Company Quick10K Filing
Terra Secured Income Fund 5
10-Q 2020-03-31 Filed 2020-05-18
10-K 2019-12-31 Filed 2020-03-02
10-Q 2019-09-30 Filed 2019-11-13
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-05-10 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-03-28
10-Q 2018-09-30 Filed 2018-11-09
10-Q 2018-06-30 Filed 2018-08-08
10-Q 2018-03-31 Filed 2018-05-11
10-K 2017-12-31 Filed 2018-03-07
10-Q 2017-09-30 Filed 2017-11-13
10-Q 2017-06-30 Filed 2017-08-11
8-K 2020-05-15 Other Events
8-K 2020-02-28 Enter Agreement, M&A, Exhibits
8-K 2019-09-30 Enter Agreement
8-K 2018-12-12 Enter Agreement, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2018-11-13 Other Events, Regulation FD, Exhibits
8-K 2018-02-08 Other Events, Regulation FD, Exhibits

TSIF 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements.
Note 1. Business
Note 2. Summary of Significant Accounting Policies
Note 3. Investment and Fair Value
Note 4. Related Party Transactions
Note 5. Commitments and Contingencies
Note 6. Members' Capital
Note 7. Financial Highlights
Note 8. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-10.1 tsif5exhibit101.htm
EX-10.2 tsif5exhibit102.htm
EX-10.3 tsif5exhibit103.htm
EX-10.4 tsif5exhibit104.htm
EX-10.5 tsif5exhibit105.htm
EX-10.6 tsif5exhibit106.htm
EX-31.1 tsif5331202010-qex311.htm
EX-31.2 tsif5331202010-qex312.htm
EX-32 tsif5331202010-qex32.htm

Terra Secured Income Fund 5 Earnings 2020-03-31

Balance SheetIncome StatementCash Flow

10-Q 1 tsif53312010-q.htm 10-Q Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2020
o
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: 000-55780
Terra Secured Income Fund 5, LLC
(Exact name of registrant as specified in its charter)
Delaware
 
90-0967526
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
550 Fifth Avenue, 6th Floor
New York, New York 10036
(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 Securities Exchange Act of 1934:
None
Securities registered pursuant to section 12(g) of the Securities Exchange Act of 1934:
Units of Limited Liability Company Interests

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 ¨
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 þ
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. þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
As of May 15, 2020, the registrant had 6,637.7 units of limited liability company interests outstanding. No market value has been computed based upon the fact that no active trading market had been established as of the date of this document.
 




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


1

 



PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Terra Secured Income Fund 5, LLC
Statements of Financial Condition

 
 
March 31, 2020
 
December 31, 2019
 
 
(unaudited)
 
 
Assets
 
 
 
 
Equity investment in Terra JV, LLC at fair value (cost of $241,227,760 and
   $0, respectively)
 
238,414,211

247.263245


Equity investment in Terra Property Trust, Inc. at fair value (cost of $0 and
   $243,924,852, respectively)
 

 
247,263,245

Cash and cash equivalents
 
308,448

 
97,937

Other assets
 
19,937

 
15,064

Total assets
 
$
238,742,596

 
$
247,376,246

 
 
 
 
 
Liabilities and Members’ Capital
 
 
 
 
Liabilities
 
 
 
 
Accounts payable and accrued expenses
 
$
340,218

 
$
271,333

Due to related party
 

 
38,000

Total liabilities
 
340,218

 
309,333

Commitments and contingencies (Note 5)
 

 

Members’ capital:
 
 
 
 
Managing member
 

 

Non-managing members
 
238,402,378

 
247,066,913

Total members’ capital
 
238,402,378

 
247,066,913

Total liabilities and members’ capital
 
$
238,742,596

 
$
247,376,246

Net asset value per unit
 
$
35,916

 
$
37,222


See notes to unaudited financial statements.
    

2

 



Terra Secured Income Fund 5, LLC
Statements of Operations
(Unaudited)

 
 
 
Three Months Ended March 31,
 
 
 
2020
 
2019
Investment income
 
 
 
 
 
Dividend income
 
 
$
1,264,438

 
$
3,922,875

Investment income
 
 
 
 
 
Other operating income
 
 
144

 
302

Total investment income
 
 
1,264,582

 
3,923,177

Operating expenses
 
 
 
 
 
Professional fees
 
 
174,099

 
173,214

Other
 
 
1,449

 
2,883

Total operating expenses
 
 
175,548

 
176,097

Net investment income
 
 
1,089,034

 
3,747,080

Net change in unrealized (depreciation) appreciation on investment
 
 
(2,286,298
)
 
1,589,251

Net (decrease) increase in members’ capital resulting from operations
 
 
$
(1,197,264
)
 
$
5,336,331

Per unit data:
 
 
 
 
 
Net investment income per unit
 
 
$
164

 
$
564

Net (decrease) increase in members’ capital resulting from operations per unit
 
 
$
(180
)
 
$
804

Weighted average units outstanding
 
 
6,638

 
6,639



See notes to unaudited financial statements.

3

 



Terra Secured Income Fund 5, LLC
Statements of Changes in Members’ Capital
Three Months Ended March 31, 2020 and 2019
(Unaudited)

 
Managing
Member
 
Non-Managing Members
 
Total
Balance, January 1, 2020
$

 
$
247,066,913

 
$
247,066,913

Capital distributions

 
(7,467,271
)
 
(7,467,271
)
Increase in members’ capital resulting from operations:
 
 
 
 
 
Net investment income

 
1,089,034

 
1,089,034

Net change in unrealized depreciation on investment

 
(2,286,298
)
 
(2,286,298
)
Net decrease in members’ capital resulting from operations

 
(1,197,264
)
 
(1,197,264
)
Balance, March 31, 2020
$

 
$
238,402,378

 
$
238,402,378

 
Managing
Member
 
Non-Managing Members
 
Total
Balance, January 1, 2019
$

 
$
263,080,442

 
$
263,080,442

Capital distributions

 
(7,468,094
)
 
(7,468,094
)
Increase in members’ capital resulting from operations:
 
 
 
 

Net investment income

 
3,747,080

 
3,747,080

Net change in unrealized appreciation on investment

 
1,589,251

 
1,589,251

Net increase in members’ capital resulting from operations

 
5,336,331

 
5,336,331

Balance, March 31, 2019
$

 
$
260,948,679

 
$
260,948,679



See notes to unaudited financial statements.


4

 



Terra Secured Income Fund 5, LLC
Statements of Cash Flows
(Unaudited)


 
Three Months Ended March 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net (decrease) increase in members’ capital resulting from operations
$
(1,197,264
)
 
$
5,336,331

Adjustments to reconcile net (decrease) increase in members’ capital resulting
   from operations to net cash provided by operating activities:
 
 
 
Return of capital on investment
6,562,736

 
3,633,537

Net change in unrealized depreciation (appreciation) on investment
2,286,298

 
(1,589,251
)
 
 
 
 
Changes in operating assets and liabilities:
 
 
 
(Increase) decrease in other assets
(4,873
)
 
6,269

Increase in accounts payable and accrued expenses
68,885

 
24,988

Decrease in due to related party
(38,000
)
 

Net cash provided by operating activities
7,677,782

 
7,411,874

 
 
 
 
Cash flows from financing activities:
 
 
 
Distributions paid
(7,467,271
)
 
(7,468,094
)
Net cash used in financing activities
(7,467,271
)
 
(7,468,094
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
210,511

 
(56,220
)
Cash and cash equivalents at beginning of period
97,937

 
131,784

Cash and cash equivalents at end of period
$
308,448

 
$
75,564

 
 
 
 
Supplemental Disclosure of Cash Flows Information:
 
 
 
Cash paid for income taxes
$

 
$

Cash paid for interest
$

 
$

Supplemental Non-Cash Disclosure:
 
 
 
Transfer of ownership interest in Terra Property Trust, Inc. to
   Terra JV, LLC (Note 3)
$
244,006,890

 
$




See notes to unaudited financial statements.

5

 



Terra Secured Income Fund 5, LLC
Schedule of Investment
March 31, 2020 (unaudited) and December 31, 2019

On January 1, 2016, the Company, the then parent of Terra Property Trust, Inc. (“Terra Property Trust”), contributed its consolidated portfolio of net assets to Terra Property Trust pursuant to a contribution agreement in exchange for shares of Terra Property Trust’s common stock, par value $0.01 per share. Upon receipt of the contribution of the consolidated portfolio of net assets from the Company, Terra Property Trust commenced its operations on January 1, 2016. As discussed in Note 4, on March 2, 2020, Terra Property Trust engaged in a series of transactions pursuant to which Terra Property Trust issued an aggregate of 4,574,470.35 shares of its common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans that Terra Property Trust owned, cash of $25.5 million and other working capital. Following the completion of these transactions, as of March 31, 2020, Terra JV, LLC (“Terra JV”) held 86.4% of the issued and outstanding shares of Terra Property Trust’s common stock with the remainder held by Terra International Fund 3 REIT, LLC (“TIF3 REIT”), and the Company and Terra Secured Income Fund 7, LLC (“Terra Fund 7”) owned an 87.6% and 12.4% percentage interest, respectively, in Terra JV. Accordingly, as of March 31, 2020, the Company indirectly beneficially owned 75.7% of the outstanding shares of common stock of Terra Property Trust through Terra JV.

The following table presents a summary of the Company’s investment as of March 31, 2020 and December 31, 2019:
 
 
 
 
Percentage Interest
 
March 31, 2020
Investment
 
Date Acquired
 
 
Cost
 
Fair Value
 
% of Members’ Capital
Terra JV, LLC
 
3/2/2020
 
87.6
%
 
$
241,227,760

 
$
238,414,211

 
100.0
%
 
 
 
 
Number of Shares of Common Stock
 
 
December 31, 2019
Investment
 
Date Acquired
 
 
 
Cost
 
Fair Value
 
% of Members’ Capital
Terra Property Trust, Inc.
 
1/1/2016 and 3/7/2016
 
14,912,990

 
 
$
243,924,852

 
$
247,263,245

 
100.1
%

6

 



    
As of March 31, 2020 and December 31, 2019, the Company indirectly beneficially owned 75.7% and directly owned 98.6%, respectively, of the outstanding shares of common stock of Terra Property Trust. Additionally, as of March 31, 2020, Terra JV was jointly-controlled by the Company and Terra Fund 5, and as of December 31, 2019, Terra Property Trust was controlled by the Company.

The following table presents a schedule of loans held for investment by Terra Property Trust at 100% and the Company’s pro-rata share of the fair value at March 31, 2020:
Portfolio Company
Collateral Location
Property
Type
Coupon
Rate
Current Interest Rate
Exit Fee
Acquisition Date
Maturity
Date
Principal Amount
Amortized
Cost
Fair
Value (1)
Pro Rata
Fair Value (2)
% (3)
Loans held for investment:
 
 
 
 
 
 
 
 
 
 
 
 
Mezzanine loans:
 
 
 
 
 
 
 
 
 
 
 
 
150 Blackstone River Road, LLC
US - MA
Industrial
8.5
%
8.5
%
%
9/21/2017
9/6/2027
$
7,000,000

$
7,000,000

$
6,870,050

$
5,200,628

2.2
%
Austin H. I. Owner LLC
US - TX
Hotel
12.5
%
12.5
%
1.0
%
9/30/2015
10/6/2020
3,500,000

3,532,794

3,517,183

2,662,508

1.1
%
High Pointe Mezzanine Investments, LLC (4)
US - SC
Student housing
15.0
%
15.0
%
1.0
%
12/27/2013
1/6/2024
3,000,000

3,248,528

2,973,864

2,251,215

0.9
%
LD Milipitas Mezz, LLC (7)
US - CA
Hotel
LIBOR +10.25% (2.75% Floor)

13.0
%
1.0
%
6/27/2018
6/27/2021
3,992,734

4,037,567

4,028,233

3,049,372

1.3
%
SparQ Mezz Borrower, LLC
US - CA
Multifamily
12.0
%
12.0
%
1.0
%
9/29/2017
10/1/2020
8,700,000

8,784,239

8,750,946

6,624,466

2.8
%
Stonewall Station Mezz LLC (5)(6)
US - NC
Hotel
12.0% current
2.0% PIK

14.0
%
1.0
%
5/31/2018
5/20/2021
9,851,847

9,936,287

9,801,905

7,420,042

3.1
%
 
 
 
 
 
 
 
 
36,044,581

36,539,415

35,942,181

27,208,231

11.4
%


See notes to unaudited financial statements.

7

 



Terra Secured Income Fund 5, LLC
Schedule of Investment (Continued)
March 31, 2020 (unaudited) and December 31, 2019

Terra Property Trust’s Schedule of Loans Held for Investment as of March 31, 2020 (Continued):
Portfolio Company
Collateral Location
Property
Type
Coupon
Rate
Current Interest Rate
Exit Fee
Acquisition Date
Maturity
Date
Principal Amount
Amortized
Cost
Fair
Value (1)
Pro Rata
Fair Value
(2)
% (3)
Loans held for investment:
 
 
 
 
 
 
 
 
 
 
 
 
Preferred equity investments:
 
 
 
 
 
 
 
 
 
 
 
 
370 Lex Part Deux, LLC (5)(6)
US - NY
Office
LIBOR + 8.25% (2.44% Floor)

10.7
%
%
12/17/2018
1/9/2022
$
49,668,256

$
49,734,503

$
47,736,305

$
36,136,383

15.2
 %
City Gardens 333 LLC (5)(6)
US - CA
Student housing
LIBOR + 9.95% (2.0% Floor)

12.0
%
%
4/11/2018
4/1/2021
28,905,569

28,917,582

28,886,501

21,867,081

9.2
 %
NB Private Capital, LLC (5)(6)
Various
Student housing
LIBOR +10.5% (3.5% Floor)

14.0
%
1.0
%
7/27/2018
4/16/2021
20,000,000

20,172,593

19,944,169

15,097,736

6.3
 %
Orange Grove Property Investors, LLC (5)(6)
US - CA
Condominium
LIBOR + 8.0% (4.0% Floor)

12.0
%
1.0
%
5/24/2018
6/1/2021
10,600,000

10,697,792

10,646,760

8,059,597

3.4
 %
REEC Harlem Holdings Company, LLC (4)
US - NY
Infill land
LIBOR + 12.5% (no Floor)

13.5
%
%
3/9/2018
3/9/2023
16,812,810

16,812,810

15,640,567

11,839,909

5.0
 %
RS JZ Driggs, LLC (5)(6)(9)
US - NY
Multifamily
12.3
%
12.3
%
1.0
%
5/1/2018
5/1/2020
8,200,000

8,283,124

8,280,299

6,268,186

2.6
 %
The Bristol at Southport, LLC
US - WA
Multifamily
12.0
%
12.0
%
1.0
%
9/22/2017
9/22/2022
23,500,000

23,666,693

23,880,452

18,077,502

7.6
 %
 
 
 
 
 
 
 
 
157,686,635

158,285,097

155,015,053

117,346,394

49.3
 %
First mortgages:
 
 
 
 
 
 
 
 
 
 
 
 
14th & Alice Street Owner, LLC (5)(8)
US - CA
Multifamily
LIBOR + 5.75% (3.25% Floor)

9.0
%
0.5
%
3/5/2019
3/5/2022
19,610,084

19,728,938

19,472,992

14,741,055

6.2
 %
1389 Peachtree St, LP; 1401 Peachtree St, LP;
   1409 Peachtree St, LP (10)
US - GA
Office
LIBOR + 4.5% (no Floor)

5.5
%
0.5
%
2/22/2019
2/10/2022
41,523,796

41,631,238

41,676,800

31,549,338

13.2
 %
330 Tryon DE LLC (10)
US - NC
Office
LIBOR + 3.85% (2.51% Floor)

6.4
%
0.5
%
2/7/2019
3/1/2022
22,800,000

22,893,646

22,862,074

17,306,590

7.3
 %
AGRE DCP Palm Springs, LLC (10)
US - CA
Hotel
LIBOR +4.75% (1.80% Floor)

6.6
%
0.5
%
12/12/2019
1/1/2023
30,514,799

30,522,379

30,551,440

23,127,440

9.7
 %
MSC Fields Peachtree Retreat, LLC (10)
US - GA
Multifamily
LIBOR + 3.85% (2.0% Floor)

5.9
%
0.5
%
3/15/2019
4/1/2022
23,308,335

23,444,431

22,886,081

17,324,763

7.3
 %
Patrick Henry Recovery Acquisition, LLC (10)
US - CA
Office
LIBOR + 2.95% (1.5% Floor)

4.5
%
0.3
%
11/25/2019
12/1/2023
18,000,000

18,038,146

17,773,917

13,454,855

5.6
 %
TSG-Parcel 1, LLC (5)(6)
US - CA
Infill land
15.0
%
15.0
%
1.0
%
7/10/2015
6/30/2020
18,000,000

18,180,000

18,174,634

13,758,198

5.8
 %
University Park Berkeley, LLC
US - CA
Student housing
LIBOR + 2.95% (1.50% Floor)

4.5
%
0.3
%
2/27/2020
3/1/2023
23,250,000

23,269,367

23,304,322

17,641,372

7.4
 %
Windy Hill PV Five CM, LLC (11)
US - CA
Office
LIBOR + 6.0% (2.05% Floor)

8.1
%
0.5
%
9/20/2019
9/20/2022
11,949,208

11,581,850

11,949,884

9,046,062

3.8
 %
 
 
 
 
 
 
 
 
208,956,222

209,289,995

208,652,144

157,949,673

66.3
 %
Total gross loans held for investment
 
 
 
 
 
 
 
402,687,438

404,114,507

399,609,378

302,504,298

126.9
 %
Obligations under participation agreements (5)(6)(8)
 
 
 
 
 
 
(67,624,467
)
(67,670,405
)
(66,902,089
)
(50,644,881
)
(21.2
)%
Net loans held for investment
 
 
 
 
 
 
 
$
335,062,971

$
336,444,102

$
332,707,289

$
251,859,417

105.7
 %


See notes to unaudited financial statements.


8

 



Terra Secured Income Fund 5, LLC
Schedule of Investment (Continued)
March 31, 2020 (unaudited) and December 31, 2019

Terra Property Trust’s Schedule of Loans Held for Investment as of March 31, 2020 (Continued):
Operating real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Description
 
Acquisition Date
 
Real estate owned, net
 
Encumbrance
 
Net Investment
 
Pro Rata Net Investment (2)
 
% (3)(14)
 
 
 

Multi-tenant office building in Santa Monica, CA (12)
 
7/30/2018
 
$
50,963,207

 
$
44,481,855

 
$
6,481,352

 
$
4,906,383

 
2.1
%
 
 
 
 
Land in Conshohocken, PA (13)
 
1/9/2019
 
13,395,430

 

 
13,395,430

 
10,140,341

 
4.3
%
 
 
 
 
 
 
 
 
$
64,358,637

 
$
44,481,855

 
$
19,876,782

 
$
15,046,724

 
6.4
%
 
 
 


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolio Company (1)
 
Interest Rate
 
Acquisition Date
 
Maturity Date
 
Par/Shares
 
Cost
 
Fair Value
 
Pro Rata
Fair Value (2)
 
% (3)
Marketable securities (15):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertible bonds:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Blackstone Mortgage Trust Inc. - USD convertible
   bond
 
4.38
%
 
3/23/2020

 
5/5/2022

 
$
1,375,000

 
$
1,079,381

 
$
1,086,250

 
$
822,291

 
0.4
%
Blackstone Mortgage Trust Inc. - USD convertible
   bond
 
4.75
%
 
3/23/2020

 
3/15/2023

 
$
1,750,000

 
1,346,038

 
1,375,955

 
1,041,598

 
0.4
%
 
 
 
 
 
 
 
 
 
 
2,425,419

 
2,462,205

 
1,863,889

 
0.8
%
Preferred shares:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
City Office REIT, Inc. - Series A Preferred Shares
 
6.63
%
 
3/19/2020

 
10/4/2021

 
13,804 shares

 
238,741

 
237,998

 
180,164

 
0.1
%
Pebblebrook Hotel Trust - Series F Cumulative
Redeemable Preferred Shares
 
6.30
%
 
3/27/2020

 
5/25/2021

 
18,700 shares

 
250,597

 
294,151

 
222,672

 
0.1
%
SL Green Realty Corp. - Series I Preferred Shares
 
6.50
%
 
3/20/2020

 
5/1/2020

 
6,771 shares

 
134,834

 
154,469

 
116,933

 
%
Summit Hotel Properties, Inc. - Non-Cumulative
Series E Preferred Shares
 
6.25
%
 
3/19/2020

 
11/13/2022

 
25,975 shares

 
256,778

 
341,571

 
258,569

 
0.1
%
 
 
 
 
 
 
 
 
 
 
880,950

 
1,028,189

 
778,338

 
0.3
%
Total marketable securities
 
 
 
 
 
 
 
 
 
$
3,306,369

 
$
3,490,394

 
$
2,642,227

 
1.1
%
__________________________ 
(1)
Because there is no readily available market for these loans, these loans were valued using significant unobservable inputs under Level 3 of the fair value hierarchy and were approved in good faith by Terra REIT Advisors, LLC (“Terra REIT Advisors”), Terra Property Trust’s manager, pursuant to Terra Property Trust’s valuation policy.
(2)
Amount represents the Company’s portion, or 75.7%, of the fair value or net investment value.
(3)
Percentage is based on the Company’s pro rata share of the fair value or net investment value over the Company’s total members’ capital of $238.4 million at March 31, 2020.
(4)
The interest payment is past due on this loan. Terra Property Trust entered into a forbearance agreement with the borrower to allow for more time to make the interest payment.
(5)
The loan participations from Terra Property Trust do not qualify for sale accounting and therefore, the gross amount of these loans remain in the consolidated balance sheets.

9

 



(6)
Terra Property Trust sold a portion of its interest in this loan through a participation agreement to Terra Income Fund 6, Inc., an affiliated fund advised by Terra Income Advisors, LLC (“Terra Income Advisors”), an affiliate of our sponsor and Terra Property Trust’s manager.
(7)
On June 27, 2018, Terra Property Trust entered into a participation agreement with Terra Income Fund 6, Inc. to purchase a 25% interest, or $4.3 million, in a mezzanine loan. As of March 31, 2020, the unfunded commitment was $0.3 million.
(8)
Terra Property Trust sold a portion of its interest in this loan via a participation agreement to a third-party.
(9)
On May 1, 2020, the maturity of this loan was extended to February 1, 2021.
(10)
These loans were used as collateral for $92.5 million of borrowings under a repurchase agreement.
(11)
In March 2020, Terra Property Trust restructured the loan into A-note and B-note. In connection with the restructuring, Terra Property Trust sold the A-note to a third-party. However, the sale did not qualify for sale accounting and therefore, the gross amount of the loan remains in the consolidated balance sheets.
(12)
Terra Property Trust acquired this property through foreclosure of a $54.0 million first mortgage. Real estate owned, net amount includes building and building improvements, tenant improvements and lease intangible assets and liabilities, net of accumulated depreciation and amortization.
(13)
Terra Property Trust acquired the collateral for this loan via deed in lieu of foreclosure. On June 30, 2019, Terra Property Trust recorded an impairment charge of $1.6 million on the land in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost of sale.
(14)
Percentage is based on Terra Property Trust’s net exposure on the property (real estate owned less encumbrance).
(15)
In March 2020, the Company invested $3.3 million in short-term debt and equity securities. These securities are comprised of shares of preferred stock and bonds. Preferred stocks are traded on a national stock exchange and bonds are traded over-the-counter. Accordingly, fair value is readily determinable.




See notes to unaudited financial statements.

10

 



Terra Secured Income Fund 5, LLC
Schedule of Investment (Continued)
March 31, 2020 (unaudited) and December 31, 2019
    
The following table presents a schedule of loans held for investment held by Terra Property Trust as of December 31, 2019:

Portfolio Company
Collateral Location
Property
Type
Coupon
Rate
Current Interest Rate
Exit Fee
Acquisition Date
Maturity
Date
Principal Amount
Amortized
Cost
Fair
Value (1)
Pro Rata
Fair Value (2)
% (3)
Loans held for investment — non-controlled:
 
 
 
 
 
 
 
 
 
 
 
 
Mezzanine loans:
 
 
 
 
 
 
 
 
 
 
 
 
150 Blackstone River Road, LLC
US - MA
Industrial
8.5
%
8.5
%
%
9/21/2017
9/6/2027
$
7,000,000

$
7,000,000

$
7,081,127

$
6,981,991

2.8
%
2539 Morse, LLC (4)(5)(6)
US - CA
Student housing
11.0
%
11.0
%
1.0
%
10/20/2017
11/1/2020
7,000,000

7,067,422

7,069,355

6,970,384

2.8
%
Austin H. I. Owner LLC (4)(6)
US - TX
Hotel
12.5
%
12.5
%
1.0
%
9/30/2015
10/6/2020
3,500,000

3,531,776

3,534,499

3,485,016

1.4
%
High Pointe Mezzanine Investments, LLC (5)(6)
US - SC
Student housing
13.0
%
13.0
%
1.0
%
12/27/2013
1/6/2024
3,000,000

3,263,285

3,115,139

3,071,527

1.2
%
LD Milipitas Mezz, LLC (9)
US - CA
Hotel
LIBOR +10.25% (2.75% Floor)

13.0
%
1.0
%
6/27/2018
6/27/2021
3,120,887

3,150,546

3,204,261

3,159,401

1.3
%
SparQ Mezz Borrower, LLC (4)(5)(6) 
US - CA
Multifamily
12.0
%
12.0
%
1.0
%
9/29/2017
10/1/2020
8,700,000

8,783,139

8,786,127

8,663,121

3.5
%
Stonewall Station Mezz LLC (6)(7)
US - NC
Hotel
12.0% current
2.0% PIK

14.0
%
1.0
%
5/31/2018
5/20/2021
9,792,767

9,875,162

9,883,488

9,745,119

3.9
%
 
 
 
 
 
 
 
 
42,113,654

42,671,330

42,673,996

42,076,559

16.9
%




See notes to unaudited financial statements.



11

 



Terra Secured Income Fund 5, LLC
Schedule of Investment (Continued)
March 31, 2020 (unaudited) and December 31, 2019


Terra Property Trust’s Schedule of Loans Held for Investment as of December 31, 2019 (Continued):
Portfolio Company
Collateral Location
Property
Type
Coupon
Rate
Current Interest Rate
Exit Fee
Acquisition Date
Maturity
Date
Principal Amount
Amortized
Cost
Fair
Value (1)
Pro Rata
Fair Value (2)
% (3)
Loans held for investment — non-controlled:
 
 
 
 
 
 
 
 
 
 
 
 
Preferred equity investments:
 
 
 
 
 
 
 
 
 
 
 
 
370 Lex Part Deux, LLC (6)(7)(8)
US - NY
Office
LIBOR + 8.25% (2.44% Floor)

10.7
%
%
12/17/2018
1/9/2022
$
48,349,948

$
48,425,659

$
48,236,458

$
47,561,148

19.3
 %
City Gardens 333 LLC (4)(5)(6)(7)(8)
US - CA
Student housing
LIBOR + 9.95% (2.0% Floor)

12.0
%
%
4/11/2018
4/1/2021
28,049,717

28,056,179

28,057,779

27,664,970

11.2
 %
NB Private Capital, LLC (4)(5)(6)(7)(8)
Various
Student housing
LIBOR +10.5% (3.5% Floor)

14.0
%
1.0
%
7/27/2018
4/16/2021
20,000,000

20,166,610

20,180,782

19,898,251

8.1
 %
Orange Grove Property Investors, LLC (6)(7)
US - CA
Condominium
LIBOR + 8.0% (4.0% Floor)

12.0
%
1.0
%
5/24/2018
6/1/2021
10,600,000

10,696,587

10,695,415

10,545,679

4.3
 %
REEC Harlem Holdings Company, LLC
US - NY
Infill land
LIBOR + 12.5% (no Floor)

14.3
%
%
3/9/2018
3/9/2023
18,444,375

18,444,375

18,280,168

18,024,246

7.3
 %
RS JZ Driggs, LLC (6)(7)
US - NY
Multifamily
12.3
%
12.3
%
1.0
%
5/1/2018
5/1/2020
8,200,000

8,286,629

8,277,336

8,161,453

3.3
 %
The Bristol at Southport, LLC (4)(5)(6)(8)
US - WA
Multifamily
12.0
%
12.0
%
1.0
%
9/22/2017
9/22/2022
23,500,000

23,661,724

23,769,361

23,436,590

9.5
 %
 
 
 
 
 
 
 
 
157,144,040

157,737,763

157,497,299

155,292,337

63.0
 %
First mortgages:
 
 
 
 
 
 
 
 
 
 
 
 
14th & Alice Street Owner, LLC (10)
US - CA
Multifamily
LIBOR + 5.75% (3.25% Floor)

9.0
%
0.5
%
3/5/2019
3/5/2022
12,932,034

12,957,731

12,983,863

12,802,089

5.2
 %
1389 Peachtree St, LP; 1401 Peachtree St, LP;
   1409 Peachtree St, LP (11)
US - GA
Office
LIBOR + 4.5% (no Floor)

6.3
%
0.5
%
2/22/2019
2/10/2022
38,464,429

38,510,650

38,655,000

38,113,830

15.4
 %
330 Tryon DE LLC (11)
US - NC
Office
LIBOR + 3.85% (2.51% Floor)

6.4
%
0.5
%
2/7/2019
3/1/2022
22,800,000

22,891,149

22,906,207

22,585,520

9.0
 %
AGRE DCP Palm Springs, LLC (11)
US - CA
Hotel
LIBOR +4.75% (1.80% Floor)

6.6
%
0.5
%
12/12/2019
1/1/2023
30,184,357

30,174,455

30,326,076

29,901,511

12.1
 %
MSC Fields Peachtree Retreat, LLC (11)
US - GA
Multifamily
LIBOR + 3.85% (2.0% Floor)

5.9
%
0.5
%
3/15/2019
4/1/2022
23,308,335

23,446,793

23,418,996

23,091,130

9.3
 %
Patrick Henry Recovery Acquisition, LLC
US - CA
Office
LIBOR + 2.95% (1.5% Floor)

4.7
%
0.3
%
11/25/2019
12/1/2023
18,000,000

18,037,329

18,042,390

17,789,797

7.2
 %
REEC 286 Lenox LLC
US - NY
Office
LIBOR + 2.95% (no Floor)

4.7
%
%
8/2/2019
9/22/2019
4,740,000

4,740,000

4,740,000

4,673,640

1.9
 %
TSG-Parcel 1, LLC (4)(6)(7)
US - CA
Infill land
LIBOR + 10.0% (2.0% Floor)

12.0
%
1.0
%
7/10/2015
3/31/2020
18,000,000

18,180,000

18,174,634

17,920,189

7.3
 %
Windy Hill PV Five CM, LLC
US - CA
Office
LIBOR + 6.0% (2.05% Floor)

8.1
%
0.5
%
9/20/2019
9/20/2022
9,701,468

9,265,568

9,741,954

9,605,567

3.9
 %
 
 
 
 
 
 
 
 
178,130,623

178,203,675

178,989,120

176,483,273

71.3
 %
Total gross loans held for investment
 
 
 
 
 
 
 
377,388,317

378,612,768

379,160,415

373,852,169

151.3
 %
Obligations under participation agreements (4)(5)(6)(7)(8)
 
 
 
 
 
 
(102,564,795
)
(103,186,327
)
(103,188,783
)
(101,744,140
)
(41.2
)%
Net loans held for investment
 
 
 
 
 
 
 
$
274,823,522

$
275,426,441

$
275,971,632

$
272,108,029

110.1
 %


See notes to unaudited financial statements.

12

 



Terra Secured Income Fund 5, LLC
Schedule of Investment (Continued)
March 31, 2020 (unaudited) and December 31, 2019

Terra Property Trust’s Schedule of Loans Held for Investment as of December 31, 2019 (Continued):
Operating real estate:
 
 
 
 
 
 
 
 
 
 
 
 
Description
 
Acquisition Date
 
Real estate owned, net
 
Encumbrance
 
Net Investment
 
Pro Rata Net Investment (2)
 
% (3)(14)
Multi-tenant office building in Santa Monica, CA (12)
 
7/30/2018
 
$
52,776,236

 
$
44,614,480

 
$
8,161,756

 
$
8,047,491

 
3.3
%
Land in Conshohocken, PA (13)
 
1/9/2019
 
13,395,430

 

 
13,395,430

 
13,207,894

 
5.3
%
 
 
 
 
$
66,171,666

 
$
44,614,480

 
$
21,557,186

 
$
21,255,385

 
8.6
%

___________________________ 
(1)
Because there is no readily available market for these loans, these loans were valued using significant unobservable inputs under Level 3 of the fair value hierarchy and were approved in good faith by Terra REIT Advisors, Terra Property Trust’s manager, pursuant to Terra Property Trust’s valuation policy.
(2)
Amount represents the Company’s portion, or 98.6%, of the fair value or net investment value.
(3)
Percentage is based on the Company’s pro rata share of the fair value or net investment value over the Company’s total members’ capital of $247.1 million at December 31, 2019.
(4)
Terra Property Trust sold a portion of its interests in these loans via participation agreements to Terra Secured Income Fund 5 International, an affiliated fund advised by Terra REIT Advisors.
(5)
Terra Property Trust sold a portion of its interests in these loans via participation agreements to Terra Income Fund International, an affiliated fund advised by Terra REIT Advisors.
(6)
The loan participations from Terra Property Trust do not qualify for sale accounting and therefore, the gross amount of these loans remain in the consolidated statements of financial condition.
(7)
Terra Property Trust sold a portion of its interest in this loan through a participation agreement to Terra Income Fund 6, Inc., an affiliated fund advised by Terra Income Advisors, an affiliate of our sponsor and Terra Property Trust’s manager.
(8)
Terra Property Trust sold a portion of its interest in this loan through a participation agreement to TPT2, an affiliated fund managed by Terra REIT Advisors.
(9)
On June 27, 2018, Terra Property Trust entered into a participation agreement with Terra Income Fund 6, Inc. to purchase a 25% interest, or $4.3 million, in a mezzanine loan. As of December 31, 2019, the unfunded commitment was $1.1 million.
(10)
Terra Property Trust sold a portion of its interest in this loan via a participation agreement to a third-party.
(11)
These loans were used as collateral for $81.1 million of borrowings under a repurchase agreement.
(12)
Terra Property Trust acquired this property through foreclosure of a $54.0 million first mortgage. Real estate owned, net amount includes building and building improvements, tenant improvements and lease intangible assets and liabilities, net of accumulated depreciation and amortization.
(13)
Terra Property Trust acquired the collateral for this loan via deed in lieu of foreclosure. On June 30, 2019, Terra Property Trust recorded an impairment charge of $1.6 million on the land in order to reduce the carrying value of the land to its estimated fair value, which is the estimated selling price less the cost of sale.
(14)
Percentage is based on Terra Property Trust’s net exposure on the property (real estate owned less encumbrance).



See notes to unaudited financial statements.

13

 


Terra Secured Income Fund 5, LLC
Notes to Financial Statements (Unaudited)
March 31, 2020

Note 1. Business
 
Terra Secured Income Fund 5, LLC (the “Company”), is a real estate credit focused company that originates, structures, funds and manages high yielding commercial real estate investments, including mezzanine loans, first mortgage loans, subordinated mortgage loans and preferred equity investments throughout the United States. The Company’s loans finance the acquisition, construction, development or redevelopment of quality commercial real estate in the United States. The Company focuses on the origination of middle market loans in the approximately $10 million to $50 million range, to finance properties in primary and secondary markets. The Company believes loans of this size are subject to less competition, offer higher risk adjusted returns than larger loans with similar risk metrics and facilitate portfolio diversification. The Company was formed as a Delaware limited liability company on April 24, 2013 and commenced operations on August 8, 2013. The Company makes substantially all of its investments and conducts substantially all of its real estate lending business through Terra Property Trust, which has elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2016. The Company’s objectives are to (i) preserve its members’ capital contributions, (ii) realize income from its investments and (iii) make monthly distributions to its members from cash generated from investments. There can be no assurances that the Company will be successful in meeting its objectives.

In December 2015, the members approved the merger of Terra Secured Income Fund, LLC (“Terra Fund 1”), Terra Secured Income Fund 2, LLC (“Terra Fund 2”), Terra Secured Income Fund 3, LLC (“Terra Fund 3”) and Terra Secured Income Fund 4, LLC (“Terra Fund 4”) with and into subsidiaries of the Company (individually, each a “Terra Fund” and collectively, the “Terra Funds”) through a series of separate mergers effective January 1, 2016 (collectively, the “Merger”). Following the Merger, the Company contributed the consolidated portfolio of net assets of the five Terra Funds to Terra Property Trust, a newly-formed and wholly-owned subsidiary of the Company that elected to be taxed as a REIT, in exchange for the shares of common stock of Terra Property Trust. Upon completion of the Merger, the Company became the parent company of Terra Funds 1 through 4 and the direct and indirect sole common stockholder of, and began conducting substantially all of its real estate lending business through, Terra Property Trust.

On March 2, 2020, Terra Fund 1, Terra Fund 2 and Terra Fund 3 merged with and into Terra Fund 4, with Terra Fund 4 continuing as the surviving company (the “Terra Fund Merger”), and the Company consolidated its holdings of shares of common stock of Terra Property Trust in Terra Fund 4. Subsequent to the Terra Fund Merger, the legal name of Terra Fund 4 was changed to Terra JV. On March 2, 2020, Terra Property Trust engaged in a series of transactions pursuant to which Terra Property Trust issued an aggregate of 4,574,470.35 shares of its common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans that Terra Property Trust owned, cash of $25.5 million and other working capital. Following the completion of these transactions, as of March 31, 2020, Terra JV held 86.4% of the issued and outstanding shares of Terra Property Trust’s common stock with the remainder held by TIF3 REIT, and the Company and Terra Fund 7 owned an 87.6% and 12.4% percentage interest, respectively, in Terra JV (Note 4). The Company does not consolidate Terra JV because the Company and Terra Fund 7 share joint approval right with respect to certain major decisions that are taken by Terra JV and Terra Property Trust (Note 4).

The Company’s investment activities are externally managed by Terra Fund Advisors, LLC (“Terra Fund Advisors”). The Company does not currently have any employees and does not expect to have any employees. Services necessary for the Company’s business are provided by individuals who are employees of the Manager or its affiliates or by individuals who were contracted by the Company or by the Manager or its affiliates to work on behalf of the Company pursuant to the terms of the operating agreement, as amended.

The Company’s amended and restated operating agreement provides that the Company’s existence will continue until December 31, 2023, unless sooner terminated. However, the Company expects that prior to such date it will consummate a liquidity transaction, which may include an orderly liquidation of its assets or an alternative liquidity event such as a sale of the Company or an initial public offering and listing of Terra Property Trust’s shares of common stock on a national securities exchange. The Manager would pursue an alternative liquidity event only if it believes such a transaction would be in the best interests of the Company’s members.


14

 


Notes to Unaudited Consolidated Financial Statements


Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The interim financial statements have been prepared in accordance with United States generally accepted accounting principles (U.S. GAAP”). The financial statements as of December 31, 2019 and for the three months ended March 31, 2019 and the period from January 1, 2020 to March 1, 2020 included all of the Company’s accounts and those of its consolidated subsidiaries. All intercompany balances and transactions had been eliminated. As discussed in Note 1, on March 2, 2020, the Company’s subsidiaries completed the Terra Fund Merger. As a result of the Terra Fund Merger, the Company no longer consolidates the subsidiaries. The financial statements as of March 31, 2020 and for the period from March 2, 2020 to March 31, 2020 includes all of the Company's accounts only.

The accompanying interim 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. The Company is an investment company, as defined under U.S. GAAP, and applies accounting and reporting guidance in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services - Investment Companies.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. During the first quarter of 2020, there was a global outbreak of a novel coronavirus (“COVID-19”), which has spread to over 200 countries and territories, including the United States, and has spread to every state in the United States. The World Health Organization has designated COVID-19 as a pandemic, and numerous countries, including the United States, have declared national emergencies with respect to COVID-19. The global impact of the outbreak has been rapidly evolving, and as cases of COVID-19 have continued to be identified in additional countries, many countries have reacted by instituting quarantines and restrictions on travel, closing financial markets and/or restricting trading and operations of non-essential offices and retail centers. Such actions are creating disruption in global supply chains, and adversely impacting many industries. The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions. The Company believes the estimates and assumptions underlying its financial statements are reasonable and supportable based on the information available as of March 31, 2020, however uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of March 31, 2020 inherently less certain than they would be absent the current and potential impacts of COVID-19. Actual results may ultimately differ from those estimates.

Equity Investment in Terra JV or Terra Property Trust

Equity investment in Terra JV or Terra Property Trust represents the Company’s equity interest in Terra JV or Terra Property Trust as applicable, which was initially recorded at cost. Subsequent to the asset contribution, the equity investment is reported, at each reporting date, at fair value on the statements of financial condition. Change in fair value is reported in net change in unrealized appreciation or depreciation on investment on the statements of operations.

Revenue Recognition

Dividend Income: Dividend income associated with the Company’s ownership of Terra JV or Terra Property Trust is recognized on the record date as declared by Terra JV or Terra Property Trust. Any excess of distributions over Terra JV or Terra Property Trust’s cumulative net income are recorded as return of capital.

Other Operating Income: All other income is recognized when earned.

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 are exposed to concentrations of credit risk. The Company maintains all of its cash at financial institutions which, at times, may exceed the amount insured by the Federal Deposit Insurance Corporation.
 

15

 


Notes to Unaudited Consolidated Financial Statements


Income Taxes

No provision for U.S. federal and state income taxes has been made in the accompanying financial statements, as individual members are responsible for their proportionate share of the Company’s taxable income. The Company, however, may be liable for New York City Unincorporated Business Tax (the “NYC UBT”) and similar taxes of various other municipalities. New York City imposes the NYC UBT at a statutory rate of 4% on net income generated from ordinary business activities carried on in New York City. For the three months ended March 31, 2020 and 2019, none of the Company’s income was subject to the NYC UBT.

Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statements and tax basis assets and liabilities using enacted tax rates in effect for the year in which differences are expected to reverse. Such deferred tax assets and liabilities were not material.

The Company did not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10-25, Income Taxes, nor did the Company have any unrecognized tax benefits as of the periods presented herein. The Company recognizes interest and penalties, if any, related to unrecognized tax liabilities as income tax expense in its statements of operations. For the three months ended March 31, 2020 and 2019, the Company did not incur any interest or penalties. Although the Company files federal and state tax returns, its primary tax jurisdiction is federal. The Company’s 2015-2019 federal tax years remain subject to examination by the Internal Revenue Service.

Recent Accounting Pronouncement
    
In February 2016, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820): Disclosure framework — Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The objective of ASU 2018-13 is to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of information required by U.S. GAAP. The amendments in ASU 2018-13 added, removed and modified certain fair value measurement disclosure requirements. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company adopted ASU 2018-13 on January 1, 2020. The adoption of ASU 2018-13 did not have a material impact on its financial statements and disclosures.
    
Note 3. Investment and Fair Value

Equity Investment in Terra JV or Terra Property Trust

The Company invested substantially all of its equity capital in the purchase of shares of common stock of Terra Property Trust. On March 2, 2020, Terra Property Trust engaged in a series of transactions pursuant to which Terra Property Trust issued an aggregate of 4,574,470.35 shares of its common stock in exchange for the settlement of an aggregate of $49.8 million of participation interests in loans that Terra Property Trust owned, cash of $25.5 million and other working capital. Following the completion of these transactions, as of March 31, 2020, Terra JV held 86.4% of the issued and outstanding shares of Terra Property Trust’s common stock with the remainder held by TIF3 REIT, and the Company and Terra Fund 7 owned an 87.6% and 12.4% percentage interest, respectively, in Terra JV, and Terra JV became the Company’s only investment (Note 4).

The following tables present a summary of the Company’s investment at March 31, 2020 and December 31, 2019:
 
 
March 31, 2020
Investment
 
Cost
 
Fair Value
 
% of Members’ Capital
87.6% interest in Terra JV, LLC
 
$
241,227,760

 
$
238,414,211

 
100.0
%
 
 
December 31, 2019
Investment
 
Cost
 
Fair Value
 
% of Members’ Capital
14,912,990 common shares of Terra Property Trust, Inc.
 
$
243,924,852

 
$
247,263,245

 
100.1
%


16

 


Notes to Unaudited Consolidated Financial Statements


For the three months ended March 31, 2020 and 2019, the Company received approximately $7.8 million and $7.6 million of distributions from Terra JV and/or Terra Property Trust as applicable, respectively, of which $6.6 million and $3.6 million were returns of capital, respectively.

As of March 31, 2020 and December 31, 2019, the Company indirectly beneficially owned 75.7% (Note 4) and directly owned 98.6% of the outstanding shares of common stock of Terra Property Trust, respectively. The following tables present the summarized financial information of Terra Property Trust:
 
 
March 31, 2020
 
December 31, 2019
Carrying value of loans held for investment
 
$
402,969,513

 
$
378,612,768

Real estate owned, net
 
76,645,592

 
77,596,475

Cash, cash equivalent and restricted cash
 
100,481,419

 
50,549,700

Other assets
 
24,390,805

 
20,584,135

Total assets
 
604,487,329

 
527,343,078

Mortgage loan payable, repurchase agreement payable, revolving credit facility
   payable and obligations under participation agreements
 
(238,640,684
)
 
(227,548,397
)
Accounts payable, accrued expenses and other liabilities
 
(39,719,823
)
 
(40,826,139
)
Lease intangible liabilities
 
(11,276,085
)
 
(11,424,809
)
Total liabilities
 
(289,636,592
)
 
(279,799,345
)
Stockholder’s equity
 
$
314,850,737

 
$
247,543,733

 
 
 
Three Months Ended March 31,
 
 
 
2020
 
2019
Revenues
 
 
$
12,077,571

 
$
12,737,934

Expenses
 
 
(11,188,049
)
 
(8,815,059
)
Net loss on extinguishment of obligations under participation agreements
 
 
(319,453
)
 

Realized gains on marketable securities
 
 
8,894

 

Net income
 
 
$
578,963

 
$
3,922,875


Fair Value Measurements

The Company adopted 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 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 are 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

17

 


Notes to Unaudited Consolidated Financial Statements


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 considers factors specific to the investment.
    
Assets and Liabilities Reported at Fair Value

The following table summarizes the Company’s equity investment at fair value on a recurring basis as of March 31, 2020 and December 31, 2019:
 
March 31, 2020
 
Fair Value Measurements
 
Level 1
 
Level 2
 
Level 3
 
Total
Investment:
 
 
 
 
 
 
 
Equity investment in Terra JV
$

 
$

 
$
238,414,211

 
$
238,414,211

 
December 31, 2019
 
Fair Value Measurements
 
Level 1
 
Level 2
 
Level 3
 
Total
Investment:
 
 
 
 
 
 
 
Equity investment in Terra Property Trust
$

 
$

 
$
247,263,245

 
$
247,263,245


Changes in Level 3 investment for the three months ended March 31, 2020 and 2019 were as follows:
 
Equity Investment in Terra JV
 
Equity Investment in Terra Property Trust
 
Period from March 2, 2020 to March 31, 2020
 
Period from January 1, 2020 to March 1, 2020
 
Three Months Ended March 31, 2019
Beginning balance
$

 
$
247,263,245

 
$
263,092,586

Transfer of ownership interest in Terra Property Trust to
   Terra JV
244,006,890

 
(244,006,890
)
 

Return of capital
(2,779,129
)
 
(3,783,607
)
 
(3,633,537
)
Net change in unrealized (depreciation) appreciation on
   investment
(2,813,550
)
 
527,252

 
1,589,251

Ending balance
$
238,414,211

 
$

 
$
261,048,300

Net change in unrealized (depreciation) appreciation on
   investment for the period relating to those Level 3 assets
   that were still held by the Company
$
(2,813,550
)
 
$
527,252

 
$
1,589,251


Transfers between levels, if any, are recognized at the beginning of the period in which transfers occur. For the three months ended March 31, 2020 and 2019, there were no transfers.

The Company estimated that its other financial assets and liabilities had fair values that approximated their carrying values at March 31, 2020 and December 31, 2019 due to their short-term nature.

Valuation Process for Fair Value Measurement

Market quotations are not readily available for the Company’s investment in Terra Property Trust or Terra JV, which is included in Level 3 of the fair value hierarchy. The fair value of the Company’s sole investment takes into consideration the fair value of Terra Property Trust’s assets and liabilities which are valued utilizing a yield approach, i.e. a discounted cash flow methodology. In following this methodology, loans are evaluated individually, and management takes into account, in determining the risk-adjusted discount rate for each of Terra Property Trust’s loans, relevant factors, including available current market data on applicable

18

 


Notes to Unaudited Consolidated Financial Statements


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 portfolio company’s ability to make payments, its net operating income, 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); and 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, replacement costs and the anticipated duration of each real estate-related loan.

The Manager designates a valuation committee to oversee the entire valuation process of Terra Property Trust’s Level 3 investments. The valuation committee is comprised of members of the Manager’s senior management, deal and portfolio management teams, who meet on a quarterly basis, or more frequently as needed, to review Terra Property Trust investments being valued as well as the inputs used in the proprietary valuation model. Valuations determined by the valuation committee are supported by pertinent data and, in addition to a proprietary valuation model, are based on market data, third-party valuation data and discount rates or other methods the valuation committee deems to be appropriate.
 
The following tables summarize the valuation techniques and significant unobservable inputs used by the Company to value the Level 3 investments as of March 31, 2020 and December 31, 2019. The tables are not intended to be all-inclusive, but instead identify the significant unobservable inputs relevant to the determination of fair values.
 
 
Fair Value
Primary Valuation Technique
 
Unobservable Inputs
 
March 31, 2020
Asset Category
 
 
 
Minimum
Maximum
Weighted Average
Assets:
 
 
 
 
 
 
 
 
 
 
Equity investment in Terra JV
 
$
238,414,211

 
Discounted cash flow (1)
 
Discount rate (1)
 
3.34
%
19.25
%
16.58
%
 
 
Fair Value
Primary Valuation Technique
 
Unobservable Inputs
 
December 31, 2019
Asset Category
 
 
 
Minimum
Maximum
Weighted Average
Assets:
 
 
 
 
 
 
 
 
 
 
Equity investment in Terra Property Trust
 
$
247,263,245

 
Discounted cash flow (1)
 
Discount rate (1)
 
4.11
%
14.95
%
12.36
%
_______________
(1)
Discounted cash flows and discount rates applied to Terra Property Trust’s assets and liabilities.

Risks and Uncertainties

The Company’s investment in Terra Property Trust or Terra JV is highly illiquid and there is no assurance that the Company will achieve its investment objectives, including targeted returns. Terra Property Trust’s loans are highly illiquid. Due to the illiquidity of the loans, valuation of the loans may be difficult, as there generally will be no established markets for these loans. As the Company’s investment is carried at fair value with fair value changes recognized in the statements of operations, any changes in fair value would directly affect the Company’s members’ capital.

Note 4. Related Party Transactions

Operating Agreement

The Company has an operating agreement, as amended, with Terra Fund Advisors. The operating agreement, as amended, is scheduled to terminate on December 31, 2023 unless the Company is dissolved earlier. Starting January 1, 2016, the Company conducts all of its real estate lending business through Terra Property Trust. As such, Terra Property Trust is responsible for management compensation paid and operating expenses reimbursed to its manager pursuant to a management agreement with the manager.
    
Dividend Income
    
As discussed in Note 3, for the three months ended March 31, 2020 and 2019, the Company received approximately $7.8 million and $7.6 million of distributions from Terra JV and/or Terra Property Trust as applicable, respectively, of which $6.6 million and $3.6 million were returns of capital, respectively.


19

 


Notes to Unaudited Consolidated Financial Statements


TPT2 Merger

On February 28, 2020, Terra Property Trust entered into certain Agreement and Plan of Merger (the “Merger Agreement”), by and among Terra Property Trust, Terra Property Trust 2, Inc. (“TPT2”) and Terra Fund 7, the sole stockholder of TPT2, pursuant to which TPT2 merged with and into Terra Property Trust, with Terra Property Trust continuing as the surviving corporation (the “TPT2 Merger”), effective March 1, 2020. In connection with the TPT2 Merger, each share of common stock, par value $0.01 per share, of TPT2 issued and outstanding immediately prior to the effective time of the TPT2 Merger was converted into the right to receive from Terra Property Trust a number of shares of common stock, par value $0.01 per share, of Terra Property Trust equal to an exchange ratio, which was 1.2031. The exchange ratio was based on the relative fair value of Terra Property Trust and TPT2 as of December 31, 2019 as adjusted to reflect changes in net working capital of each of Terra Property Trust and TPT2 during the period from January 1, 2020 through March 1, 2020, the effective time for the TPT2 Merger. For purposes of determining the respective fair values of Terra Property Trust and TPT2, the value of the loans (or participation interests therein) held by each of Terra Property Trust and TPT2 was the value of such loans (or participation interests) as set forth in the audited financial statements of Terra Property Trust as of and for the year ended December 31, 2019. As a result, Terra Fund 7 received 2,116,785.76 shares of common stock of Terra Property Trust as consideration in the TPT2 Merger and subsequently contributed these shares to Terra JV. The shares of Terra Property Trust common stock issued in connection with the TPT2 Merger were issued in a private placement in reliance on Section 4(a)(2) under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and the rules and regulations promulgated thereunder
Issuance of Common Stock to TIF3 REIT
In addition, on March 2, 2020, Terra Property Trust entered into two separate contribution agreements, one by and among Terra Property Trust, TIF3 REIT and Terra Income Fund International, and another by and among Terra Property Trust, TIF3 REIT and Terra Secured Income Fund 5 International, pursuant to which Terra Property Trust issued 2,457,684.59 shares of common stock of Terra Property Trust to TIF3 REIT in exchange for the settlement of $32.1 million of participation interests in loans also held by Terra Property Trust, $8.6 million in cash and other working capital (“Issuance of Common Stock to TIF3 REIT”).The shares of common stock were issued in a private placement in reliance on Section 4(a)(2) under the Securities Act and the rules and regulations promulgated thereunder.
Terra JV, LLC

Prior to the completion of the TPT2 Merger and the Issuance of Common Stock to TIF3 REIT transactions described above, the Company owned approximately 98.6% of the issued and outstanding shares of Terra Property Trust’s common stock indirectly through its wholly owned subsidiary, Terra JV, of which the Company was the sole managing member, and the remaining issued and outstanding shares of Terra Property Trust’s common stock were owned by TIF3 REIT.

As described above, Terra Property Trust acquired TPT2 in the TPT2 Merger and, in connection with such transaction, Terra Fund 7 contributed the shares of Terra Property Trust’s common stock received as consideration in the TPT2 Merger to Terra JV and became a co-managing member of Terra JV pursuant to the amended and restated operating agreement of Terra JV, dated March 2, 2020 (the “JV Agreement”). The JV Agreement and related stockholders agreement between Terra JV and Terra Property Trust, dated March 2, 2020, provide for the joint approval of the Company and Terra Fund 7 with respect to certain major decisions that are taken by Terra JV and Terra Property Trust.

On March 2, 2020, Terra Property Trust, the Company, Terra JV and Terra REIT Advisors also entered into the Amended and Restated Voting Agreement (the “Voting Agreement”), pursuant to which the Company assigned its rights and obligations under the Voting Agreement to Terra JV. Consistent with the original voting agreement dated February 8, 2018, for the period that Terra REIT Advisors remains the external manager of Terra Property Trust, Terra REIT Advisors will have the right to nominate two individuals to serve as directors of Terra Property Trust, until Terra JV no longer holds at least 10% of the outstanding shares of Terra Property Trust’s common stock, Terra JV will have the right to nominate one individual to serve as a director of Terra Property Trust.

Following the completion of the transactions described above, as of March 31, 2020, Terra JV owns approximately 86.4% of the issued and outstanding shares of Terra Property Trust common stock with the remainder held by TIF3 REIT, and the Company and Terra Fund 7 own an 87.6% and 12.4% interest, respectively, in Terra JV. As a result, of March 31, 2020, the Company indirectly beneficially owned 75.7% of Terra Property Trust's outstanding common stock through Terra JV.


20

 


Notes to Unaudited Consolidated Financial Statements


Note 5. Commitments and Contingencies

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. The Manager 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 contracts with its portfolio companies. 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.

Note 6. Members’ Capital

As of both March 31, 2020 and December 31, 2019, the Company had 6,637.7 units outstanding. The net asset value per unit was $35,916 and $37,222 as of March 31, 2020 and December 31, 2019, respectively.

Capital Contributions

As of January 31, 2015, the offering period ended, and the Company stopped accepting capital contributions. In connection with the Merger, the Company offered existing members of the Terra Funds the opportunity to invest in the Company through purchase of additional units (the “Rights Offering”). The Rights Offering was completed on May 17, 2016.

Capital Distributions

At the discretion of the Manager, the Company may make distributions from net cash flow from operations, net disposition proceeds, or other cash available for distribution. Distributions are made to holders of Continuing Income Units (regular units of limited liability company interest in the Company) in proportion to their unit holdings until they receive a return of their initial Deemed Capital Contribution, as defined in the operating agreement, plus a preferred return ranging from 8.5% to 9.0% depending on the historical preferred return applicable to their Terra Fund units, after which time distributions are made 15% to the Manager which the Company refers to as the carried interest distribution, and 85% to the holders of Continuing Income Units. The preferred return applicable to the Continuing Income Units sold in the offering concurrent with the Merger is 8.5%.

For both the three months ended March 31, 2020 and 2019, the Company made total distributions to non-manager members of $7.5 million. For the three months ended March 31, 2020 and 2019, the Company did not make any carried interest distributions to the Manager.
 
Capital Redemptions

At the discretion of the Manager, a reserve of 5% of cash from operations may be established in order to repurchase units from non-managing members. The Manager is under no obligation to redeem non-managing members’ units. As of March 31, 2020 and December 31, 2019, no such reserve was established. For the three months ended March 31, 2020 and 2019, the Company did not redeem any membership units.

Allocation of Income (Loss)

Profits and losses are allocated to the members in proportion to the units held in a given calendar year.

Member Units

Each membership interest through the original offering was offered for a price of $50,000 per unit. The membership interests in Terra Funds 1 through 4 were exchanged for units of the Company at a price of $43,410 per unit, which was the exchange value per unit of the Company on December 31, 2015, and the units in the Rights Offering were offered at a price of $47,000 per unit. For the three months ended March 31, 2020 and 2019, the Company did not issue or redeem any membership units.

Note 7. Financial Highlights

The financial highlights represent the per unit operating performance, return and ratios for the non-managing members’ class, taken as a whole, for the three months ended March 31, 2020 and 2019. These financial highlights consist of the operating

21

 


Notes to Unaudited Consolidated Financial Statements


performance, the internal rate of return (“IRR”) since inception of the Company, and the expense and net investment income ratios which are annualized except for the on-recurring expenses.

The IRR, net of all fees and carried interest (if any), is computed based on actual dates of the cash inflows (capital contributions), outflows (capital distributions), and the ending capital at the end of the respective period (residual value) of the non-managing members’ capital account.

The following summarizes the Company’s financial highlights for the three months ended March 31, 2020 and 2019:
 
Three Months Ended March 31,
 
2020
 
2019
Per unit operating performance:
 
 
 
Net asset value per unit, beginning of period
$
37,222

 
$
39,630

Increase in members’ capital from operations (1):
 
 
 
Net investment income
164

 
564

Net change in unrealized appreciation (depreciation) on investment
(344
)
 
240

Total increase in members’ capital from operations
(180
)
 
804

Distributions to member (2):
 
 
 
Capital distributions
(1,126
)
 
(1,125
)
Net decrease in members’ capital resulting from distributions
(1,126
)
 
(1,125
)
Net asset value per unit, end of period
$
35,916

 
$
39,309

 
 
 
 
Ratios to average net assets:
 
 
 
Expenses
0.29
%
 
0.26
%
Net investment income
1.79
%
 
5.61
%
 
 
 
 
IRR, beginning of period
6.40
%
 
6.56
%
IRR, end of period
6.08
%
 
6.66
%
_______________
(1)
The per unit data was derived by using the weighted average units outstanding during the applicable periods, which were 6,638 units and 6,639 units for the three months ended March 31, 2020 and 2019, respectively.
(2)
The per unit data for distributions reflects the actual amount of distributions paid per unit during the periods.

Note 8. Subsequent Events

Management has evaluated subsequent events through the date the financial statements were available to be issued. Management has determined that there are no material events that would require adjustment to, or disclosure in, the Company’s consolidated financial statements.

    



22

 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.

The information contained in this section should be read in conjunction with our unaudited 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 Secured Income Fund 5, LLC.

FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this quarterly report on Form 10-Q within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For these statements, we claim the protections of the safe harbor for forward-looking statements contained in such Sections. The forward-looking statements contained in this quarterly report on Form 10-Q may include, but are not limited to, statements as to:

our expected financial performance, operating results and our ability to make distributions to our members in the future;

the potential negative impacts of COVID-19 on the global economy and the impacts of COVID-19 on the Company’s financial condition, results of operations, liquidity and capital resources and business operations;

actions that may be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impact;

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 Fund Advisors, LLC (“Terra Fund Advisors” or the “Manager”), Terra REIT Advisors, LLC (“Terra REIT Advisors”), Terra Income Advisors, LLC; Terra Capital Partners, LLC (“Terra Capital Partners”), our sponsor; Terra JV, LLC (“Terra JV”); Terra Income Fund 6, Inc. (“Terra Fund 6”);Terra Secured Income Fund 5 International; Terra Income Fund International; Terra Secured Income Fund 7, LLC (“Terra Fund 7”); Terra Property Trust, Inc. (“Terra Property Trust”); Terra International Fund 3, L.P. (“Terra International 3”); Terra International Fund 3 REIT, LLC (“TIF3 REIT”), a subsidiary of Terra International 3; Terra Capital Advisors, LLC; Terra Capital Advisors 2, LLC; Terra Income Advisors 2, LLC; or any of their affiliates;

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

liquidity transactions that may be available to us in the future, including a liquidation of our assets, a sale of our company or an initial public offering and listing of the shares of common stock of Terra Property Trust on a national securities exchange, and the timing of any such transactions;

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


23

 



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

the degree and nature of our competition.

In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Part I — Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2019 and in “Part II - Item 1A. Risk Factors” in this quarterly report on Form 10-Q. 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. Members are advised to consult any additional disclosures that we may make directly to members or through reports that we may file in the future with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Overview