, and the mortgage loans payable encumbering the real estate properties had an outstanding principal amount of $74.4$20.7 million and $73.5$74.4 million, respectively.

Equity Interest in Unconsolidated Investments

As of both December 31, 20242025 and 2023,2024, we owned 14.9% of equity interest in a limited partnership that invests primarily in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets. We also beneficially own equity interests in joint ventures that invest in real estate properties, opportunistic debt and equity securities and, indirectly, together with other non-affiliated entities, non-real estate operating companies, as well as a preferred equity investment with residual profit sharing from sale of the underlying property. These investments are accounted for using the equity method of accounting. Additionally, in December 2025, we entered into a subscription agreement with another affiliated limited partnership that invests in stressed, distressed, and special situations investments, including the origination of first mortgage loans, mezzanine loans, preferred equity, and structured equity investments, as well as the acquisition of performing and non-performing notes, and public market real estate debt and equity securities for a 1.5% interest in the partnership. As of December 31, 20242025 and 2023,2024, these equity investmentsinterests had total carrying value of $106.8$94.2 million and $37.2$106.8 million, respectively.

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, 20242025 and 20232024 was $7.63$6.02 and $9.93,$7.63, respectively.

For the years ended December 31, 20242025 and 2023,2024, we invested $95.8$4.1 million and $37.1$95.8 million in new and add-on investments and had $112.7$17.8 million and $29.8$112.7 million of repayments, resulting in net repayments of $16.9$13.7 million and net investments of $7.3$16.9 million, respectively. Amounts are net of obligations under participation agreements and secured financing agreements.

The tables below set forth the types of loans in our loan portfolio, as well as the property type and geographic location of the properties securing these loans, on a net loan basis, which represents our proportionate share of the loans, based on our economic ownership of these loansloans. Percentages of total represented below are calculated as a percentage of: the total carrying value.

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,agreements promissory notes payable, revolving credit facility,and secured borrowingfinancing and repurchase agreements payable.agreements.

For the year ended December 31, 20242025 as compared to the year ended December 31, 2023,2024, interest income decreased by $17.9$10.0 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.loans.

For the year ended December 31, 20242025 as compared to the year ended December 31, 2023,2024, real estate operating revenue decreased by $0.3$3.9 million, primarily due to a reduction in lease revenue resulting from the disposalsale of the office building in October 2023, partially offset by an increase in lease revenue contributed by the fivefour industrial buildings acquiredin 2025, the expiration of a lease in MayDecember 2023.2024, and the write off of an unamortized below-market rent intangible in January 2024 in connection with a lease termination.

There was no prepayment fee income for the year ended December 31, 2025. 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.

For the year ended December 31, 20242025 as compared to the year ended December 31, 2023,2024, other operating income decreasedincreased by $0.5$0.1 million, primarily due to aan declineincrease in dividend income earned on our marketablemoney securities.market account.

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

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

For the year ended December 31, 20242025 as compared to the year ended December 31, 2023,2024, asset management fees decreased by $1.6$1.4 million, primarily due to a decrease in total assets under management resulting from repayment of loans.loans as well as the sale of four industrial buildings in 2025.

Under the terms of the Management Agreement with our Manager, we paid our Manager a monthly servicing fee at an annual rate of 0.25% of the aggregate gross origination price or acquisition price for each real estate-related loaninvestment held by us.

For the year ended December 31, 20242025 as compared to the year ended December 31, 2023,2024, asset servicing fees decreased by $0.4$0.3 million, primarily due to a decrease in total assets under management resulting from the repayment of loans.loans as well as the sale of four industrial buildings in 2025.

OnWe January 1, 2023, we adoptedfollow the provisions of Accounting Standards UpdateCodification (“ASU”) 2016-13,326, Financial Instruments —– Credit Losses (Topic“ASC 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to recognize credit losses on financial instruments based on an estimate of current expected credit losses.

For the year ended December 31, 2024,2025, provision for credit losses was $16.6$12.8 million, primarily relateddue to a decline in our estimated recoverable amount on a non-performing subordinated loan due to an increase in funding on the senior funding.loan as well as a decrease in the estimated fair value of underlying collateral.

For the year ended December 31, 2023,2024, provision for credit losses was $45.5$16.6 million, primarily relateddue to thea decline in our estimated recoverable amount on threea non-performing loanssubordinated in the investment portfolioloan due to aan declineincrease in funding on the macroeconomicsenior outlook for commercial real estate.loan.

For the year ended December 31, 20242025 as compared to the year ended December 31, 2023,2024, real estate operating expenses decreasedincreased by $1.9$0.4 million, primarily due to thean disposal of the office buildingincrease in Octoberreal 2023estate whichtaxes resultedas well as an increase in repairs and maintenance, partially offset by a reduction in rentoperating expenseexpenses driven by the sale of $1.5four million.industrial buildings in 2025.

For the year ended December 31, 20242025 as compared to the year ended December 31, 2023,2024, depreciation and amortization increaseddecreased by $0.4$3.5 million, primarily due to the fivesale of four industrial buildings that we acquired in May2025, 2023,as partiallywell offset by a reduction in depreciation and amortization related toas the disposalwrite off of the officeunamortized buildingin-place lease intangibles in OctoberJanuary 2023.2024 in connection with a lease termination.

For the year ended December 31, 20242025 as compared to the year ended December 31, 2023,2024, professional fees decreased by $0.7$0.2 million, primarily due to legala feesdecrease in regulatory compliance costs incurred induring connectionthe with a review of strategic alternatives for our company in 2023.period.

Impairment Charge on Real Estate Assets

For the year ended December 31, 2023,2025, in connection with the pending sale of two industrial buildings, we recognizedrecorded an impairment charge of $11.8$3.4 million on the multi-tenant office building located in California in order to reduce the carrying value of thethese buildingindustrial buildings to itstheir estimated fairselling value.price less the costs to sell. There was no such impairment charge for the year ended December 31, 2024.

For the year ended December 31, 20242025 as compared to the year ended December 31, 2023,2024, interest expense on secured financing decreased by $3.1$11.5 million,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.outstanding.

For the year ended December 31, 20242025 as compared to the year ended December 31, 2023,2024, interest expense on unsecured notes payable increased by $0.2$0.1 million, primarily due to an increase in the amortization of financing costs using the effective interest rate method.method, partially offset by a decrease in interest expense driven by the retirement of 189,465 units of the 6.00% Senior Notes Due 2026 in 2025.

For the year ended December 31, 20242025 as compared to the year ended December 31, 2023,2024, interest expense from obligations under participation agreements increased by $1.6$0.7 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.outstanding.

Unrealized Gain (Loss) on Investments,Extinguishment Netof Debt

Income (Loss) from Equity Interest in Unconsolidated Investments

As of both December 31, 2024 and December 31, 2023, weWe owned a 14.9% equity interest in RESOF,RESOF anas of both December 31, 2025 and 2024, and a 1.5% equity interest in VS2 as of December 31, 2025. Both RESOF and VS2 are affiliated limited partnershippartnerships that investsinvest primarily in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets. WeAs of both December 31, 2025 and 2024, 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.

For the year ended December 31, 20242025 as compared to the year ended December 31, 2023,2024, equity income from RESOF increased as a result of an increase in RESOF’s net income associatedgenerated withby increasedan investments.increase in the amount of invested capital.

For the year ended December 31, 20242025 as compared to the year ended December 31, 2023,2024, equity loss from the joint ventures increased primarily due to ana increaseloss recognized in operating2025 expenses,by depreciationa andjoint amortization,venture andin interestconnection expensewith a loss incurred on a portfolio investment as well as a gain recognized by thea joint ventures, partially offset by an increaseventure in revenuesconnection andwith a gain onthe sale of realproperty estatein recognized by the joint ventures.2024.

Other equity investment relates to a preferred equity agreement we acquired in June 2024 in which we also share residual profit from the sale of underlying property with the borrower. There was no such investment duringFor the year ended December 31, 2023.2025 as compared to the year ended December 31, 2024, the increase in income from other equity investment is due to holding the investment for a longer period of time in the current period.

There was no realized loss for the year ended December 31, 2025. For the year ended December 31, 2024, we sold a portion of our investments in marketable equitytrading securities and recognized a net loss on sale of $0.4 million.

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, funding and maintaining our assets and operations, making distributions to our stockholders and other general business needs. We use significant cash to purchase our target assets, repay principal and interest on our borrowings, make distributions to our investors and fund our operations. Our primary sources of cash generally consist of payments of principal and interest we receive on our portfolio of investments, cash generated from our operating results and unused borrowing capacity under our financing sources. We deploy moderate amounts of leverage as part of our operating strategy and use a number of sources to finance our target assets, including our senior notes,notes and term loan, repurchase agreement and revolving line of credit.loan. We may use other sources to finance our target assets, including bank financing and arranged financing facilities with domestic or international financing providers. In addition, we may divide the loans we originate into senior and junior tranches and dispose of the more senior tranches as an additional means of providing financing to our business.

Our business, reputation, results of operations and financial condition can be materially and adversely affected by a number of factors, whether currently known or unknown, including those described in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2025 under the heading “Risk Factors.” Except as set forth below, thereThere have been no material changes to our risk factors since the filing of our annual report on Form 10-K for the year ended December 31, 2025.

•actual and potential conflicts of interest with any of the following affiliated entities: Terra Fund Advisors, LLC, Terra REIT Advisors, LLC (our “Manager”); Terra Capital Partners, LLC (“Terra Capital Partners”), our sponsor; Terra Secured Income Fund 5 International; Terra Income Fund International; Terra Secured Income Fund 7, LLC (“Terra Fund 7”); Terra Offshore Funds REIT, LLC (“Terra Offshore REIT”); Mavik Real Estate Special Opportunities Fund, LP (“RESOFVS1”); Mavik Real Estate Special Opportunities VS2, LP (“VS2”); or any of their affiliates;

•limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our exemption or exclusion or from registration under the Investment Company Act of 1940, as amended (the “1940 Act”), and to maintain our qualification as a real estate investment trust (“REIT”) for U.S. federal income tax purposes; and

As of MarchJune 31,30, 2026, we held a net loan portfolio (gross loans less obligations under participation agreements and secured borrowing) comprised of sevenfive loans in sixfive states with an aggregate net principal balance of $160.8$87.9 million, a weighted average coupon rate of 12.3%11.9% and a weighted average remaining term to maturity of 0.70.5 years.

Each of our loans was originated by Terra Capital Partners or its affiliates. Our portfolio is diversified based on location of the underlying properties, loan structure and property type. As of MarchJune 31,30, 2026, our portfolio included underlying properties located in sevenfive markets, across sixfive states and includes property types such as multifamily housing, commercial offices, industrial, mixed-useindustrial 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.

As of MarchJune 31,30, 2026, Terra Fund 7 and Terra Offshore REIT held approximately 8.7% and 10.1%, respectively, of our issued and outstanding Class B Common Stock.

We have significant debt obligations of approximately $69.6$57.9 million coming due,due includingin $56.4the millionnext twelve months following the issuance of the 6.00%consolidated Seniorfinancial Notes Due 2026 maturing on June 30, 2026.statements. As of MarchJune 31,30, 2026, we had cash and cash equivalents of $5.0$9.7 million. We intend to refinancerepay ormaturing repaydebt obligations through asset realizations such as loan repayments (including mandatory redemptions required under the 6.00%Second SeniorIndenture Notes(as Duedefined 2026herein) thatupon arecertain notasset exchangedsales and other events described in Note 8), the Exchangesale Offer through ordinary course loan repayments,of real estate ownedproperty, and loan sales, receipt of distributions from equity interests in unconsolidated investments, the deferral of asset management fee payments and operating expenses reimbursed to our Manager and may also userefinancings, debt or equity capital raises and other available capital sources or financing facilities. However, there can be no assurance that we will be able to obtain the additional liquidity needed to repay the 6.00%maturing Seniordebt Notes Due 2026.obligations. Therefore, substantial doubt about our ability to continue as a going concern exists. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our financial statements, and it is likely that our investors will lose all or a part of their investment. In addition, if there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to us on commercially reasonable terms, or at all.

(1)These loans pay a coupon rate of Secured Overnight Financing Rate (“SOFR”) or forward-looking term rate based on SOFR (“Term SOFR”), as applicable, plus a fixed spread. Coupon rates shown were determined using the average SOFR of 3.65%3.63% and Term SOFR of 3.66%3.65% as of MarchJune 31,30, 2026 and average SOFR of 3.79% and Term SOFR of 3.69% as of December 31, 2025.

(2)As of MarchJune 31,30, 2026 and December 31, 2025, amount included $32.1$32.5 million and $63.6 million of senior mortgages used as collateral for $18.0$17.5 million and $31.3 million of borrowings under secured financing agreements, respectively (Note 8).

(3)As of MarchJune 31,30, 2026 and December 31, 2025, fourtwo and five loans, respectively, were subject to a SOFR or Term SOFR floor, as applicable.

(5)Excludes loans that are in maturity default and represents current effective maturity as of MarchJune 31,30, 2026 and December 31, 2025, exclusive of any extension available.

In addition to our net loan portfolio, we own one industrial building and one multifamily property as of MarchJune 31,30, 2026 and four industrial buildings as of December 31, 2025. As of MarchJune 31,30, 2026 and December 31, 2025, the real estate and related lease intangible assets and liabilities had a net carrying value of $46.9$46.4 million and $47.4 million, respectively, and the mortgage loans payable encumbering the real estate properties had an outstanding principal amount of $20.7$13.3 million and $20.7 million, respectively.

As of both MarchJune 31,30, 2026 and December 31, 2025, 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. Additionally, in December 2025, we entered into a subscription agreement with another affiliated limited partnership that invests in stressed, distressed, and special situations investments, including the origination of first mortgage loans, mezzanine loans, preferred equity, and structured equity investments, as well as the acquisition of performing and non-performing notes, and public market real estate debt and equity securities for a 1.5% interest in the partnership. As of MarchJune 31,30, 2026 and December 31, 2025, these equity interests had total carrying value of $90.0$91.0 million and $94.2 million, respectively.

We calculate our book value per share by dividing our net equity by the number of outstanding shares of our common stock, unless otherwise determined by our Board. Our book value per share of Class B Common Stock as of MarchJune 31,30, 2026 and December 31, 2025 was $5.36$5.20 and $6.02, respectively.

For the three months ended MarchJune 31,30, 2026 and 2025, we invested $2.6$2.9 million and $29.0$5.4 million in new and add-on investments and had $1.6$3.8 million and $23.7$19.7 million of repayments, resulting in net investments and net repayments of $1.0$0.9 million and $5.3$14.4 million, respectively. Amounts are net of obligations under participation agreements and secured financing agreements.

For the three and six months ended MarchJune 31,30, 2026 as compared to the three and six months ended MarchJune 31,30, 2025, interest income decreased by $8.6$2.8 million and $11.4 million, respectively, primarily due to a decrease in contractual interest income as a result of a decrease in the weighted average principal balance of performing loans, an increase in suspended interest income accrual on one non-performing loan, and the write off of the exit fee on a non-performing loan in the first quarter of 2026, partially offset by the recognition of default interest in connection with the repayment of a defaulted loan.

For the three months ended MarchJune 31,30, 2026 as compared to the three months ended MarchJune 31,30, 2025, real estate operating revenue decreased by $0.8$1.2 million, primarily due to the sale of four and twothree industrial buildings in 2025 and 2026, respectively, partially offset by the acquisition of one multifamily property in 2026.

For the threesix months ended MarchJune 31,30, 2026 as compared to the threesix months ended MarchJune 31,30, 2025, other operating income increased by $0.2 million, primarily due to an increase in dividend income earned on our money market account.

For the three and six months ended MarchJune 31,30, 2026 as compared to the three and six months Marchended 31,June 30, 2025, operating expenses reimbursed to our Manager decreased by $0.8$0.4 million and $1.2 million, respectively, primarily due to a decrease in the allocation ratio as a result of a decrease in our total funds under management.

For the three and six months ended MarchJune 31,30, 2026 as compared to the three and six months ended MarchJune 31,30, 2025, asset management fees decreased by $0.4$0.5 million and $1.0 million, respectively, primarily due to a decrease in total assets under management resulting from repayment of loans as well as the sale of four and twothree industrial buildings in 2025 and 2026, respectively.

For the three and six months ended MarchJune 31,30, 2026 as compared to the three and six months ended MarchJune 31,30, 2025, asset servicing fees decreased by $0.1 million and $0.2 million, respectively, primarily due to a decrease in total assets under management resulting from the repayment of loans as well as the sale of four and twothree industrial buildings in 2025 and 2026, respectively.

For the three and six months ended MarchJune 31,30, 2025, provision for credit losses was $2.1$1.4 million and $3.5 million, respectively, primarily related to a decline in our estimated recoverable amount on a non-performing subordinated loan due to an increase in funding on the senior loan.loan, partially offset by a decrease in the allowance for credit losses on performing loans driven by repayment and approaching maturities of loans.

For the three and six months ended MarchJune 31,30, 2026 as compared to the three and six months ended MarchJune 31,30, 2025, real estate operating expensesexpense decreased by $0.2$1.2 million and $1.4 million, respectively, primarily due to the sale of four and twothree industrial buildings in 2025 and 2026, respectively, partially offset by the acquisition of one multifamily property in 2026.

For the three and six months ended MarchJune 31,30, 2026 as compared to the three and six months ended MarchJune 31,30, 2025, depreciation and amortization decreased by $0.5$0.6 million and $1.1 million, respectively, primarily due to the sale of four and three industrial buildings in 2025 as well as two industrial buildings inand 2026, respectively, partially offset by the acquisition of one multifamily property in 2026.

For the threesix months ended MarchJune 31,30, 2026 as compared to the threesix months ended MarchJune 31,30, 2025, professional fees increased by $1.6$1.5 million, primarily due to fees incurred in 2026 related to strategic financing alternatives.

For the threesix months ended MarchJune 31,30, 2026, in connection with the pending sale of one industrial building, we recorded an impairment charge of $0.6 million to reduce the carrying value of thesethe industrial building to its estimated selling price less the costs to sell. There was no such impairment charge for the three months ended MarchJune 31,30, 2025.2026.

Our secured financing agreements consisted of a repurchase agreement, revolving line of credit, term loan,loans, promissory notes, secured borrowings, senior secured notes payablenotes, and property mortgages. The outstanding amounts under the repurchase agreement, the revolving line of credit and the promissory notes were repaid in full and the facilities were terminated in June 2025, July 2025 and November 2025 respectively. Furthermore, property mortgages encumbering four and three industrial buildings were repaid in full in 2025 and 2026, respectively.

For the three and six months ended MarchJune 31,30, 2026 as compared to the three and six months ended MarchJune 31,30, 2025, interest expense on secured financing decreased by $2.7$1.4 million and $4.1 million, respectively, as a result of a decrease in the weighted average principal amount outstanding.

In June 2021, we issued $85.1 million in aggregate principal amount of 6.00% notes due in 2026. In connection with the BDC Merger, we assumed $38.4 million in aggregate principal amount of 7.00% notes due in 2026. In March 2026, the 7.00% notes due in 2026 were repaid in full. In June 2026, the 6.00% notes due in 2026 were repaid in full.

For the three and six months ended MarchJune 31,30, 2026 as compared to the three and six months ended MarchJune 31,30, 2025, interest expense on unsecured notes payable wasdecreased substantiallyby the$1.5 same.million Interestand expense$1.5 increasedmillion, duerespectively, toas ana increase in the amortizationresult of financing costs using the effective interest rate method was substantially offset by a decrease in interest expense driven by the retirementweighted ofaverage 189,465principal unitsamount of the 6.00% Senior Notes Due 2026 in 2025.outstanding.

We owned a 14.9% equity interest in RESOFVS1 as of both MarchJune 31,30, 2026 and December 31, 2025, and a 1.5% equity interest in VS2 as of MarchJune 31,30, 2026. Both RESOFVS1 and VS2 are affiliated limited partnerships that invest primarily in performing and non-performing mortgages, loans, mezzanines and other credit instruments supported by underlying commercial real estate assets. As of both MarchJune 31,30, 2026 and December 31, 2025, 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.

For the three and six months ended MarchJune 31,30, 2026 as compared to the three and six months ended MarchJune 31,30, 2025, equity income from RESOFVS1 decreased as a result of a decrease in RESOF’sVS1’s net income generated due to a decrease in the amount of invested capital.

For the three and six months ended MarchJune 31,30, 2026, equity income from VS2 was recorded as a result of VS2’s net income generated by invested capital. There was no such investment in VS2 or related income for the three and six months ended MarchJune 31,30, 2025.

Other equity investment relates to a preferred equity agreement we acquired in June 2024 in which we also share residual profit from the sale of underlying property with the borrower. For the three and six months ended MarchJune 31,30, 2026 as compared to the three and six months ended MarchJune 31,30, 2025, the increase in income from other equity investment is due to an increase in the outstanding principal balance.

For the three and six months ended MarchJune 31,30, 2026, we sold twoone and three industrial buildings and recognized a net loss on sale of $0.03 million and $0.6 million.million, There was no such gain or loss for the three months ended March 31, 2025.respectively.

For the three and six months ended MarchJune 31,30, 2026 as compared to the three and six months ended MarchJune 31,30, 2025, the resulting net loss decreased by $5.2 million and increased by $13.8$8.5 million.million, respectively.

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, funding and maintaining our assets and operations, making distributions to our stockholders and other general business needs. We use significant cash to purchase our target assets, repay principal and interest on our borrowings, make distributions to our investors and fund our operations. Our primary sources of cash generally consist of payments of principal and interest we receive on our portfolio of investments,investments and cash generated from our operating results and unused borrowing capacity under our financing sources.results. We deploy moderate amounts of leverage as part of our operating strategy and use a number of sources to finance our target assets, including ourwarehouse seniorlines, notesrepurchase agreements, secured borrowings and term loan.loans. We may use other sources to finance our target assets, including bank financing and arranged financing facilities with domestic or international financing providers. In addition, we may divide the loans we originate into senior and junior tranches and dispose of the more senior tranches as an additional means of providing financing to our business.

The table below summarizes our debt financing as of MarchJune 31,30, 2026:

For the threesix months ended MarchJune 31,30, 2026, cash flows used in operating activities were $1.5$1.1 million compared to cash flows provided by operating activities of $0.9$2.0 million for the threesix months ended MarchJune 31,30, 2025. The change in operating cash flows was primarily due to a decrease in contractual interest income, partially offset by a decrease in contractual interest expense.

For the threesix months ended MarchJune 31,30, 2026, cash flows provided by investing activities were $24.5$58.1 million, primarily related to proceeds from sale of real estate of $20.6$30.4 million, proceeds from repayment of loans of $1.6$23.8 million and distributions received in excess of income of $4.9$9.3 million, partially offset by origination, purchase and funding of loans of $1.4$2.7 million and capital contribution to equity investments of $1.1$2.8 million.

For the threesix months ended MarchJune 31,30, 2025, cash flows provided by investing activities were $46.2$86.5 million, primarily related to proceeds from repayment of loans of $54.0$87.0 million and proceeds from sale of real estate of $13.8 million, partially offset by origination.origination, purchase and funding of loans of $7.9$15.3 million and capital contributions to and purchase of equity interests in unconsolidated investments of $0.7 million.

For the threesix months ended MarchJune 31,30, 2026, cash flows used in financing activities were $52.1$83.9 million, primarily related to principal repayments on unsecured notes payable of $36.8$65.9 million, repayments on secured financing of $13.3$34.5 million, repayments on obligations under participation agreements of $18.0 million, payment for financing costs of $0.3$1.4 million, distributions paid to investors of $1.0 million, and a decrease in interest reserve and other deposits held on investments of $0.6$0.5 million, partially offset by proceeds from secured financing of $37.3 million.

For the threesix months ended MarchJune 31,30, 2025, cash flows used in financing activities were $45.9$74.7 million, primarily related to principal repayments on secured financing of $43.7$91.1 million, distributions paid of $4.6$7.0 million and a decrease in interest reserve and other deposits held on investments of $1.4$1.7 million, partially offset by proceeds from secured financing of $3.3$23.4 million and proceeds from obligations under participation agreements of $0.7$1.6 million.

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 economicseconomic 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.

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 MarchJune 31,30, 2026 and December 31, 2025, amount outstanding under the promissory note payable was $16.0$20.3 million and $48.1 million, respectively. The activity associated with this agreement is eliminated in consolidation and therefore has no impact on our consolidated financial statements.