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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number: 000-55429

Terra Income Fund 6, LLC

(Exact name of registrant as specified in its charter)


Delaware						92-0548263
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

205 West 28th Street, 12th Floor

New York, New York 10001

(Address of principal executive offices) (Zip Code)

(212) 753-5100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of exchange on
which registered

7.00% Notes due 2026

TFSA

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	þ	Smaller reporting company	þ
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ☑

All of the limited liability company interest in the registrant is held by an affiliate of the registrant. No market value has been computed based upon the fact that no active trading market had been established as of the date of this document.

OMISSION OF CERTAIN INFORMATION

The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Quarterly Report on Form 10-Q with reduced disclosure format.

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements

	Consolidated Balance Sheets as of June 30 , 2024 (unaudited) and December 31, 2023	2

	Consolidated Statements of Operations and Comprehensive Income (Loss) for the T hree and S ix M onths E nded June 30 , 2024 and 2023 (unaudited)	3

	Consolidated Statements of Changes in Member’s Capital for the T hree and Six M onths E nded June 30 , 2024 and 2023 (unaudited)	4

	Consolidated Statements of Cash Flows for the Six M onths E nded June 30 , 2024 and 2023 (unaudited)	5

	Notes to Consolidated Financial Statements as of June 30 , 2024 (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	30

PART II	OTHER INFORMATION	30

Item 1.	Legal Proceedings	30

Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3.	Defaults upon Senior Securities	30

Item 4.	Mine Safety Disclosures	30

Item 5.	Other Information	30

Item 6.	Exhibits	31

Signatures		32

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Terra Income Fund 6, LLC

Consolidated Balance Sheets


	June 30, 2024		December 31, 2023
	(unaudited)
Assets
Cash and cash equivalents	$	7,708,062	$	3,193,078
Restricted cash	—		106,918
Loans held for investment, net of allowance for credit losses of $382,709 and $469,011	21,337,941		60,458,534
Loans held for investment acquired through participation, net of allowance for credit losses of $10,367,310 and $9,234,320	16,797,791		17,884,930
Equity investment in unconsolidated investments	38,175,572		40,431,710
Promissory note receivable (Note 6)	34,335,983		—
Marketable securities	498,703		507,266
Interest receivable	290,869		1,241,308
Prepaid expenses and other assets	537,214		515,407
Total assets	$	119,682,135	$	124,339,151
Liabilities and Equity
Liabilities:
Unsecured notes payable, net of purchase discount	35,849,458		35,213,543
Term loan payable, net of deferred financing cost	—		14,948,604
Obligation under participation agreement (Note 7)	15,119,853		—
Interest payable from obligation under participation agreement	220,174		—
Interest reserve and other deposits held on investments	—		106,918
Other liabilities	12,740		410,075
Accrued expenses	120,673		254,716
Total liabilities	51,322,898		50,933,856
Commitments and contingencies (Note 8)
Equity:
Managing member	68,367,800		73,405,295
Accumulated other comprehensive loss	(8,563)		—
Total equity	68,359,237		73,405,295
Total liabilities and equity	$	119,682,135	$	124,339,151

See notes to unaudited consolidated financial statements.

Terra Income Fund 6, LLC

Consolidated Statements of Operations and Comprehensive (Loss) Income

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenues
Interest income	$	1,766,342	$	2,595,328	$	3,930,618	$	5,527,232
Dividend and other income	10,494		31,900		26,826		37,475
	1,776,836		2,627,228		3,957,444		5,564,707
Operating expenses
Asset management and asset servicing fees paid/ payable to Terra REIT (1)	277,621		428,883		667,679		863,433
Operating expense reimbursement to Terra REIT (1)	320,214		406,480		702,508		712,360
Provision for (reversal of provision for) credit losses	226,279		47,349		1,050,627		(67,988)
Professional fees	158,625		183,532		328,327		466,042
Insurance expense	21,072		21,072		42,144		83,191
General and administrative	11,303		14,727		47,541		27,387
	1,015,114		1,102,043		2,838,826		2,084,425
Operating income	761,722		1,525,185		1,118,618		3,480,282
Other income and expenses
(Loss) income from equity investment in unconsolidated investments	(963,371)		(124,106)		(2,150,550)		190,907
Interest expense on unsecured notes payable	(993,934)		(960,049)		(1,979,040)		(1,912,198)
Interest expense on term loan	—		(355,468)		(517,528)		(707,031)
Interest expense from obligation under participation agreement	(783,042)		—		(1,508,995)		—
Unrealized gain on investments, net	—		5,829		—		5,829
Realized loss on investments, net	—		(12,512)		—		(12,512)
	(2,740,347)		(1,446,306)		(6,156,113)		(2,435,005)
Net (loss) income	$	(1,978,625)	$	78,879	$	(5,037,495)	$	1,045,277
Other comprehensive income (loss)
Available -for-sale debt securities	139,724		—		(8,563)		—
	139,724		—		(8,563)		—
Comprehensive (loss) income	$	(1,838,901)	$	78,879	$	(5,046,058)	$	1,045,277

______________

(1)Fees were paid and payable, and expenses were reimbursed, to Terra Property Trust, Inc. (“Terra REIT”) pursuant to a cost sharing agreement with Terra REIT (Note 6).

See notes to unaudited consolidated financial statements.

Terra Income Fund 6, LLC

Consolidated Statement of Changes in Member’s Capital

(Unaudited)


	Managing Member		Accumulated Other Comprehensive Income (Loss)		Total
Balance, January 1, 2024	$	73,405,295	$	—	$	73,405,295
Net loss	(3,058,870)		—		(3,058,870)
Other comprehensive loss:
Available-for-sale debt securities	—		(148,287)		(148,287)
Balance, March 31, 2024	70,346,425		(148,287)		70,198,138
Net loss	(1,978,625)		—		(1,978,625)
Other comprehensive income (loss):
Available-for-sale debt securities	—		139,724		139,724
Balance, June 30, 2024	$	68,367,800	$	(8,563)	$	68,359,237


	Managing Member		Total
Balance, January 1, 2023	$	79,691,832	$	79,691,832
Cumulative effect of adoption of credit loss accounting standard effective January 1, 2023 (Note 2)	(661,422)		(661,422)
Net income	966,398		966,398
Balance, March 31, 2023	79,996,808		79,996,808
Net income	78,879		78,879
Balance, June 30, 2023	$	80,075,687	$	80,075,687

See notes to unaudited consolidated financial statements.

Terra Income Fund 6, LLC

Consolidated Statement of Cash Flows

(Unaudited)


	Six Months Ended June 30,
	2024		2023
Cash flows from operating activities:
Net (loss) income	$	(5,037,495)	$	1,045,277
Adjustments to reconcile net (loss) income from operations to net cash (used in) provided by operating activities:
Provision for (reversal of provision for) credit losses	1,050,627		(67,988)
Amortization of premiums and discounts on investments	129,883		744,316
Amortization and accretion of investment-related fees, net	99,365		(226,859)
Amortization of discount on debt	635,915		569,073
Amortization of deferred financing costs	51,396		—
Loss (income) from equity investment in unconsolidated investments	2,150,550		(190,907)
Distributions received from equity investment in unconsolidated investments	—		526,998
Realized loss on investments, net	—		12,512
Unrealized gain on investments, net	—		(5,829)
Changes in operating assets and liabilities:
Decrease in interest receivable	950,439		187,954
Increase in prepaid expenses and other assets	(21,807)		(224,666)
Decrease in accrued expenses	(134,043)		(358,636)
Increase in interest payable from obligation under participation agreement	220,174		—
Decrease in other liabilities	(401,274)		(252,044)
Net cash (used in) provided by operating activities	(306,270)		1,759,201
Cash flows from investing activities:
Repayment of loans	39,941,496		41,777,390
Origination and purchase of loans	(889,847)		(3,256,570)
Purchase of equity interest in unconsolidated investment	(527)		(27,354,342)
Funding for promissory note receivable	(34,335,983)		—
Proceeds from redemption of held-to-maturity debt securities	—		10,000,000
Distributions on equity interest in unconsolidated investment	106,115		—
Purchase of held-to-maturity debt securities	—		(10,012,512)
Purchase of marketable securities	—		(525,867)
Net cash provided by investing activities	4,821,254		10,628,099
Cash flows from financing activities:
Proceeds from obligation under participation agreement	15,000,000		—
Repayment of term loan	(15,000,000)		(10,000,000)
Change in interest reserve and other deposits held on investments	(106,918)		(215,357)
Payment of financing costs	—		(150,000)
Net cash used in financing activities	(106,918)		(10,365,357)
Net increase in cash, cash equivalents and restricted cash	4,408,066		2,021,943
Cash, cash equivalents and restricted cash, at beginning of period	3,299,996		6,739,953
Cash, cash equivalents and restricted cash, at end of period (Note 2)	$	7,708,062	$	8,761,896

Supplemental disclosure of cash flow information:
Cash paid for interest	$	2,978,225	$	2,050,156
Income taxes paid	$	—	$	225,000

Supplemental non-cash information:
Settlement of a mezzanine loan accounted for as an equity investment in exchange for equity interest in a joint venture that owns real estate (Note 4)	$	—	$	10,149,642

See notes to unaudited consolidated financial statements.

Terra Income Fund 6, LLC

Notes to Consolidated Financial Statements (Unaudited)

Note 1. Principal Business and Organization

Terra Income Fund 6, LLC (“Terra LLC”, and together with its consolidated subsidiaries, the “Company”) was formed as a Delaware limited liability company on April 29, 2022 as a wholly owned subsidiary of Terra Property Trust, Inc. (“Terra REIT”). On October 1, 2022, pursuant to an Agreement and Plan of Merger, dated as of May 2, 2022 (as amended, the “Merger Agreement”), Terra Income Fund 6, Inc. (“Terra BDC”) merged with and into Terra LLC, with Terra LLC continuing as the surviving entity of the merger (the “Merger”). Subsequent to the Merger, Terra LLC became the successor of Terra BDC and assumed all of Terra BDC’s rights and obligations.

In February 2021, Terra BDC issued $38.4 million in aggregate principal amount of 7.00% fixed-rate notes due 2026, for net proceeds of $37.2 million, after deducting underwriting commissions of $1.2 million, see “Unsecured Senior Notes” in Note 7 for more information. In connection with the Merger, Terra LLC assumed the obligations of Terra BDC under the indenture governing the 7.00% fixed-rate notes due 2026.

The Company is a wholly owned subsidiary of Terra REIT, and its investment objective is to provide attractive risk-adjusted returns to Terra REIT’s stockholders, primarily through Terra REIT’s regular distributions. Terra REIT’s investments activities are externally managed by Terra REIT Advisors, LLC (the “REIT Manager”), an affiliate of the Company. The Company originates, invests in and manages a diverse portfolio of real estate-related investments that generate a stable income stream. The Company directly originates, structures and underwrites most, if not all, of its loans, as it believes that doing so will provide it with the best opportunity to invest in loans that satisfy its standards, establish a direct relationship with the borrower and optimize the terms of its investments; however, the Company may acquire existing loans from the originating lender should the REIT Manager determine such an investment is in its best interest. The Company may hold its investments until their scheduled maturity dates or may sell them if the Company is able to command favorable terms for their disposition. The Company may also seek to realize growth in the value of its investments by timing their sale to maximize value.

The Company may also make strategic non-real estate-related investments that align with its investment objectives and criteria.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and include the accounts of the Company and its consolidated subsidiaries. The accompanying interim consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X.

Consolidation

Terra LLC consolidates entities in which it has a controlling financial interest based on either the variable interest entity (“VIE”) or voting interest entity (“VOE”) model. Terra LLC is required to first apply the VIE model to determine whether it holds a variable interest in an entity, and if so, whether the entity is a VIE. If Terra LLC determines the entity is not a VIE, it then applies the VOE model. Under the VOE model, Terra LLC consolidates an entity when it holds a majority voting interest in an entity.

Terra LLC accounts for investments in which it has significant influence but not a controlling financial interest using the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid investments, with original maturities of ninety days or less when purchased, as cash equivalents. Cash and cash equivalents held at financial institutions, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation.

Restricted Cash

Restricted cash represents cash held as additional collateral by the Company on behalf of the borrowers related to the investments for the purpose of such borrowers making interest and property-related operating payments. There is a

Notes to Consolidated Financial Statements (Unaudited)

corresponding liability of the same amount on the statements of assets and liabilities called “Interest reserve and other deposits held on investments.”

The following table provides a reconciliation of cash, cash equivalents and restricted cash in the Company’s consolidated balance sheets to the total amount shown in its statements of cash flows:


	June 30,
	2024		2023
Cash and cash equivalents	$	7,708,062	$	8,761,896
Restricted cash	—		—
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	7,708,062	$	8,761,896

Loans Held for Investment

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

Allowance for Credit Losses

On January 1, 2023, the Company adopted the provisions of Accounting Standards Codification (“ASC”) 326, Financial Instruments – Credit Losses. ASC 326 mandates the use of a current expected credit loss (“CECL”) methodology for estimating future credit losses of certain financial instruments measured at amortized cost, instead of the “incurred loss” methodology previously required under U.S. GAAP. The CECL methodology requires the consideration of possible credit losses over the life of an instrument as opposed to estimating credit losses upon the occurrence of an actual loss event under the previous “incurred loss” methodology. As permitted by ASC 326, the Company elected not to measure an allowance for credit losses on accrued interest receivable (which is presented separately on the consolidated balance sheet), but rather write off in a timely manner by reversing interest income that would likely be uncollectible. The Company’s adoption of the ASC 326 resulted in a $0.7 million increase to total reserve, including reserve on future funding commitments, which was recognized as a cumulative-effect adjustment to member’s capital as of January 1, 2023. Subsequent to the adoption of the CECL methodology, any increase or decrease to the allowance for credit losses is recorded in earnings on the consolidated statement of operations.

Performing Loans

The Company uses a model-based approach for estimating the allowance for credit losses on performing loans on a collective basis, including future funding commitments for which the Company does not have the unconditional right to cancel, as these loans share similar risk characteristics. The Company utilizes 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 its loan portfolio. The Company utilizes a commercial mortgage-based, third-party loan loss model and because the Company does not have a meaningful history of realized credit losses on its loan portfolio, it subscribes to a database service to provide historical proxy loan loss information. The Company employs logistic regression to forecast expected losses at the loan level based on a commercial real estate loan securitization database that contains activity dating back to 1998. The Company has chosen to incorporate a weighted average macroeconomic forecast that encompasses baseline, upside and downside scenarios, into its allowance for credit losses on performing loans estimate during the reasonable and supportable forecast period which is currently eight quarters. The Company selects 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. A significant amount of

Notes to Consolidated Financial Statements (Unaudited)

judgment is applied in selecting inputs and analyzing results produced by the models to determine the allowance for credit losses on performing loans. Changes in such estimates can significantly affect the expected credit losses.

Beyond the Company’s reasonable and supportable forecast period, the Company reverts to historical loss information on a straight-line basis over the remaining contractual loan term, taken from a period that most accurately reflects the expectation of conditions expected to exist during the period of reversion. The Company may adjust historical loss information for differences in risk that may not reflect the characteristics of its current portfolio, including but not limited to, loan-to-value and debt service coverage ratios, among other relevant factors. The method of reversion selected represents the best estimate of the collectability of the investments and is reevaluated each reporting period.

The determination of the performing loans credit loss estimate considers historical loss information and current economic conditions for each loan, reversion period and reasonable and supportable forecasts about the future. The reasonable and supportable forecast period is determined based on the Company’s assessment of the most likely scenario of assumptions and plausible outcomes for the U.S. economy. The Company regularly evaluates the reasonable and supportable forecast period to determine if a change is needed.

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

Unfunded Commitments

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

Non-Performing Loans

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

Equity Investment in Unconsolidated Investments

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

The Company classifies distributions received from equity method investments using the cumulative earnings approach. Distributions received are considered returns on the investment and classified as cash inflows from operating activities. If, however, the investor’s cumulative distributions received, less distributions received in prior periods determined to be returns of investment, exceeds cumulative equity in earnings recognized, the excess is considered a return of investment and is classified as cash inflows from investing activities.

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

Notes to Consolidated Financial Statements (Unaudited)

Marketable Securities

From time to time, the Company may invest in short-term debt. These securities are classified as available-for-sale securities and are carried at fair value. Changes in the fair value of debt securities are reported in other comprehensive income until a gain or loss on the securities is realized.

Revenue Recognition

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

Interest Income: Interest income is accrued based upon the outstanding principal amount and contractual terms of the loans and preferred equity investments that the Company expects to collect, and it is accrued and recorded on a daily basis. Discounts and premiums on investments purchased are accreted or amortized over the expected life of the respective loan using the effective yield method, and are included in interest income in the consolidated statements of operations. Loan origination fees and exit fees, net of portions attributable to obligations under participation agreements, if any, are capitalized and amortized or accreted to interest income over the life of the investment using the effective yield method. Outstanding interest receivable is assessed for recoverability. The Company generally reverses the accrued and unpaid interest against interest income and no longer accrues for the interest when, in the opinion of the REIT Manager, recovery of interest and principal becomes not probable. Interest is then recorded on the basis of cash received until accrual is resumed when the loan becomes contractually current and performance is demonstrated. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability.

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

Other Revenues: Prepayment fee income is recognized as prepayments occur. All other income is recognized when earned.

Deferred Debt Issuance Costs

The Company records issue discounts and other financing costs related to its debt obligation as deferred debt issuance costs, which are presented as a direct deduction from the carrying value of the related debt liability. These expenses are deferred and amortized using the effective interest method over the stated maturity of the debt obligation.

Use of Estimates

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

Note 3. Loans Held for Investment

The Company elected the practical expedient under ASC 326 to exclude accrued interest from amortized cost. As of June 30, 2024 and December 31, 2023, accrued interest receivable of $0.3 million and $1.2 million, respectively, is included in interest receivable on the consolidated balance sheets, and is excluded from the amortized cost of loans held for investment.

Notes to Consolidated Financial Statements (Unaudited)

Portfolio Summary

The following table provides a summary of the Company’s loan portfolio:


	June 30, 2024						December 31, 2023
	Fixed Rate		Floating Rate (1)(2)		Total		Fixed Rate		Floating Rate (1)(2)		Total
Number of loans	2		2		4		4		2		6
Principal balance	$	5,673,224	$	43,059,173	$	48,732,397	$	44,377,373	$	43,059,173	$	87,436,546
Carrying value	$	5,581,763	$	32,553,969	$	38,135,732	$	44,528,468	$	33,814,996	$	78,343,464
Fair value	$	5,398,569	$	32,943,200	$	38,341,769	$	44,313,689	$	34,214,046	$	78,527,735
Weighted-average coupon rate	11.6%		16.6%		16.0%		13.7%		16.6%		15.1%
Weighted-average remaining term (years)	2.85		0.61		0.92		0.76		1.10		0.87

_______________

(1)As of June 30, 2024 and December 31, 2023, 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 both average SOFR and Term SOFR of 5.3%, as of June 30, 2024, and of 5.3% and 5.4%, respectively, as of December 31, 2023.

(2)As of both June 30, 2024 and December 31, 2023, two loans were subject to a SOFR or Term SOFR floor, as applicable.

Lending Activities

The following tables present the activities of the Company’s loan portfolio:


	Loans Held for Investment		Loans Held for Investment through Participation Interests		Total
Balance, January 1, 2024	$	60,458,534	$	17,884,930	$	78,343,464
New loans made	843,996		45,851		889,847
Principal repayments received	(39,941,496)		—		(39,941,496)
Net amortization of premiums on loans	(129,883)		—		(129,883)
Accrual, payment and accretion of investment-related fees and other, net	20,488		—		20,488
Reversal of (provision for) credit losses	86,302		(1,132,990)		(1,046,688)
Balance, June 30, 2024	$	21,337,941	$	16,797,791	$	38,135,732


	Loans Held for Investment		Loans Held for Investment through Participation Interests		Total
Balance, January 1, 2023	$	79,082,650	$	42,330,376	$	121,413,026
Cumulative effect of adoption of credit loss accounting standard effective January 1, 2023 (Note 2)	(593,040)		—		(593,040)
New loans made	3,023,096		233,474		3,256,570
Principal repayments received	(21,655,810)		(20,121,580)		(41,777,390)
Net amortization of discounts on loans	(662,905)		(81,411)		(744,316)
Accrual, payment and accretion of investment-related fees and other, net	141,812		85,047		226,859
Reversal of provision for credit losses	26,499		—		26,499
Balance, June 30, 2023	$	59,362,302	$	22,445,906	$	81,808,208

Notes to Consolidated Financial Statements (Unaudited)

Portfolio Information

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


	June 30, 2024						December 31, 2023
Loan Structure	Principal Balance		Carrying Value		% of Total		Principal Balance		Carrying Value		% of Total
Preferred equity investments	$	45,732,397	$	45,940,979	120.5	%	$	63,186,546	$	63,648,991	81.3	%
Mezzanine loans	3,000,000		2,944,772		7.7	%	3,000,000		2,935,304		3.7	%
First mortgages	—		—		—	%	21,250,000		21,462,500		27.4	%
Allowance for credit losses	—		(10,750,019)		(28.2)	%	—		(9,703,331)		(12.4)	%
Total	$	48,732,397	$	38,135,732	100.0	%	$	87,436,546	$	78,343,464	100.0	%


	June 30, 2024						December 31, 2023
Property Type	Principal Balance		Carrying Value		% of Total		Principal Balance		Carrying Value		% of Total
Office	$	24,491,877	$	24,491,877	64.3	%	$	24,491,877	$	24,491,877	31.3	%
Mixed use	18,567,296		18,775,878		49.2	%	18,567,296		18,796,814		24.0	%
Multifamily	2,673,224		2,673,224		7.0	%	20,127,373		20,360,300		26.0	%
Student housing	3,000,000		2,944,772		7.7	%	3,000,000		2,935,304		3.7	%
Infrastructure	—		—		—	%	21,250,000		21,462,500		27.4	%
Allowance for credit losses	—		(10,750,019)		(28.2)	%	—		(9,703,331)		(12.4)	%
Total	$	48,732,397	$	38,135,732	100.0	%	$	87,436,546	$	78,343,464	100.0	%


	June 30, 2024						December 31, 2023
Geographic Location	Principal Balance		Carrying Value		% of Total		Principal Balance		Carrying Value		% of Total
United States
New York	$	27,165,101	$	27,165,101	71.2	%	$	27,119,250	$	27,119,250	34.7	%
California	21,567,296		21,720,650		57.0	%	21,567,296		21,732,118		27.7	%
Georgia	—		—		—	%	17,500,000		17,732,927		22.6	%
Utah	—		—		—	%	21,250,000		21,462,500		27.4	%
Allowance for credit losses	—		(10,750,019)		(28.2)	%	—		(9,703,331)		(12.4)	%
Total	$	48,732,397	$	38,135,732	100.0	%	$	87,436,546	$	78,343,464	100.0	%

Allowance for Credit Losses

As described in Note 2, on January 1, 2023, the Company adopted the provisions of ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13, which requires entities to recognize credit losses on financial instruments based on an estimate of current expected credit losses. The adoption of ASU 2016-13 resulted in a $0.7 million increase to total reserve, including reserve on future funding commitments, which was recognized as a cumulative-effect adjustment to member’s capital as of January 1, 2023.

Notes to Consolidated Financial Statements (Unaudited)

The following table presents the activity in allowance for credit losses for funded loans:


	Six Months Ended June 30,
	2024		2023
Allowance for credit losses, beginning of period	$	9,703,331	$	3,937,050
Cumulative effect of adoption of ASU 2016-13 effective January 1, 2023 (Note 2)	—		593,040
Provision for (reversal of provision for) credit losses	1,046,688		(26,499)
Charge-offs	—		—
Recoveries	—		—
Allowance for credit losses, end of period	$	10,750,019	$	4,503,591

Certain of the Company’s performing loans contain provisions for future funding commitments, which are subject to the borrower meeting certain performance-related metrics that are monitored by the Company. These unfunded commitments on loans amounted to approximately $0.7 million and none as of June 30, 2024 and December 31, 2023, respectively.

The following table presents the activity in the liability for credit losses on unfunded commitments:


	Six Months Ended June 30,
	2024		2023
Liability for credit losses on unfunded commitments, beginning of period	$	8,801	$	—
Cumulative effect of credit loss accounting standard effective January 1, 2023 (Note 2)	—		68,382
Provision for (reversal of provision for) credit losses	3,939		(41,489)
Liability for credit losses on unfunded commitments, end of period	$	12,740	$	26,893

The liability for credit losses on unfunded commitments is included in other liabilities on the consolidated balance sheets.

Accrued Interest Receivable

The Company elected not to measure a CECL reserve on accrued interest receivable due to the Company’s policy of writing off uncollectible accrued interest receivable balances in a timely manner. If the Company determines it has uncollectible accrued interest receivable, it generally will reverse the accrued and unpaid interest against interest income and suspend the accrual for future interest income. For the three and six months ended June 30, 2024 and 2023, the Company did not reverse any interest income accrual because all accrued interest income was deemed collectible. As of June 30, 2024 and December 31, 2023, the Company had two loans that were in default, and suspended interest income accrual of $1.2 million and $2.4 million, respectively, and $1.0 million and $2.0 million, respectively, for the three and six months ended June 30, 2024 and 2023, respectively, because recovery of such income was not probable. As of June 30, 2024 and December 31, 2023, there was no outstanding interest receivable on these loans.

Non-Performing Loans

As discussed in Note 2, for loans that are considered non-performing, the Company removes them from the industry loss rate approach and analyzes them separately for recoverability or based on sponsor’s guarantee. As of June 30, 2024 and December 31, 2023, the Company had two non-performing loans with total carrying value of $27.2 million and $27.1 million, respectively. Accordingly, the Company utilized the estimated fair value of the loan collateral or sponsor’s guarantee to estimate the total allowance for credit losses of $10.4 million and $9.2 million as of June 30, 2024 and December 31, 2023, respectively. Please see “Significant Unobservable Inputs” in Note 5 for information on how the fair values of these loans were determined.

Loan Risk Rating

The Company assesses the risk factors of each loan and assigns each loan a risk rating between 1 and 5, which is an average of the numerical ratings in the following categories: (i) sponsor capability and financial condition; (ii) loan and collateral performance relative to underwriting; (iii) quality and stability of collateral cash flows and/or reserve balances; and (iv) loan to value. Based on a 5-point scale, the Company’s loans are rated “1” through “5”, from less risk to greater risk as follows:

Notes to Consolidated Financial Statements (Unaudited)


Risk Rating						Description
1						Very low risk
2						Low risk
3						Moderate/average risk
4						Higher risk
5						Highest risk

The following tables present the amortized cost of the Company's loan portfolio by year of origination and loan risk rating as of:


	June 30, 2024
Loan Risk Rating	Number of Loans	Amortized Cost		% of Total		Amortized Cost by Year Originated
						2024		2023		2022		2021		2020		Prior
1	—	$	—	—	%	$	—	$	—	$	—	$	—	$	—	$	—
2	—	—		—	%	—		—		—		—		—
3	1	2,944,772		6.0	%	—				—		—		—		2,944,772
4	1	18,775,879		38.4	%	—		—		18,775,879		—		—		—
5	—	—		—	%	—		—		—		—		—		—
Non-performing	2	27,165,100		55.6	%	—		—		—		—		—		27,165,100
	4	48,885,751		100.0	%	$	—	$	—	$	18,775,879	$	—	$	—	$	30,109,872
Allowance for credit losses		(10,750,019)
Total, net of allowance for credit losses		$	38,135,732


	December 31, 2023
Loan Risk Rating	Number of Loans	Amortized Cost		% of Total		Amortized Cost by Year Originated
						2023		2022		2021		2020		2019		Prior
1	—	$	—	—	%	$	—	$	—	$	—	$	—	$	—	$	—
2	—	—		—	%	—		—		—		—		—
3	3	42,130,731		47.9	%	—				39,195,427		—		—		2,935,304
4	1	18,796,818		21.3	%	—		18,796,818		—		—		—		—
5	—	—		—	%	—		—		—		—		—		—
Non-performing	2	27,119,246		30.8	%	—		—		—		—				27,119,246
	6	88,046,795		100.0	%	$	—	$	18,796,818	$	39,195,427	$	—	$	—	$	30,054,550
Allowance for credit losses		(9,703,331)
Total, net of allowance for credit losses		$	78,343,464

Held-to-Maturity Debt Securities

In the first quarter of 2023, the Company purchased $10.0 million of corporate bonds with a coupon rate of 6.125% that matured on May 15, 2023. The Company classified these bonds as held-to-maturity debt securities, as it had the intent and ability to hold these securities until maturity. These securities were recorded at amortized cost and were fully redeemed at par on May 15, 2023.

Note 4. Equity Investment in Unconsolidated Investments

As of June 30, 2024 and December 31, 2023, the Company owns equity interests in two joint ventures that own real estate properties. The Company accounts for its interests in these investments using the equity method of accounting because the Company does not have a controlling financial interest in these entities.

Notes to Consolidated Financial Statements (Unaudited)

The following table presents a summary of the Company’s equity investment in unconsolidated investments as of:


		June 30, 2024			December 31, 2023
Entity	Co-owner	Beneficial Ownership Interest	Carrying Value		Beneficial Ownership Interest	Carrying Value
SF - Dallas Industrial, LLC (1)	Affiliate	80.0%	$	34,514,587	80.0%	$	35,690,795
610 Walnut Investors LLC (2)	Third party	38.4%	3,660,985		42.4%	4,740,915
			$	38,175,572		$	40,431,710

_______________

(1)On December 28, 2022, the Company originated a $10.0 million mezzanine loan to a borrower to finance the acquisition of a real estate portfolio. Additionally, the Company entered into a residual profit-sharing agreement with the borrower in which the borrower would pay the Company an additional amount of 35.0% of remaining net cash flow from the sale of the real estate portfolio. The Company accounted for the entire arrangement as equity investment in unconsolidated investment. In May 2023, the Company made a cash payment of $27.4 million and settled the $10.0 million mezzanine loan in exchange for an 80.0% equity interest in a joint venture that owns the real estate portfolio. Terra REIT owns the other 20.0% of the joint venture.

(2)In November 2023, the Company contributed $5.1 million to a joint venture that owns a real estate property.

The following table presents a summary of equity income of and distributions received from the Company’s equity investment in unconsolidated investments:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
(Loss) income from equity investment in unconsolidated investments	$	(963,371)	$	(124,106)	$	(2,150,550)	$	190,907
Distributions received from unconsolidated investments	$	—	$	264,227	$	106,115	$	526,998

The following tables present estimated combined summarized financial information of the Company’s equity investment in the joint ventures. Amounts provided are the total amounts attributable to the joint ventures and do not represent the Company’s proportionate share:


	June 30, 2024		December 31, 2023
Net investments in real estate	$	115,728,261	$	118,332,211
Other assets	7,413,019		8,658,923
Total assets	123,141,280		126,991,134
Mortgage loan payable	77,312,263		77,223,082
Other liabilities	4,389,261		5,501,677
Total liabilities	81,701,524		82,724,759
Members’ capital	$	41,439,756	$	44,266,375


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenues	$	1,673,189	$	520,182	$	3,388,934	$	520,182
Operating expenses	(827,465)		(290,512)		(1,458,609)		(290,512)
Depreciation and amortization expense	(1,242,984)		(357,538)		(2,806,897)		(357,538)
Interest expense	(1,568,548)		(275,905)		(3,105,604)		(275,905)
Net loss	$	(1,965,808)	$	(403,773)	$	(3,982,176)	$	(403,773)

Note 5. Fair Value Measurements

The Company follows the provisions of ASC 820, Fair Value Measurement (“ASC 820”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 established a fair value hierarchy that prioritizes and ranks the level of market price observability used in measuring investments at fair

Notes to Consolidated Financial Statements (Unaudited)

value. Market price observability is impacted by a number of factors, including the type of investment, the characteristics specific to the investment, and the state of the marketplace (including the existence and transparency of transactions between market participants). Investments with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in an orderly market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Investments measured and reported at fair value are classified and disclosed into one of the following categories based on the inputs as follows:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities that the Company has the ability to access.

Level 2 — Pricing inputs are other than quoted prices in active markets, including, but not limited to, quoted prices for similar assets and liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs.

Level 3 — Significant unobservable inputs are based on the best information available in the circumstances, to the extent observable inputs are not available, including the Company’s own assumptions used in determining the fair value of investments. Fair value for these investments is determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public exchanges for comparable securities, current and projected operating performance, and financing transactions subsequent to the acquisition of the investment. The inputs into the determination of fair value require significant management judgment.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and the Company considers factors specific to the investment.

As of June 30, 2024 and December 31, 2023, the Company had not elected the fair value option for its financial instruments, including loans held for investment, loans held for investment acquired through participation, term loan payable and unsecured notes payable. Such financial instruments are carried at cost, less impairment or less net deferred costs, where applicable. Held-to-maturity debt securities are financial instruments that are reported at amortized cost.

Financial Instruments Carried at Fair Value on a Recurring Basis

From time to time, the Company may invest in short-term debt and equity securities which are classified as available-for-sale securities, and are presented at fair value on the consolidated balance sheet. Changes in the fair value of equity securities are recognized in earnings. Changes in the fair value of debt securities are reported in other comprehensive income until the securities are realized. Additionally, the Company may invest in short-term money market funds. These funds are included in cash and cash equivalents on the consolidated balance sheet due to their short-term nature and can be easily converted to cash.

The following tables present fair value measurements of financial instruments that were carried at fair value, by major class, according to the fair value hierarchy:


	June 30, 2024
	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Marketable securities - debt securities	$	498,703	$	—	$	—	$	498,703
Total	$	498,703	$	—	$	—	$	498,703


	December 31, 2023
	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Marketable securities - debt securities	$	507,266	$	—	$	—	$	507,266
Total	$	507,266	$	—	$	—	$	507,266

Notes to Consolidated Financial Statements (Unaudited)

The following table presents the activities of the marketable securities:


	Six Months Ended June 30,
	2024		2023
Beginning balance	$	507,266	$	—
Purchases	—		525,867
Fair market value adjustment	(8,563)		5,829
Ending balance	$	498,703	$	531,696

Financial Instruments Not Carried at Fair Value

The following table presents the carrying value and estimated fair value of the Company’s financial instruments that are not carried at fair value on the consolidated balance sheets as of:


		June 30, 2024						December 31, 2023
	Level	Principal Balance		Carrying Value		Fair Value		Principal Balance		Carrying Value		Fair Value
Investments:
Loans held for investment	3	$	21,567,296	$	21,720,650	$	21,556,353	$	60,317,296	$	60,927,545	$	60,642,806
Loans held for investment acquired through participation	3	27,165,101		27,165,101		16,785,416		27,119,250		27,119,250		17,884,929
Allowance for credit losses		—		(10,750,019)		—		—		(9,703,331)		—
Total loans		$	48,732,397	$	38,135,732	$	38,341,769	$	87,436,546	$	78,343,464	$	78,527,735
Liabilities:
Unsecured notes payable (1)(2)	1	$	38,375,000	$	35,849,458	$	36,978,150	$	38,375,000	$	35,213,543	$	36,287,400
Obligation under participation agreement	3	15,000,000		15,119,853		15,203,048		—		—		—
Term loan payable (3)(4)	3	—		—		—		15,000,000		14,948,604		15,000,000
Total liabilities		$	53,375,000	$	50,969,311	$	52,181,198	$	53,375,000	$	50,162,147	$	51,287,400

_______________

(1)Carrying value is net of unamortized purchase discount of $2.5 million and $3.2 million as of June 30, 2024 and December 31, 2023, respectively.

(2)Valuation falls under Level 1 of the fair value hierarchy, which is based on the trading price of $24.09 and $23.64 as of the close of the business day on June 28, 2024 and December 29, 2023, respectively.

(3)Carrying value is net of unamortized discount of $0.1 million as of December 31, 2023.

(4)Valuation falls under Level 3 of the fair value hierarchy, which is based on a discounted cash flow model with a discount rate of 12.48%, as of December 31, 2023.

Valuation Methodology

The fair value of the Company’s investment in corporate bonds, preferred stock and common stock within the marketable securities portfolio, if any, is determined based on quoted prices in an active market and is classified as Level 1 of the fair value hierarchy. Additionally, the fair value of the Company’s unsecured notes payable is determined based on quoted price in an active market and is also classified as Level 1.

Market quotations are not readily available for the Company’s real estate-related loan investments, all of which are included in Level 3 of the fair value hierarchy, as these investments are valued utilizing a yield approach, i.e., a discounted cash flow methodology to arrive at an estimate of the fair value of each respective investment in the portfolio using an estimated market yield. In following this methodology, investments are evaluated individually, and management takes into account, in determining the risk-adjusted discount rate for each of the Company’s investments, relevant factors, including available current market data on applicable yields of comparable debt/preferred equity instruments; market credit spreads and yield curves; the investment’s yield; covenants of the investment, including prepayment provisions; the ability of the Company’s borrowers and investees to make payments, net operating income and debt service coverage ratio; construction progress reports and construction budget analysis; the nature, quality and realizable value of any collateral (and loan-to-value ratio); the forces that influence the local markets in which the asset (the collateral) is purchased and sold, such as capitalization rates, occupancy rates, rental rates and replacement costs; and the anticipated duration of each real estate-related loan investment.

Notes to Consolidated Financial Statements (Unaudited)

These valuation techniques are applied in a consistent and verifiable manner to all investments that are categorized within Level 3 of the fair value hierarchy and the REIT Manager provides the board of directors of Terra REIT (the “Terra REIT Board”), (a majority of which is made up of independent directors) with the investment valuations that are based on this discounted cash flow methodology. Valuations are prepared quarterly, or more frequently as needed, with each asset in the portfolio subject to a valuation prepared by a third-party valuation service at a minimum of once during every 12-month period. REIT Manager reviews the preliminary valuation with the Terra REIT Board and, together with an independent valuation firm, if applicable, responds and supplements the preliminary valuation to reflect any comments provided by the Terra REIT Board. The REIT Manager discusses valuations and determines the fair value of each investment in the portfolio in good faith based on various metrics and other factors, including the input and recommendation provided by the Terra REIT Board and any third-party valuation firm, if applicable.

Significant Unobservable Inputs

The following tables summarize the significant unobservable inputs used by the Company to value the Level 3 investments as of June 30, 2024 and December 31, 2023. The following tables are not intended to be all-inclusive, but instead identify the significant unobservable inputs relevant to the determination of fair values.


June 30, 2024
			Primary Valuation Technique	Unobservable Input	Range				Weighted
Asset Category	Fair Value				Minimum		Maximum		Average
Assets:
Loans	$	21,556,353	Discounted cash flow	Discount rate	14.87	%	16.55	%	16.31	%
Loans through participation interest (1)	16,785,416		Discounted cash flow	Discount rate	N/A		N/A		N/A
Total Level 3 Assets	$	38,341,769
Liabilities:
Obligation under participation agreement	$	15,203,048	Discounted cash flow	Discount rate	16.55	%	16.55	%	16.55	%

December 31, 2023

Primary
Valuation
Technique

Unobservable Input

Range

Weighted

Asset Category

Fair Value

Minimum

Maximum

Average

Assets:

Loans

60,642,806

Discounted cash flow

Discount rate

13.02

16.95

15.88

Loans through participation interest (1)

17,884,929

Discounted cash flow

Discount rate

N/A

Total Level 3 Assets

78,527,735

_______________

(1)These were non-performing loans, as described in Note 3. The fair market value estimates were determined primarily using discounted cash flow models and Level 3 inputs, which include estimates of property-specific cash flows over a specific holding period, a discount rate of 6.75% and a terminal capitalization rate of 5.75%. These inputs are based on the location, type and nature of the property, current sales and lease comparables, anticipated real estate and capital market conditions, and management’s knowledge, experience and judgment. Additionally, the Company may use sales comparables to corroborate the estimated value of a loan’s collateral or may use sponsor’s guarantee to estimate the value of a non-performing loan.

If the weighted average discount rate used to value the Company’s investments were to increase, the fair value of the Company’s investments would decrease. Conversely, if the weighted average discount rate used to value the Company’s investments were to decrease, the fair value of Company’s investments would increase.

Note 6. Related Party Transactions

Promissory Note Receivable

On January 24, 2024, the Company entered into a revolving promissory note receivable with Terra REIT. The promissory note receivable 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. For the six months ended June 30, 2024, the Company provided funding under the promissory note receivable of $34.3 million and the amount outstanding under the promissory note receivable was $34.3 million. For the three and six months ended June 30, 2024,

Notes to Consolidated Financial Statements (Unaudited)

interest income recognized on the promissory note receivable was $0.4 million and $0.5 million, respectively, which was included in Interest income on the consolidated statements of operations and comprehensive loss.

Cost Sharing Agreement

On November 8, 2022, the Company entered into the Cost Sharing Agreement with Terra REIT effective October 1, 2022, pursuant to which the Company reimburses Terra REIT for its allocable portion of management and transaction fees and operating expenses incurred by Terra REIT, including fees paid by Terra REIT to the REIT Manager.

The following table presents a summary of such fees and reimbursements incurred pursuant to the Cost Sharing Agreement between Terra LLC and Terra REIT:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Amounts Included in the Statements of Operations
Asset management and asset servicing fees	$	277,621	$	428,883	$	667,679	$	863,433
Operating expense reimbursement to Adviser (1)	320,214		406,480		702,508		712,360
Origination, extension and disposition fees	137,405		126,754		356,397		317,752

_______________

(1)Amounts were primarily compensation for time spent supporting the Company’s day-to-day operations.

Terra REIT’s Management Agreement with the REIT Manager

Terra REIT is the Company’s parent and sole member. The Company has entered into a cost sharing arrangement with Terra REIT pursuant to which the Company is responsible for its allocable share of Terra REIT’s expenses, including fees paid by Terra REIT to its manager, the REIT Manager. Terra REIT currently pays the following fees to the REIT Manager pursuant to the Management Agreement:

Origination and Extension Fee. An origination fee in the amount of 1.0% of the amount used to originate, acquire, fund or structure real estate-related investments, including any third-party expenses related to such loan. In the event that the term of any real estate-related loan is extended, the REIT Manager also receives an origination fee equal to the lesser of (i) 1.0% of the principal amount of the loan being extended or (ii) the amount of fee paid by the borrower in connection with such extension.

Asset Management Fee. A monthly asset management fee at an annual rate equal to 1.0% of the aggregate funds under management, which includes the loan origination amount or aggregate gross acquisition cost, as applicable, for each real estate-related loan and cash held by Terra REIT.

Asset Servicing Fee. A monthly asset servicing fee at an annual rate equal to 0.25% of the aggregate gross origination price or aggregate gross acquisition price for each real estate related loan then held by Terra REIT (inclusive of closing costs and expenses).

Disposition Fee. A disposition fee in the amount of 1.0% of the gross sale price received by Terra REIT from the disposition of each loan, but not upon the maturity, prepayment, workout, modification or extension of a loan unless there is a corresponding fee paid by the borrower, in which case the disposition fee will be the lesser of (i) 1.0% of the principal amount of the loan and ii) the amount of the fee paid by the borrower in connection with such transaction. If Terra REIT takes ownership of a property as a result of a workout or foreclosure of a loan, Terra REIT will pay a disposition fee upon the sale of such property equal to 1.0% of the sales price.

Transaction Breakup Fee. In the event that Terra REIT receive any “breakup fees,” “busted-deal fees,” termination fees, or similar fees or liquidated damages from a third-party in connection with the termination or non-consummation of any loan or disposition transaction, the REIT Manager will be entitled to receive one-half of such amounts, in addition to the reimbursement of all out-of-pocket fees and expenses incurred by the REIT Manager with respect to its evaluation and pursuit of such transactions.

In addition to the fees described above, Terra REIT reimburses the REIT Manager for operating expenses incurred in connection with services provided to the operations of Terra REIT, including its allocable share of the REIT Manager’s overhead, such as rent, employee costs, utilities, and technology costs.

Notes to Consolidated Financial Statements (Unaudited)

Participation Agreements

The Company may enter into participation agreements with related and unrelated parties, primarily other affiliated funds of the REIT Manager. The participation agreements provide the Company with the opportunity to invest along the same terms, conditions, price and rights in the specified investment. The purpose of the participation agreements is to allow the Company and an affiliate to originate a specified investment when, individually, the Company does not have the liquidity to do so or to achieve a certain level of portfolio diversification. The Company may transfer portions of its investments to other participants or it may be a participant to an investment held by another entity.

ASC Topic 860, Transfers and Servicing (“ASC 860”), establishes accounting and reporting standards for transfers of financial assets. ASC 860-10 provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The Company has determined that the participation agreements it enters into are accounted for as secured borrowings under ASC Topic 860.

Participation interest purchased by the Company: The below tables list the investment interests purchased by the Company via participation agreements (each, a “PA”) as of June 30, 2024 and December 31, 2023. In accordance with the terms of each PA, each participant’s rights and obligations, including interest income and other income (e.g., exit fee and prepayment income) and related fees/expenses are based upon its respective pro-rata participation interest in such investments, as specified in the respective PA. The Company’s share of the investment is repayable only from the proceeds received from the related borrower/issuer of the investment, and therefore the Company is also subject to the credit risk (i.e., risk of default by the underlying borrower/issuer).

Pursuant to each PA, the affiliated fund receives and allocates the interest income and other related investment incomes in respect of the investment to the Company. The Company paid related expenses (i.e., the base management fee) directly to Terra REIT.


	June 30, 2024						December 31, 2023
	Participating Interests		Principal Balance		Carrying Value		Participating Interests		Principal Balance		Carrying Value
370 Lex Part Deux, LLC (1)	35.0	%	$	24,491,877	$	24,491,877	35.0	%	$	24,491,877	$	24,491,877
RS JZ Driggs, LLC (1)	50.0	%	2,673,224		2,673,224		50.0	%	2,627,373		2,627,373
Allowance for credit losses			—		(10,367,310)				—		(9,234,320)
Total			$	27,165,101	$	16,797,791			$	27,119,250	$	17,884,930

_______________

(1)The loan is held in the name of Terra REIT, the Company’s parent entity.

Transfers of participation interests by the Company: The following table summarizes the investment that was subject to a PA with investment partnership affiliated with the REIT Manager as of June 30, 2024. There was no such investment as of December 31, 2023.


					June 30, 2024
					Transfers treated as obligations under participation agreements
	Principal		Carrying Value		% Transferred		Principal		Carrying Value
Asano Bankers Hill, LLC (1)	$	18,567,296	$	18,775,878	80.8	%	$	15,000,000	$	15,119,853

________________

(1)Participant is a certain separately managed account, an investment partnership managed by the REIT Manager.

This investment is held in the name of the Company, but the Participant’s rights and obligations, including interest income and other income (e.g., exit fee, prepayment income) and related fees/expenses (e.g., disposition fees, asset management and asset servicing fees), are based upon its pro rata participation interest in such participated investment, as specified in the participation agreement. The Participant’s share of the investment is repayable only from the proceeds received from the related borrower/issuer of the investment and, therefore, the Participant also is subject to credit risk (i.e., risk of default by the underlying borrower/issuer). Pursuant to the participation agreement with this entity, the Company receives and allocates the interest income and other related investment income to the Participant based on its pro rata participation interest. The

Notes to Consolidated Financial Statements (Unaudited)

Participant pays any expenses, including any fees to the REIT Manager, only on its pro rata participation interest, subject to the terms of the governing fee arrangements.

Note 7. Debt

Senior Unsecured Notes

On February 10, 2021, Terra BDC issued $34.8 million in aggregate principal amount of 7.00% fixed-rate notes due 2026, and on February 26, 2021, the underwriters exercised the option to purchase an additional $3.6 million of the notes (collectively the “7.00% Senior Notes Due 2026”). The 7.00% Senior Notes Due 2026 may be redeemed in whole or in part at any time or from time to time at Terra BDC’s option on or after February 10, 2023, at a redemption price equal to 100% of the outstanding principal amount thereof, plus accrued and unpaid interest. In connection with the Merger, Terra LLC assumed all of Terra BDC’s rights and obligations under the indenture governing the 7.00% Senior Notes Due 2026.

The indenture between Terra LLC (as successor to Terra BDC) and the trustee contains certain debt limitations and asset coverage covenants. As of June 30, 2024, the Company was in compliance with the asset coverage ratio requirements under the indenture.

The following table is a summary of the Company’s unsecured notes payable outstanding as of:


	Coupon Rate		Effective Rate (1)		Maturity Date	June 30, 2024		December 31, 2023
7.00% Senior Notes Due 2026 (2)	7.00	%	10.31	%	3/31/2026	38,375,000		38,375,000
Unamortized purchase discount (2)						(2,525,542)		(3,161,457)
Unsecured notes payable, net						$	35,849,458	$	35,213,543

_______________

(1)Includes purchase discount that is amortized to interest expense over the remaining life of the notes.

(2)In connection with the Merger, Terra LLC assumed all the obligations under the 7.00% Senior Notes and recorded a purchase discount of $4.6 million, representing the difference between the carrying value and the fair value of the notes on the date of the merger.

Term Loan

In April 2021, Terra BDC entered into a credit agreement (the “Credit Agreement”) with a lender to provide for a delayed draw term loan of $25.0 million (the “Term Loan”). On September 27, 2022, the Credit Agreement was amended to, among other things, remove the make whole premium on voluntary prepayment of the loans as well as to provide consent to the consummation of the Merger and the assumption by Terra LLC of all of the rights and obligations of Terra BDC under the Credit Agreement. On June 30, 2023, Terra LLC amended the Credit Agreement to, among other things, (i) decrease the principal amount to $15.0 million, (ii) extend the scheduled maturity date to March 31, 2024, and (iii) increase the rate on which the loans thereunder bear interest from a fixed rate of 5.625% per annum to a floating rate based on SOFR plus 7.375% with a SOFR floor of 5.0%, and repaid $10.0 million of the principal amount of the Term Loan. The Credit Agreement was secured by a lien on substantially all of Terra BDC's, and, following the Merger, Terra LLC’s owned and thereafter acquired property. In March 2024, the Term Loan was repaid in full.

The following table is a summary of the Company’s obligations under the Credit Agreement as of December 31, 2023. There was no such loan outstanding as of June 30, 2024.


	Maturity	Interest rate		Pledged Asset Carrying Value		Principal Amount
Term loan payable	3/31/2024	12.72	%	$	130,435,138	$	15,000,000
Unamortized deferred financing cost						(51,396)
Unsecured notes payable, net						$	14,948,604

Notes to Consolidated Financial Statements (Unaudited)

Scheduled Debt Principal Payments

Scheduled debt principal payments for each of the five calendar years following June 30, 2024 are as follows:


Years Ending December 31,	Total
2024 (July 1 through December 31)	$	—
2025	—
2026	38,375,000
2027
2028	—
Thereafter	—
	38,375,000
Unamortized purchase discount	(2,525,542)
Total	$	35,849,458

Obligation Under Participation Agreement

As discussed in Note 2, the Company follows the guidance in ASC 860 when accounting for loan participation. Such guidance requires the transferred interests meet certain criteria in order for the transaction to be recorded as a sale. Loan participation from the Company which does not qualify for sale treatment remains on the Company’s consolidated balance sheets and the proceeds are recorded as obligation under participation agreement. As of June 30, 2024, obligation under participation agreement had a carrying value of $15.1 million, and the carrying value of the loan that is associated this obligation under participation agreement was $18.8 million (see “Participation Agreements” in Note 6). The interest rate on the obligation under participation agreement was 20.3%. There was no such obligation under participation agreement as of December 31, 2023.

Note 8. Commitments and Contingencies

Unfunded Commitments on Loans Held for Investment

In the ordinary course of business, the Company may enter into future funding commitments, which are subject to the borrower meeting certain performance-related metrics that are monitored by the Company. As of both June 30, 2024 and December 31, 2023, the Company had $0.7 million of unfunded commitments. The Company maintained sufficient cash on hand to fund such unfunded commitments, including matching these commitments with principal repayments on outstanding loans.

Other

The Company enters into contracts that contain a variety of indemnification provisions. The Company’s maximum exposure under these arrangements is unknown; however, the Company has not had prior claims or losses pursuant to these contracts. Management of Terra Income Advisors has reviewed the Company’s existing contracts and expects the risk of loss to the Company to be remote.

The Company is not currently subject to any material legal proceedings and, to the Company’s knowledge, no material legal proceedings are threatened against the Company. From time to time, the Company may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company’s rights under its contracts with its borrowers and investees. While the outcome of any legal proceedings cannot be predicted with certainty, the Company does not expect that any such proceedings will have a material adverse effect upon its financial condition or results of operations.

See Note 6 for a discussion of the Company’s commitments to Terra REIT.

Note 9. Subsequent Events

The management of the Company has evaluated events and transactions through the date the consolidated financial statements were issued and has determined that there are no material events that would require adjustment to or disclosure in the Company’s consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The information contained in this section should be read in conjunction with our unaudited consolidated financial statements and related notes thereto and other financial information included elsewhere in this Quarterly Report on Form 10-Q. In this report, “we,” “us” and “our” refer to Terra Income Fund 6, LLC.

FORWARD-LOOKING STATEMENTS

Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q may include, but are not limited to, statements as to:

•our expected financial performance and operating results;

•our ability to achieve the expected synergies, cost savings and other benefits from the Merger (as defined in the section entitled “Overview” below);

•the availability of attractive risk-adjusted investment opportunities in our target asset class and other real estate-related investments that satisfy our objectives and strategies;

•the origination or acquisition of our targeted assets, including the timing of originations or acquisitions;

•volatility in our industry, interest rates and spreads, the debt or equity markets, the general economy or the real estate market specifically, whether the results of market events or otherwise;

•changes in our investment objectives and business strategy;

•the availability of financing on acceptable terms or at all;

•the performance and financial condition of our borrowers;

•changes in interest rates and the market value of our assets;

•borrower defaults or decreased recovery rates from our borrowers;

•changes in prepayment rates on our loans;

•our use of financial leverage;

•actual and potential conflicts of interest with any of the following affiliated entities: Terra Income Fund 6, Inc. (“Terra BDC”); Terra Income Fund 6 LLC (“Terra LLC”), a wholly owned subsidiary of Terra Property Trust, Inc. (“Terra REIT”) and the successor of Terra BDC; Terra Capital Partners, LLC (“Terra Capital Partners”), our sponsor; Terra REIT Advisors, LLC, a subsidiary of Terra Capital Partners, and the external manager to our sole member Terra REIT (the “REIT Manager”); Terra Fund Advisors, LLC, an affiliate of Terra Capital Partners; Terra Secured Income Fund 5 International, Terra Income Fund International and Terra Secured Income Fund 7, LLC, (collectively, the “Terra Income Funds”); Terra Offshore Funds REIT, LLC; Mavik Real Estate Special Opportunities Fund, LP; or any of their affiliates;

•our dependence on the REIT Manager or its affiliates and the availability of its senior management team and other personnel;

•actions and initiatives of the U.S., federal, state and local government and changes to the U.S. federal, state and local government policies and the execution and impact of these actions, initiatives and policies; and

•the degree and nature of our competition.

In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth as “Risk Factors” in our Annual Report on Form 10-K. Other factors that could cause actual results to differ materially include:

•changes in the economy;

•risks associated with possible disruption in our operations or the economy generally due to terrorism or natural disasters; and

•future changes in laws or regulations and conditions in our operating areas.

We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. Stockholders are advised to consult any additional disclosures that we may make directly to stockholders or through reports that we may file in the future with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements and projections contained in this quarterly report on Form 10-Q are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Overview

Terra LLC was formed as a Delaware limited liability company on April 29, 2022 as a wholly owned subsidiary of Terra REIT. On October 1, 2022, pursuant to an Agreement and Plan of Merger, dated as of May 2, 2022 (as amended, the “Merger Agreement”), Terra BDC merged with and into Terra LLC, with Terra LLC continuing as the surviving entity of the merger (the “Merger”). Subsequent to the Merger, Terra LLC became the successor of Terra BDC and assumed all of Terra BDC’s rights and obligations, including the obligations under the indenture governing Terra BDC’s unsecured notes payable.

We are a wholly owned subsidiary of Terra REIT. Terra REIT’s investments activities are externally managed by the REIT Manager, our affiliate. We originate, invest in and manage a diverse portfolio of real estate-related investments that generate a stable income stream. We directly originate, structure and underwrite most, if not all, of our loans, as we believe that doing so will provide us with the best opportunity to invest in loans that satisfy our standards, establish a direct relationship with the borrower and optimize the terms of its investments; however, we may acquire existing loans from the originating lender should its adviser determine such an investment is in its best interest. We may also make strategic non-real estate related investments that align with our investment objectives and criteria. We may hold our investments until their scheduled maturity dates or may sell them if we are able to command favorable terms for their disposition. We may seek to realize growth in the value of its investments by timing their sale to maximize value.

On November 8, 2022, we entered into a cost sharing agreement with Terra REIT effective October 1, 2022, pursuant to which we reimburse Terra REIT for its allocable portion of management and transaction fees and operating expenses incurred by Terra REIT, including fees paid by Terra REIT to the REIT Manager (the “Cost Sharing Agreement”).

Portfolio Summary

Net Loan Portfolio

The following table provides a summary of our net loan portfolio as of:


	June 30, 2024
	Fixed Rate		Floating Rate (1)(2)		Total Gross Loans		Obligations under Participation Agreements		Total Net Loans
Number of loans	2		2		4		1		4
Principal balance	$	5,673,224	$	43,059,173	$	48,732,397	$	15,000,000	$	33,732,397
Carrying value	5,581,763		32,553,969		38,135,732		15,119,853		23,015,879
Fair value	5,398,569		32,943,200		38,341,769		15,203,048		23,138,721
Weighted-average coupon rate	11.6%		16.6%		16.0%		20.3%		14.0%
Weighted-average remaining term (years)	2.85		0.61		0.92		0.61		1.63


	December 31, 2023
	Fixed Rate		Floating Rate (1)(2)		Total		Obligations under Participation Agreements		Total Net Loans
Number of loans	4		2		6		—		6
Principal balance	$	44,377,373	$	43,059,173	$	87,436,546	$	—	$	87,436,546
Carrying value	44,528,468		33,814,996		78,343,464		—		78,343,464
Fair value	44,313,689		34,214,046		78,527,735		—		78,527,735
Weighted-average coupon rate	13.7%		16.6%		15.1%		—%		15.1%
Weighted-average remaining term (years)	0.76		1.10		0.87		—		0.87

_______________

(1)As of June 30, 2024 and December 31, 2023, 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 both average SOFR and Term SOFR of 5.3%, respectively, as of June 30, 2024, and 5.3% and 5.4%, respectively, as of December 31, 2023.

(2)As of both June 30, 2024 and December 31, 2023, two loans were subject to SOFR or Term SOFR floor, as applicable.

Equity Investments

In addition to our loan portfolio, we owned equity interests in two joint ventures that own real estate properties. 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 June 30, 2024 and December 31, 2023, these equity investments had total carrying value of $38.2 million and $40.4 million, respectively.

Portfolio Investment Activity

For the three months ended June 30, 2024 and 2023, we invested $24.1 million and $29.0 million in new and add-on investments, and had $18.5 million and $31.6 million of repayments, resulting in net investment of $5.6 million and $2.6 million, respectively. For the three months ended June 30, 2024, new and add-on investments included $23.6 million of funding under the promissory note receivable.

For the six months ended June 30, 2024 and 2023, we invested $35.2 million and $41.1 million in new and add-on investments, and had $39.9 million and $51.8 million of repayments, resulting in net repayments of $4.7 million and $10.7 million, respectively. For the six months ended June 30, 2024, new and add-on investments included $34.3 million of funding under the promissory note receivable.

Senior Unsecured Notes

Term Loan

In April 2021, Terra BDC entered into a credit agreement (the “Credit Agreement”) with a lender to provide for a delayed draw term loan of $25.0 million (the “Term Loan”). On September 27, 2022, the Credit Agreement was amended to, among other things, remove the make whole premium on voluntary prepayment of the loans as well as to provide consent to the consummation of the Merger and the assumption by Terra LLC of all of the rights and obligations of Terra BDC under the Credit Agreement. On June 30, 2023, we amended the Credit Agreement to, among other things, (i) decrease the principal amount to $15.0 million, (ii) extend the scheduled maturity date to March 31, 2024, and (iii) increase the rate on which the loans thereunder bear interest from a fixed rate of 5.625% per annum to a floating rate based on SOFR plus 7.375% with a SOFR floor of 5.0%, and repaid $10.0 million of the principal amount of the Term Loan. The Credit Agreement was secured by a lien on substantially all of Terra BDC’s, and, following the Merger, Terra LLC’s owned and thereafter acquired property. In March 2024, the Term Loan was repaid in full.

Factors Impacting Operating Results

Our portfolio is concentrated in a limited number of industries and borrowers, and, as a result, a downturn in any particular industry or borrower 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 financial position and results of operations. For example, as of June 30, 2024, our investments secured by office and mixed-used properties represented approximately 72.6% and 10.6%, respectively, of the principal balance of our total net loan investments. In addition, as of June 30, 2024, we held only four loan investments and our largest net loan investment represented approximately 72.6% of the principal balance of our total net loan investments and our largest three net loan investments represented approximately 92.1% of the principal balance of our total net loan investments.

Results of Operations

Operating results for the three and six months ended June 30, 2024 and 2023 were as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2024		2023		Change		2024		2023		Change
Revenues
Interest income	$	1,766,342	$	2,595,328	$	(828,986)	$	3,930,618	$	5,527,232	$	(1,596,614)
Dividend and other income	10,494		31,900		(21,406)		26,826		37,475		(10,649)
	1,776,836		2,627,228		(850,392)		3,957,444		5,564,707		(1,607,263)
Operating expenses
Asset management and asset servicing fees paid/payable to Terra REIT (1)	277,621		428,883		(151,262)		667,679		863,433		(195,754)
Operating expense reimbursement to Terra REIT (1)	320,214		406,480		(86,266)		702,508		712,360		(9,852)
Provision for (reversal of provision for) credit losses	226,279		47,349		178,930		1,050,627		(67,988)		1,118,615
Professional fees	158,625		183,532		(24,907)		328,327		466,042		(137,715)
Insurance expense	21,072		21,072		—		42,144		83,191		(41,047)
General and administrative expenses	11,303		14,727		(3,424)		47,541		27,387		20,154
	1,015,114		1,102,043		(86,929)		2,838,826		2,084,425		754,401
Operating income	761,722		1,525,185		(763,463)		1,118,618		3,480,282		(2,361,664)
Other income and expenses
(Loss) income from equity investment in unconsolidated investments	(963,371)		(124,106)		(839,265)		(2,150,550)		190,907		(2,341,457)
Interest expense on unsecured notes payable	(993,934)		(960,049)		(33,885)		(1,979,040)		(1,912,198)		(66,842)
Interest expense on term loan	—		(355,468)		355,468		(517,528)		(707,031)		189,503
Interest expense from obligation under participation agreement	(783,042)		—		(783,042)		(1,508,995)		—		(1,508,995)
Unrealized gain on investments, net	—		5,829		(5,829)		—		5,829		(5,829)
Realized loss on investments, net	—		(12,512)		12,512		—		(12,512)		12,512
	(2,740,347)		(1,446,306)		(1,294,041)		(6,156,113)		(2,435,005)		(3,721,108)
Net (loss) income	$	(1,978,625)	$	78,879	$	(2,057,504)	$	(5,037,495)	$	1,045,277	$	(6,082,772)

_____________

(1)Fees were paid and payable, and expenses were reimbursed, to Terra REIT pursuant to the Cost Sharing Agreement with Terra REIT.

Net Loan Portfolio

In assessing the performance of our loans, we believe it is appropriate to evaluate the loans on an economic basis, that is, gross loans net of obligations under participation agreements. The following table presents a reconciliation of our loan portfolio on a weighted average basis from gross to net:


	Three Months Ended June 30,
	2024			2023
	Weighted Average Principal Amount		Weighted Average Coupon Rate	Weighted Average Principal Amount		Weighted Average Coupon Rate
Gross loan investments	$	59,134,031	15.7%	$	98,043,104	14.7%
Obligation under participation agreement	(15,000,000)		20.3%	—		—%
Net loan investments	$	44,134,031	14.1%	$	98,043,104	14.7%


	Six Months Ended June 30,
	2024			2023
	Weighted Average Principal Amount		Weighted Average Coupon Rate	Weighted Average Principal Amount		Weighted Average Coupon Rate
Gross loan investments	$	68,610,189	15.5%	$	104,956,278	14.7%
Obligation under participation agreement	(13,516,484)		18.3%	—		—%
Net loan investments	$	55,093,705	14.8%	$	104,956,278	14.7%

Interest Income

For the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023, interest income decreased by $0.8 million and $1.6 million, respectively, primarily due to a decrease in the weighted average principal balance of gross loans, partially offset by an increase in the weighted average coupon rate due to increases in the underlying index rates and the interest income earned on the promissory note receivable.

Asset Management and Asset Servicing Fees

On November 8, 2022, we entered into the Cost Sharing Agreement with Terra REIT effective October 1, 2022, pursuant to which we reimburse Terra REIT for our allocable portion of management and transaction fees and operating expenses incurred by Terra REIT, including fees paid by Terra REIT to the REIT Manager.

For the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023, management fees consisting of asset management and asset servicing fees paid/payable to Terra REIT pursuant to the Cost Sharing Agreement decreased by $0.2 million and $0.2 million, respectively, primarily due to a decrease in total funds under management.

Operating Expense Reimbursement

For the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023, operating expense incurred on our behalf pursuant to the Cost Sharing Agreement decreased by $0.1 million and $0.01 million, respectively, primarily due to a decrease in the allocation ratio.

Provision for Credit Losses

On January 1, 2023, we adopted the provisions of Accounting Standards Update (“ASU2016-13,”) 2016-13, Financial Instruments— Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to recognize credit losses on financial instruments based on an estimate of current expected credit losses.

For the three and six months ended June 30, 2024, we recorded a provision for credit losses of $0.2 million and $1.1 million, respectively, primarily as a result of a decline in the fair value of the collateral of a loan due to a decline in the macroeconomic outlook for commercial real estate.

For the three months ended June 30, 2023, we recorded a provision for credit losses of $0.05 million, primarily due to the maturity of a loan being extended, and an overall weakening in macroeconomic forecasts during the period. For the six months

ended June 30, 2023, we reversed previously accrued provision for credit losses of $0.1 million due to an improvement in macroeconomic forecasts during the period.

Professional Fees

For the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, professional fees were substantially the same. For the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, professional fees decreased by $0.1 million, primarily due to legal fees incurred in connection with the SEC industry inquiry in 2023.

(Loss) Income From Equity Investment In Unconsolidated Investments

For the three and six months ended June 30, 2024, we recognized a loss from equity investment in unconsolidated investment of $1.0 million and $2.2 million, respectively, related to our portion of the net loss incurred by the two joint ventures primarily as a result of the high depreciation and interest expense.

For the three and six months ended June 30, 2023, we recognized (loss) income from equity investment in unconsolidated investment of $(0.1) million and $0.2 million, respectively, primarily related to interest income earned on a $10.0 million mezzanine loan for which we accounted for using the equity method of accounting because we also had an agreement with the borrower to share the residual profit from the sale of the real estate portfolio, partially offset by equity loss from the joint venture that invests in real estate properties when the mezzanine loan was settled in exchange for interest in the joint venture in June 2023.

Interest Expense on Unsecured Notes Payable

As discussed in the section entitled “Senior Unsecured Notes” above, we assumed the $38.4 million 7.00% Senior Notes Due 2026 in connection with the Merger.

For the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023, interest expense on unsecured notes payable remained substantially the same.

Interest Expense on Term Loan

As discussed in the section entitled “Term Loan” above, we assumed the $25.0 million Term Loan in connection with the Merger. In June 30, 2023, we made a $10.0 million partial repayment on the Term Loan. In March 2024, the Term Loan was repaid in full.

For the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023, interest expense on the Term Loan decreased by $0.4 million and $0.2 million, respectively, primarily due to a decrease in the weighted average outstanding balance, partially offset by an increase in contractual interest rate.

Interest Expense From Obligation Under Participation Agreement

For the three and six months ended June 30, 2024, interest expense from obligation under participation agreement was $0.8 million and $1.5 million, respectively, primarily related to a portion of a loan we transferred to an affiliate via a participation agreement for which it did not qualify for sale treatment. There was no such interest expense for the three and six months ended June 30, 2023.

Net (loss) income

For the three and six months ended June 30, 2024, the resulting net loss was $2.0 million and $5.0 million, respectively, compared to the resulting net income of $0.1 million and $1.0 million for the three and six months ended June 30, 2023, respectively.

Terra REIT’s Management Agreement with the REIT Manager

Terra REIT is our parent and sole member. We have entered into a cost sharing arrangement with Terra REIT pursuant to which we will be responsible for our allocable share of Terra REIT’s expenses, including fees paid by Terra REIT to its manager, the REIT Manager. Terra REIT currently pays the following fees to the REIT Manager pursuant to the Management Agreement:

any real estate-related loan is extended, the REIT Manager also receives an origination fee equal to the lesser of (i) 1.0% of the principal amount of the loan being extended or (ii) the amount of fee paid by the borrower in connection with such extension.

Financial Condition, Liquidity and Capital Resources

We currently generate cash primarily from cash flows from interest, dividends and fees earned from our investments, principal repayments, and proceeds from sales of our investments. Our primary use of cash is for our targeted assets and payments of our expenses.

We may borrow funds to make investments to the extent we determine that leveraging our portfolio would be appropriate. In February 2021, Terra BDC issued $38.4 million in aggregate principal amount of 7.00% fixed-rate notes due 2026, for net proceeds of $37.2 million after deducting underwriting commissions of $1.2 million. On October 1, 2022 in connection with the Merger, Terra BDC, Terra LLC and U.S. Bank National Association entered into a second supplemental indenture pursuant to which Terra LLC assumed the payment of the notes and the performance of every covenant of the indenture, to be performed or observed by Terra BDC.

Certain of our loans provide for commitments to fund the borrower at a future date. As of June 30, 2024, we had one loan with funding commitments of $19.3 million, of which we funded $18.6 million. We do not expect to fund the remaining $0.7 million unfunded commitments to the borrower in the next twelve months as the borrower has not met the requirement for funding. Additionally, our $15.0 million obligation under participation agreement will mature in the next twelve months. We expect to use the proceeds from the repayment of the corresponding investment to repay the participation obligation.

Cash Flows (Used in) Provided by Operating Activities

For the six months ended June 30, 2024, cash used in operating activities was $0.3 million. For the six months ended June 30, 2023, cash provided by operating activities was $1.8 million. The decrease in operating cash was primarily due to decrease in contractual interest income.

Cash Flows Provided by Investing Activities

For the six months ended June 30, 2024, cash provided by investing activities was $4.8 million, primarily related to proceeds from repayment of loans of $39.9 million, partially offset by funding for promissory note receivable of $34.3 million and origination and purchase of loans of $0.9 million.

For the six months ended June 30, 2023, cash provided by investing activities was $10.6 million, primarily related to proceeds from repayment of loans of $41.8 million and proceeds from sale of held-to-maturity debt securities of $10.0 million,

partially offset by purchase of equity interest in unconsolidated investment of $27.4 million, purchase of held-to-maturity debt securities of $10.0 million and payments for origination and purchase of loans of $3.3 million.

Cash Flows From Financing Activities

For the six months ended June 30, 2024, the proceeds from obligation under participation agreement of $15.0 million was offset by repayment of the Term Loan of $15.0 million.

For the six months ended June 30, 2023, cash used in financing activities was $10.4 million, primarily due to the repayments of borrowings under term loan payable of $10.0 million and payment for financing cost of $0.2 million.

Critical Accounting Policies and Use of Estimates

Our consolidated financial statements are prepared in conformity with United States generally accepted accounting principles (“U.S. GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. In preparing the consolidated financial statements, management has utilized available information, including industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. As we execute our expected operating plans, we will describe additional critical accounting policies in the notes to our future consolidated financial statements in addition to those discussed below.

Allowance for Credit Losses

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 (“CECL”). The CECL model requires the consideration of possible credit losses over the life of an instrument as opposed to estimating credit losses upon the occurrence of an actual loss event under the previous “incurred loss” methodology.

We use a model-based approach for estimating the allowance for credit losses on performing loans on a collective basis, including future funding commitments for which we do not have the unconditional right to cancel, as these loans share similar risk characteristics. We utilize information obtained from internal and external sources relating to past events, current economic conditions and reasonable and supportable forecasts about the future to determine the expected credit losses for our loan portfolio. We utilize a commercial mortgage-based, third-party loan loss model and because we do not have a meaningful history of realized credit losses on our loan portfolio, we subscribe to a database service to provide historical proxy loan loss information. We employ logistic regression to forecast expected losses at the loan level based on a commercial real estate loan securitization database that contains activity dating back to 1998. We have chosen to incorporate a weighted average macroeconomic forecast that encompasses baseline, upside and downside scenarios, into our allowance for credit losses on performing loans estimate during the reasonable and supportable forecast period which is currently eight quarters. We select certain economics variables from a group of independent variables such as Commercial Real Estate Price Index, unemployment and interest rate which are included in the model as part of macroeconomic forecast and updated regularly based on current economic trends. The specific loan level information input into the model includes loan-to-value and debt service coverage ratio metrics, as well as principal balances, property type, location, coupon rate, coupon rate type, original or remaining term, expected repayment dates and contractual future funding commitments. Based on the inputs, the loan loss model determines a loan loss rate through the generation of a probability of default (PD) and loss given default (LGD) for each loan. The allowance for credit losses on performing loans is then calculated by applying the loan loss rate to the total outstanding loan balance of each loan. A significant amount of judgment is applied in selecting inputs and analyzing results produced by the models to determine the allowance for credit losses. Changes in such estimates can significantly affect the expected credit losses.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

This section has been omitted pursuant to General Instruction H(2)(c) of Form 10-Q.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer of our sole and managing member, Terra REIT, performing functions equivalent to those a principal executive officer and principal financial officer of our company would perform if we had any officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2024. Based on that evaluation, our management concluded that our disclosure controls and procedures were effective to provide reasonable assurance that we would meet our disclosure obligations.

Changes in Internal Control Over Financial Reporting

During the most recent fiscal quarter, there was no change in our internal controls over financial reporting, as defined under Rule 13a-15(f) under the Exchange Act, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II

Item 1. Legal Proceedings.

Neither we nor Terra REIT nor the REIT Manager is currently subject to any material legal proceedings, nor, to our knowledge, are material legal proceedings threatened against us, Terra REIT, or the REIT Manager. From time to time, we and individuals employed by Terra REIT may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.

Item 1A. Risk Factors.

For a discussion of the potential risks and uncertainties associated with our business, please see Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023. You should be aware that those risk factors may not describe every risk facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

This section has been omitted pursuant to General Instruction H(2)(b) of Form 10-Q.

Item 3. Defaults Upon Senior Securities.

This section has been omitted pursuant to General Instruction H(2)(b) of Form 10-Q.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

The following exhibits are filed with this report. Documents other than those designated as being filed herewith are incorporated herein by reference.


Exhibit No.						Description and Method of Filing
3.1						Articles of Amendment and Restatement of Terra Income Fund 6, Inc. (incorporated by reference to Exhibit (a) to Post-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-202399) filed with the SEC on May 12, 2015.)
3.2						Articles of Amendment to the Articles of Amendment and Restatement of Terra Income Fund 6, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on May 1, 2019.)
3.3						Amendment No. 1 to the Amended and Restated Bylaws of Terra Income Fund 6, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on April 29, 2022.)
3.4						Amended and Restated Bylaws of Terra Income Fund 6, Inc. (incorporated by reference to Exhibit (b) to Post-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-202399) filed with the SEC on May 12, 2015.)
3.5						Limited Liability Company Agreement of Terra Merger Sub, LLC, dated as of September 26, 2022, by Terra Property Trust, Inc. (incorporated by reference to Exhibit 3.5 to the Quarterly Report on Form 10-Q filed with the SEC on November 14, 2022.)
4.1						Form of Subscription Agreement (incorporated by reference to Appendix A to the Final Prospectus dated February 2, 2018, filed with the SEC on February 2, 2018.)
4.2						Indenture, dated February 10, 2021, by and between Terra Income Fund 6, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on February 10, 2021.)
4.3						First Supplemental Indenture, dated February 10, 2021, by and between Terra Income Fund 6, Inc. and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed with the SEC on February 10, 2021.)
4.4						Second Supplemental Indenture, dated October 1, 2022, by and among Terra Income Fund 6, Inc., Terra Merger Sub, LLC and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K filed with the SEC on October 3, 2022.)


31.1*						Certification of Chief Executive Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of Chief Financial Officer pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**						Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB						XBRL Taxonomy Extension Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File Included as Exhibit 101 (embedded within the Inline XBRL document)

* Filed herewith.

** Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 9, 2024



									TERRA INCOME FUND 6, LLC
									By: Terra Property Trust, Inc., its sole and managing member

						By:			/s/ Vikram S. Uppal
									Vikram S. Uppal
									Chairman of the Board, Chief Executive Officer and Chief Investment Officer
									(Principal Executive Officer)

						By:			/s/ Gregory M. Pinkus
									Gregory M. Pinkus
									Chief Financial Officer, Treasurer and Secretary
									(Principal Financial and Accounting Officer)

Terra Income Fund 6, LLC 10-Q