Company Quick10K Filing
Quick10K
Terra Secured Income Fund 5
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-05-10 Quarter: 2019-05-10
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
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
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CTXS Citrix Systems 12,800
WF Woori Bank 7,910
CUBE CubeSmart 6,120
WBS Webster Financial 4,750
DKS Dicks Sporting Goods 3,440
CRCM Care.com 485
ACV Alberto-Culver 251
SVVC Firsthand Technology Value Fund 78
TSIF 2019-06-30
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-31.1 tsif56301910-qex311.htm
EX-31.2 tsif56301910-qex312.htm
EX-32 tsif56301910-qex32.htm

Terra Secured Income Fund 5 Earnings 2019-06-30

TSIF 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tsif56301910q.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 June 30, 2019
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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.)
805 Third Avenue, 8th Floor
New York, New York 10022
(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: 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 ¨
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 ¨
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 August 9, 2019, the registrant had 6,638.4 units of limited liability company interests outstanding.
 




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
Consolidated Statements of Financial Condition

 
 
June 30, 2019
 
December 31, 2018
 
 
(unaudited)
 
 
Assets
 
 
 
 
Equity investment in Terra Property Trust, Inc. at fair value — controlled (cost
   of $253,940,210 and $265,200,249, respectively)
 
$
255,030,805

 
$
263,092,585

Cash and cash equivalents
 
93,153

 
131,784

Other assets
 
28,543

 
14,283

Total assets
 
$
255,152,501

 
$
263,238,652

 
 
 
 
 
Liabilities and Members’ Capital
 
 
 
 
Liabilities
 
 
 
 
Accounts payable and accrued expenses
 
$
167,014

 
$
158,210

Total liabilities
 
167,014

 
158,210

Commitments and contingencies (Note 5)
 

 

Members’ capital:
 
 
 
 
Managing member
 

 

Non-managing members
 
254,985,487

 
263,080,442

Total members’ capital
 
254,985,487

 
263,080,442

Total liabilities and members’ capital
 
$
255,152,501

 
$
263,238,652

Net asset value per unit
 
$
38,411

 
$
39,630


See notes to consolidated financial statements (unaudited).
    

2

 



Terra Secured Income Fund 5, LLC
Consolidated Statements of Operations
(Unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Investment income — controlled
 
 
 
 
 
 
 
 
Dividend income
 
$

 
$
6,808,108

 
$
3,922,875

 
$
12,341,913

Investment income
 
 
 
 
 
 
 
 
Other operating income
 
90

 
460

 
392

 
1,003

Total investment income
 
90

 
6,808,568

 
3,923,267

 
12,342,916

Operating expenses
 
 
 
 
 
 
 
 
Professional fees
 
98,119

 
99,290

 
271,333

 
207,836

Other
 
6,076

 
4,022

 
8,959

 
7,941

Total operating expenses
 
104,195

 
103,312

 
280,292

 
215,777

Net investment (loss) income
 
(104,105
)
 
6,705,256

 
3,642,975

 
12,127,139

Net change in unrealized appreciation
(depreciation) on investment — controlled
 
1,609,008

 
(63,131
)
 
3,198,259

 
(175,754
)
Net increase in members’ capital resulting
from operations
 
$
1,504,903

 
$
6,642,125

 
$
6,841,234

 
$
11,951,385

Per unit data:
 
 
 
 
 
 
 
 
Net investment (loss) income per unit
 
$
(16
)
 
$
1,005

 
$
549

 
$
1,815

Net increase in members’ capital resulting from
   operations per unit
 
$
227

 
$
996

 
$
1,030

 
$
1,789

Weighted average units outstanding
 
6,639

 
6,669

 
6,639

 
6,683



See notes to consolidated financial statements (unaudited).

3

 



Terra Secured Income Fund 5, LLC
Consolidated Statements of Changes in Members’ Capital (Unaudited)
Three and Six Months Ended June 30, 2019 and 2018

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

 
$
260,948,679

 
$
260,948,679

Capital distributions

 
(7,468,095
)
 
(7,468,095
)
Increase in members’ capital resulting from operations:
 
 
 
 
 
Net investment loss

 
(104,105
)
 
(104,105
)
Net change in unrealized appreciation on investment

 
1,609,008

 
1,609,008

Net increase in members’ capital resulting from operations

 
1,504,903

 
1,504,903

Balance, June 30, 2019
$

 
$
254,985,487

 
$
254,985,487


 
Managing
Member
 
Non-Managing Members
 
Total
Balance, April 1, 2018
$

 
$
273,287,351

 
$
273,287,351

Capital distributions

 
(7,502,561
)
 
(7,502,561
)
Capital redemptions

 
(1,622,419
)
 
(1,622,419
)
Increase in members’ capital resulting from operations:
 
 
 
 
 
Net investment income

 
6,705,256

 
6,705,256

Net change in unrealized depreciation on investment

 
(63,131
)
 
(63,131
)
Net increase in members’ capital resulting from operations

 
6,642,125

 
6,642,125

Balance, June 30, 2018
$

 
$
270,804,496

 
$
270,804,496


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

 
$
263,080,442

 
$
263,080,442

Capital distributions

 
(14,936,189
)
 
(14,936,189
)
Increase in members’ capital resulting from operations:
 
 
 
 
 
Net investment income

 
3,642,975

 
3,642,975

Net change in unrealized appreciation on investment

 
3,198,259

 
3,198,259

Net increase in members’ capital resulting from operations

 
6,841,234

 
6,841,234

Balance, June 30, 2019
$

 
$
254,985,487

 
$
254,985,487


 
Managing
Member
 
Non-Managing Members
 
Total
Balance, January 1, 2018
$

 
$
275,549,455

 
$
275,549,455

Capital distributions

 
(15,017,413
)
 
(15,017,413
)
Capital redemptions

 
(1,678,931
)
 
(1,678,931
)
Increase in members’ capital resulting from operations:
 
 
 
 

Net investment income

 
12,127,139

 
12,127,139

Net change in unrealized depreciation on investment

 
(175,754
)
 
(175,754
)
Net increase in members’ capital resulting from operations

 
11,951,385

 
11,951,385

Balance, June 30, 2018
$

 
$
270,804,496

 
$
270,804,496



See notes to consolidated financial statements (unaudited).


4

 



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

 
Six Months Ended June 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net increase in members’ capital resulting from operations
$
6,841,234

 
$
11,951,385

Adjustments to reconcile net increase in members’ capital resulting from
   operations to net cash provided by operating activities:
 
 
 
Return of capital on investment
11,260,039

 
4,485,246

Net change in unrealized depreciation (appreciation) on investment
(3,198,259
)
 
175,754

 
 
 
 
Changes in operating assets and liabilities:
 
 
 
Increase in other assets
(14,260
)
 
(22,985
)
Increase in accounts payable and accrued expenses
8,804

 
37,186

Net cash provided by operating activities
14,897,558

 
16,626,586

 
 
 
 
Cash flows from financing activities:
 
 
 
Distributions paid
(14,936,189
)
 
(15,017,384
)
Payments for capital redemptions

 
(1,678,931
)
Net cash used in financing activities
(14,936,189
)
 
(16,696,315
)
 
 
 
 
Net decrease in cash and cash equivalents
(38,631
)
 
(69,729
)
Cash and cash equivalents at beginning of period
131,784

 
212,366

Cash and cash equivalents at end of period
$
93,153

 
$
142,637

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

 
$

Cash paid for interest
$

 
$




See notes to consolidated financial statements (unaudited).

5

 



Terra Secured Income Fund 5, LLC
Consolidated Schedules of Investments
June 30, 2019 (unaudited) and December 31, 2018

As of June 30, 2019 and December 31, 2018, the Company’s only investment is its equity interest in a wholly-owned subsidiary as presented below:

 
 
 
 
Number of Shares of Common Stock
 
June 30, 2019
 
December 31, 2018
Investment — Controlled
 
Date Acquired
 
 
Cost
 
Fair Value
 
% of Members’ Capital
 
Cost
 
Fair Value
 
% of Members’ Capital
Terra Property Trust, Inc. — 100% Owned
 
1/1/2016 and 3/7/2016
 
14,912,990

 
$
253,940,210

 
$
255,030,805

 
100.0
%
 
$
265,200,249

 
$
263,092,585

 
100.0
%

The following table presents a schedule of loans held for investment by Terra Property Trust, Inc. (“Terra Property Trust”), the Company’s wholly-owned subsidiary, as of June 30, 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)
% (2)
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

$
7,047,817

2.8
%
221 W. 17th Street Owner, LLC (8)
US - NY
Condominium
12.8
%
12.8
%
1.0
%
1/19/2018
9/30/2019
4,661,438

4,708,053

4,707,556

1.8
%
2539 Morse, LLC (3)(4)(5)
US - CA
Student housing
11.0
%
11.0
%
1.0
%
10/20/2017
11/1/2020
7,000,000

7,066,909

7,067,437

2.8
%
37 Gables Member LLC (4)(5)
US - FL
Multifamily
13.0
%
13.0
%
1.0
%
6/16/2016
12/16/2019
5,750,000

5,807,500

5,806,875

2.3
%
575 CAD I LLC (3)(4)(5)(9)
US - NY
Condominium
12.0% current
2.5% PIK

14.5
%
1.0
%
1/31/2017
7/31/2019
14,855,685

14,994,925

14,993,990

5.9
%
Austin H. I. Owner LLC (3)(5)
US - TX
Hotel
12.5
%
12.5
%
1.0
%
9/30/2015
10/6/2020
3,500,000

3,529,834

3,531,736

1.4
%
High Pointe Mezzanine Investments, LLC (4)(5)
US - SC
Student housing
13.0
%
13.0
%
1.0
%
12/27/2013
1/6/2024
3,000,000

3,292,856

3,107,283

1.2
%
LD Milipitas Mezz, LLC (10)
US - CA
Hotel
LIBOR +10.25% (2.75% Floor)

13.0
%
1.0
%
6/27/2018
6/27/2021
746,152

730,449

751,891

0.3
%
SparQ Mezz Borrower, LLC (3)(4)(5) 
US - CA
Multifamily
12.0
%
12.0
%
1.0
%
9/29/2017
10/1/2020
8,700,000

8,781,155

8,784,378

3.4
%
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
9,679,478

9,758,072

9,679,968

3.8
%
 
 
 
 
 
 
 
 
64,892,753

65,669,753

65,478,931

25.7
%

6

 



Terra Secured Income Fund 5, LLC
Consolidated Schedule of Investments (Continued)
June 30, 2019 (unaudited) and December 31, 2018

Terra Property Trust Schedule of Loans Held for Investment as of June 30, 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)
% (2)
Loans held for investment — non-controlled:
 
 
 
 
 
 
 
 
 
 
 
Preferred equity investments:
 
 
 
 
 
 
 
 
 
 
 
370 Lex Part Deux, LLC (5)(6)(7)
US - NY
Office
LIBOR + 8.25% (2.44% Floor)

10.7
%
%
12/17/2018
1/9/2022
$
45,803,888

$
45,803,888

$
45,803,888

18.0
 %
City Gardens 333 LLC (5)(6)(7)
US - CA
Student housing
LIBOR + 9.95% (2.0% Floor)

12.3
%
%
4/11/2018
4/1/2021
22,158,881

22,121,192

22,191,728

8.7
 %
Greystone Gables Holdings Member LLC (4)(5)
US - FL
Multifamily
13.0
%
13.0
%
1.0
%
6/16/2016
12/16/2019
500,000

505,000

504,946

0.2
 %
NB Private Capital, LLC (5)(6)(7)
US - IL
US - OH
Student housing
LIBOR +10.5% (3.5% Floor)

14.0
%
1.0
%
7/27/2018
7/27/2020
25,500,000

25,719,109

25,719,109

10.1
 %
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
9,350,000

9,418,335

9,433,385

3.7
 %
REEC Harlem Holdings Company, LLC
US - NY
Infill land
LIBOR + 12.5% (no Floor)

14.9
%
%
3/9/2018
3/9/2023
18,444,375

18,444,375

18,464,725

7.2
 %
RS JZ Driggs, LLC (5)(6)
US - NY
Multifamily
12.3
%
12.3
%
1.0
%
5/1/2018
5/1/2020
8,200,000

8,293,862

8,276,415

3.2
 %
The Bristol at Southport, LLC (3)(4)(5)(7)
US - WA
Multifamily
10.0% current
2.0% PIK

12.0
%
1.0
%
9/22/2017
9/22/2022
23,383,682

23,535,908

23,533,961

9.3
 %
Windy Hill PV Seven CM, LLC (3)(4)(5)
US - CA
Office
10.0% current
2.5% PIK

12.5
%
1.0
%
1/9/2018
1/9/2021
21,355,637

21,545,179

21,527,665

8.4
 %
 
 
 
 
 
 
 
 
174,696,463

175,386,848

175,455,822

68.8
 %
First mortgages:
 
 
 
 
 
 
 
 
 
 
 
14th & Alice Street Owner, LLC
US - CA
Multifamily
LIBOR + 5.75% (3.25% Floor)

9.0
%
0.5
%
3/5/2019
3/5/2022
4,256,452

4,125,698

4,273,280

1.7
 %
1389 Peachtree St, LP; 1401 Peachtree St, LP; 1409 Peachtree St, LP (11)
US - GA
Office
LIBOR + 4.5% (2.49% Floor)

7.0
%
0.5
%
2/22/2019
2/10/2022
21,760,946

21,513,741

21,864,981

8.6
 %
330 Tryon DE LLC (11)
US - NC
Office
LIBOR + 3.85% (2.5% Floor)

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

22,886,544

22,903,052

9.0
 %
CGI 1100 Biscayne Management LLC (11)
US - FL
Hotel
LIBOR + 5.65% (2.3% Floor)

8.0
%
2.0
%
11/19/2018
11/19/2020
58,132,952

58,795,831

59,193,868

23.2
 %
MSC Fields Peachtree Retreat, LLC. (11)
US - GA
Multifamily
LIBOR + 3.85% (2.0% Floor)

6.2
%
0.5
%
3/15/2019
4/1/2022
23,141,200

23,229,393

23,247,306

9.1
 %
TSG-Parcel 1, LLC (3)(5)(6)
US - CA
Infill land
LIBOR + 10.0% (2.0% Floor)

12.4
%
1.0
%
7/10/2015
12/31/2019
18,000,000

18,180,000

18,178,137

7.1
 %
 
 
 
 
 
 
 
 
148,091,550

148,731,207

149,660,624

58.7
 %
Total gross loans held for investment
 
 
 
 
 
 
 
387,680,766

389,787,808

390,595,377

153.2
 %
Obligations under participation agreements (3)(4)(5)(6)(7)
 
 
 
 
 
 
(98,020,504
)
(98,700,002
)
(98,620,770
)
(38.7
)%
Net loans held for investment
 
 
 
 
 
 
 
$
289,660,262

$
291,087,806

$
291,974,607

114.5
 %

7

 



Terra Secured Income Fund 5, LLC
Consolidated Schedule of Investments (Continued)
June 30, 2019 (unaudited) and December 31, 2018

Terra Property Trust Schedule of Loans Held for Investment as of June 30, 2019 (Continued):
Operating real estate:
 
 
 
 
 
 
 
 
 
 
Description
 
Acquisition Date
 
Real estate owned, net
 
Encumbrance
 
Net Investment
 
% (14)
Multi-tenant office building in Santa Monica, CA (12)
 
7/30/2018
 
$
54,380,553

 
$
44,873,520

 
$
9,507,033

 
3.7
%
Land in Conshohocken, PA (13)
 
1/9/2019
 
13,395,430

 

 
13,395,430

 
5.3
%
 
 
 
 
$
67,775,983

 
$
44,873,520

 
$
22,902,463

 
9.0
%

___________________________ 
(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)
Percentages are based on the fair value of the Company’s investment in Terra Property Trust of $255.0 million as of June 30, 2019.
(3)
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.
(4)
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.
(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 statements of financial condition.
(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)
Terra Property Trust sold a portion of its interest in this loan through a participation agreement to Terra Property Trust 2, Inc., an affiliated fund managed by Terra REIT Advisors.
(8)
In June 2019, the maturity of this loan was extended to September 30, 2019.
(9)
In August 2019, this loan was repaid in full.
(10)
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 June 30, 2019, the unfunded commitment was $3.5 million.
(11)
These loans were used as collateral for $82.1 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).



8

 



Terra Secured Income Fund 5, LLC
Consolidated Schedule of Investments (Continued)
June 30, 2019 (unaudited) and December 31, 2018
    
The following table presents a schedule of loans held for investment held by Terra Property Trust as of December 31, 2018:

Portfolio Company
Collateral Location
Property
Type
Coupon
Rate
Current Interest Rate
Exit Fee
Acquisition Date
Maturity
Date
Principal Amount
Amortized
Cost
Fair
Value (1)
% (2)
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

$
6,895,383

2.6
%
140 Schermerhorn Street Mezz LLC (3)(5)(6)
US - NY
Hotel
12.0
%
12.0
%
1.0
%
11/16/2016
12/1/2019
15,000,000

15,134,200

15,148,494

5.8
%
221 W. 17th Street Owner, LLC (3)(4)(5)(6)
US - NY
Condominium
12.8
%
12.8
%
1.0
%
1/19/2018
3/31/2019
4,700,000

4,745,513

4,746,499

1.8
%
2539 Morse, LLC (3)(4)(5)
US - CA
Student housing
11.0
%
11.0
%
1.0
%
10/20/2017
11/1/2020
7,000,000

7,057,092

7,063,795

2.7
%
37 Gables Member LLC (4)(5)(8) 
US - FL
Multifamily
13.0
%
13.0
%
1.0
%
6/16/2016
6/16/2019
5,750,000

5,804,127

5,806,875

2.2
%
575 CAD I LLC (3)(4)(5)
US - NY
Condominium
12.0% current
2.5% PIK

14.5
%
1.0
%
1/31/2017
7/31/2019
14,627,148

14,755,657

14,758,825

5.6
%
Austin H. I. Owner LLC (3)(5)
US - TX
Hotel
12.5
%
12.5
%
1.0
%
9/30/2015
10/6/2020
3,500,000

3,528,012

3,512,468

1.3
%
High Pointe Mezzanine Investments, LLC (4)(5)
US - SC
Student housing
13.0
%
13.0
%
1.0
%
12/27/2013
1/6/2024
3,000,000

3,322,499

3,088,463

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



%
SparQ Mezz Borrower, LLC
US - CA
Multifamily
12.0
%
12.0
%
1.0
%
9/29/2017
10/1/2020
8,150,000

8,215,918

8,224,401

3.1
%
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
8,548,954

8,609,379

8,618,238

3.3
%
WWML96MEZZ, LLC (10)
US - NY
Condominium
13.0
%
13.0
%
1.0
%
12/18/2015
1/14/2019
15,950,638

16,110,144

16,108,411

6.1
%
 
 
 
 
 
 
 
 
93,226,740

94,282,541

93,971,852

35.7
%

9

 



Terra Secured Income Fund 5, LLC
Consolidated Schedule of Investments (Continued)
June 30, 2019 (unaudited) and December 31, 2018

Terra Property Trust Schedule of Loans Held for Investment as of December 31, 2018 (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)
% (2)
Loans held for investment — non-controlled:
 
 
 
 
 
 
 
 
 
 
 
Preferred equity investments:
 
 
 
 
 
 
 
 
 
 
 
370 Lex Part Deux, LLC (5)(6)(7)
US - NY
Office
LIBOR + 8.25% (2.44% Floor)

10.8
%
%
12/17/2018
1/9/2022
$
43,500,000

$
43,500,000

$
43,500,000

16.5
 %
ASA Mgt. Holdings, LLC
US - AL
Multifamily
16.0
%
16.0
%
1.0
%
4/7/2012
8/1/2022
2,100,000

2,135,189

2,120,720

0.8
 %
City Gardens 333 LLC (5)(6)(7)
US - CA
Student housing
LIBOR + 9.95% (2.0% Floor)

12.5
%
%
4/11/2018
4/1/2021
20,816,038

20,816,038

20,816,038

7.9
 %
Greystone Gables Holdings Member LLC (4)(5)(8)
US - FL
Multifamily
13.0
%
13.0
%
1.0
%
6/16/2016
6/16/2019
500,000

504,707

504,946

0.2
 %
NB Private Capital, LLC (5)(6)(7)
US - IL
US - OH
Student housing
LIBOR +10.5% (3.5% Floor)

14.0
%
1.0
%
7/27/2018
7/27/2020
25,500,000

25,704,182

25,704,182

9.8
 %
Nelson Brothers Professional Real Estate, LLC (11)
US - CO
Student housing
14.0
%
14.0
%
1.0
%
7/27/2016
2/1/2019
4,027,736

4,068,014

4,067,543

1.5
 %
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
8,350,000

8,414,582

8,415,618

3.2
 %
REEC Harlem Holdings Company, LLC
US - NY
Infill land
LIBOR + 12.5% (no Floor)

15.0
%
%
3/9/2018
3/9/2023
20,619,375

20,619,375

20,619,375

7.8
 %
RS JZ Driggs, LLC (5)(6)
US - NY
Multifamily
12.3
%
12.3
%
1.0
%
5/1/2018
5/1/2020
4,041,350

4,075,613

4,075,613

1.5
 %
SVA Mgt. Holdings, LLC
US - AL
Multifamily
16.0
%
16.0
%
1.0
%
4/7/2012
8/1/2022
1,600,000

1,628,607

1,615,786

0.6
 %
The Bristol at Southport, LLC (3)(4)(5)(7)
US - WA
Multifamily
10.0% current
2.0% PIK

12.0
%
1.0
%
9/22/2017
9/22/2022
23,115,541

23,258,826

23,185,858

8.8
 %
Windy Hill PV Seven CM, LLC (3)(4)(5)
US - CA
Office
10.0% current
2.5% PIK

12.5
%
1.0
%
1/9/2018
1/9/2021
19,001,150

19,146,400

19,146,400

7.3
 %
WWML96, LLC (10)
US - NY
Condominium
13.0
%
13.0
%
1.0
%
12/18/2015
1/14/2019
1,549,420

1,564,914

1,564,746

0.6
 %
 
 
 
 
 
 
 
 
174,720,610

175,436,447

175,336,825

66.5
 %
First mortgages:
 
 
 
 
 
 
 
 
 
 
 
CGI 1100 Biscayne Management LLC (12)
US - FL
Hotel
LIBOR + 5.65% (2.3% Floor)

8.2
%
2.0
%
11/19/2018
11/19/2020
57,269,351

58,244,986

58,286,097

22.2
 %
Millennium Waterfront Associates, L.P. (13)
US - PA
Infill land
12.0
%
12.0
%
1.0
%
7/2/2015
12/28/2018
14,325,000

14,325,000

14,325,000

5.4
 %
OHM Atlanta Owner, LLC (5)(6)(7)(14)
US - GA
Infill land
LIBOR + 9.0% (3.0% Floor)

12.0
%
1.0
%
6/20/2017
1/24/2019
27,500,000

27,775,000

27,772,240

10.6
 %
TSG-Parcel 1, LLC (3)(5)(6)
US - CA
Infill land
LIBOR + 10.0% (2.0% Floor)

12.5
%
1.0
%
7/10/2015
12/31/2019
18,000,000

18,180,000

18,178,116

6.9
 %
 
 
 
 
 
 
 
 
117,094,351

118,524,986

118,561,453

45.1
 %
Total gross loans held for investment
 
 
 
 
 
 
 
385,041,701

388,243,974

387,870,130

147.4
 %
Obligations under participation agreements (3)(4)(5)(6)(7)
 
 
 
 
 
 
(113,458,723
)
(114,298,591
)
(114,189,654
)
(43.4
)%
Net loans held for investment
 
 
 
 
 
 
 
$
271,582,978

$
273,945,383

$
273,680,476

104.0
 %

10

 



Terra Secured Income Fund 5, LLC
Consolidated Schedule of Investments (Continued)
June 30, 2019 (unaudited) and December 31, 2018

Terra Property Trust Schedule of Loans Held for Investment as of December 31, 2018 (Continued):
Operating real estate:
 
 
 
 
 
 
 
 
Description
 
Real estate owned, net (15)
 
Encumbrance
 
Acquisition Date
 
% (16)
Multi-tenant office building in Santa Monica, CA
 
$
55,984,868

 
$
45,000,000

 
7/30/2018
 
4.2
%

___________________________ 
(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)
Percentages are based on the fair value of the Company’s investment in Terra Property Trust of $263.1 million as of December 31, 2018.
(3)
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.
(4)
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.
(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 statements of financial condition.
(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, an affiliate of our sponsor and Terra Property Trust’s manager.
(7)
Terra Property Trust sold a portion of its interest in this loan through a participation agreement to Terra Property Trust 2, Inc., an affiliated fund managed by Terra REIT Advisors.
(8)
In January 2019, the borrower extended the maturity of the loan to December 16, 2019.
(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, 2018, none of the commitment has been funded.
(10)
This loan was repaid in January 2019.
(11)
In February 2019, Terra Property Trust entered into a forbearance agreement with the borrower whereby the borrower has until April 15, 2019 to repay the loan in full.
(12)
This loan was used as collateral for a $34.2 million borrowing under a repurchase agreement.
(13)
In January 2019, Terra Property Trust acquired the collateral for this loan via deed in lieu of foreclosure.
(14)
In January 2019, the borrower made a partial repayment of $18.5 million on this loan. In connection with the repayment, the maturity of the loan was extended to March 5, 2019. On March 5, 2019, the loan was repaid in full.
(15)
Terra Property Trust acquired this property through foreclosure of a $54.0 million first mortgage. Amount includes building and building improvements, tenant improvements and lease intangible assets and liabilities, net of accumulated depreciation and amortization.
(16)
Percentage is based on Terra Property Trust’s net exposure on the property (real estate owned less encumbrance).



See notes to consolidated financial statements (unaudited).


11

 


Terra Secured Income Fund 5, LLC
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2019

Note 1. Business
 
Terra Secured Income Fund 5, LLC (and, together with its consolidated subsidiaries, the “Company”), is a specialized real estate finance 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 investments finance the acquisition, construction, development or redevelopment of quality commercial real estate in the United States. The Company focuses on smaller, middle market loans in the approximately $3 million to $50 million range which are financing properties in primary and secondary markets because it believes these loans 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. The Company does not consolidate Terra Property Trust as Terra Property Trust is not an investment company.

The Company’s investment activities were externally managed by Terra Income Advisors, a private investment firm affiliated with the Company until February 8, 2018 when Terra Capital Partners, LLC (“Terra Capital Partners”), the Company’s sponsor, caused a new subsidiary of Terra Capital Partners, Terra Fund Advisors, LLC (“Terra Fund Advisors”), to be admitted as the replacement manager of the Company. When used herein the term “Manager” refers to Terra Income Advisors for periods prior to February 8, 2018 and refers to Terra Fund Advisors beginning on such date. 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 will continue in existence until December 31, 2023; however, the Company expects to be terminated or to consummate an alternative liquidity transaction on or prior to the five-year anniversary of the completion of the Company’s original offering, which was January 31, 2015, unless extended for up to a maximum of two one-year extensions at the discretion of the Manager, in order to facilitate an orderly liquidation or to consummate such alternative liquidity transaction.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The interim consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and include all of the Company’s accounts and those of its consolidated subsidiaries. All intercompany balances and transactions have been eliminated. 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.


12

 


Notes to Consolidated Financial Statements


Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of gains (losses), income and expenses during the reporting period. Actual results could significantly differ from those estimates. The most significant estimates inherent in the preparation of the Company’s consolidated financial statements is the valuation of its investment (Note 3).

Equity Investment in Terra Property Trust

Equity investment in Terra Property Trust represents the Company’s equity interest in Terra Property Trust, 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 consolidated statements of financial condition. Change in fair value is reported in net change in unrealized appreciation or depreciation on investment on the consolidated statements of operations.

Revenue Recognition

Dividend Income: Dividend income associated with the Company’s ownership of Terra Property Trust is recognized on the record date as declared by Terra Property Trust. Any excess of dividends over 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.
 
Income Taxes

No provision for U.S. federal and state income taxes has been made in the accompanying consolidated 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 and six months ended June 30, 2019 and 2018, 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 consolidated 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 consolidated statements of operations. For the three and six months ended June 30, 2019 and 2018, 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 (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 outlines a new model for accounting by lessees, whereby their rights and obligations under substantially all leases, existing and new, would be capitalized and recorded on the balance sheet. For lessors, however, the accounting remains largely unchanged from the model under ASC 840, Leases (“ASC 840”), with the distinction between operating and financing leases retained, but updated to align with certain changes to the lessee model and the new revenue recognition standard. The new standard also replaces the sale-leaseback guidance under ASC 840 with a new model applicable to both lessees and lessors. Additionally, the new standard requires extensive quantitative and qualitative disclosures. ASU 2016-02 was effective for U.S. GAAP public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

13

 


Notes to Consolidated Financial Statements


The Company adopted ASU 2016-02 on January 1, 2019. The adoption of ASU 2016-02 did not have any impact on the Company’s consolidated financial statements and disclosures as the Company does not have any lease arrangements.

In August 2018, the FASB issued ASU 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. Early adoption is permitted upon issuance of ASU 2018-13. The Company does not expect the adoption of ASU 2018-13 to have a material impact on its consolidated financial statements and disclosures.

In August 2018, the Securities and Exchange Commission (the “SEC”) adopted a final rule that eliminates or amends disclosure requirements that have become duplicative, overlapping, or outdated in light of other SEC disclosure requirements, U.S. GAAP, or changes in the information environment (the “Final Rule”). The Final Rule is intended to simplify and update the disclosure of information to investors and reduce compliance burdens for companies, without significantly altering the total mix of information available to investors. Among other items, the Final Rule requires registrants to include in their interim financial statements a reconciliation of changes in net assets or stockholders’ equity in the notes or as a separate statement. The Final Rule was effective for all filings made on or after November 5, 2018; however, the SEC would not object if a filer’s first presentation of the changes in net assets or stockholders' equity was included in its Form 10-Q for the quarter that begins after the effective date of the Final Rule. The Company adopted the Final Rule in the first quarter of fiscal year 2019. The adoption of the Final Rule did not have a material impact on the Company’s consolidated financial statements and disclosures.
    
Note 3. Investment and Fair Value

Equity Investment in Terra Property Trust

The Company invests substantially all of its equity capital in the purchase of common shares of Terra Property Trust.

The following table presents a summary of the Company’s investment at June 30, 2019 and December 31, 2018:
 
 
June 30, 2019
 
December 31, 2018
Investment
 
Cost
 
Fair Value
 
% of Members’ Capital
 
Cost
 
Fair Value
 
% of Members’ Capital
14,912,990 common shares
   of Terra Property Trust, Inc.
 
$
253,940,210

 
$
255,030,805

 
100.0
%
 
$
265,200,249

 
$
263,092,585

 
100.0
%

For the three months ended June 30, 2019 and 2018, the Company received approximately $7.6 million and $9.1 million of distributions from Terra Property Trust, respectively, of which $7.6 million and $2.3 million were returns of capital, respectively. For the six months ended June 30, 2019 and 2018, the Company received approximately $15.2 million and $16.8 million of distributions from Terra Property Trust, respectively, of which $11.3 million and $4.5 million were returns of capital, respectively.


14

 


Notes to Consolidated Financial Statements


The following tables present the summarized financial information of Terra Property Trust:
 
 
June 30, 2019
 
December 31, 2018
Carrying value of loans held for investment
 
$
389,787,808

 
$
388,243,974

Real estate owned, net
 
79,498,242

 
68,004,577

Other assets
 
60,471,701

 
35,306,172

Total assets
 
529,757,751

 
491,554,723

Mortgage loan payable, repurchase agreement payable and obligations under
   participation agreements
 
(223,417,271
)
 
(190,687,574
)
Accounts payable, accrued expenses and other liabilities
 
(40,747,200
)
 
(23,555,081
)
Lease intangible liabilities
 
(11,722,259
)
 
(12,019,709
)
Total liabilities
 
(275,886,730
)
 
(226,262,364
)
Stockholder’s equity
 
$
253,871,021

 
$
265,292,359

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Revenues
 
$
13,332,694

 
$
12,570,307

 
$
26,070,628

 
$
22,962,992

Expenses
 
(13,486,179
)
 
(5,762,199
)
 
(22,301,238
)
 
(10,621,079
)
Net (loss) income
 
$
(153,485
)
 
$
6,808,108

 
$
3,769,390

 
$
12,341,913


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 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.
    

15

 


Notes to Consolidated Financial Statements


Assets and Liabilities Reported at Fair Value

The following table summarizes the Company’s equity investment in Terra Property Trust at fair value on a recurring basis as of June 30, 2019 and December 31, 2018:
 
June 30, 2019
 
Fair Value Measurements
 
Level 1
 
Level 2
 
Level 3
 
Total
Investment:
 
 
 
 
 
 
 
Equity investment in Terra Property Trust
$

 
$

 
$
255,030,805

 
$
255,030,805

 
December 31, 2018
 
Fair Value Measurements
 
Level 1
 
Level 2
 
Level 3
 
Total
Investment:
 
 
 
 
 
 
 
Equity investment in Terra Property Trust
$

 
$

 
$
263,092,585

 
$
263,092,585


Changes in Level 3 investment for the six months ended June 30, 2019 and 2018 were as follows:
 
 
Equity Investment in Terra Property Trust
 
 
Six Months Ended June 30,
 
 
2019
 
2018
Beginning balance
 
$
263,092,585

 
$
275,428,953

Return of capital
 
(11,260,039
)
 
(4,485,246
)
Net change in unrealized appreciation (depreciation) on investment
 
3,198,259

 
(175,754
)
Ending balance
 
$
255,030,805

 
$
270,767,953

Net change in unrealized appreciation (depreciation) on investment for the period
   relating to those Level 3 assets that were still held by the Company
 
$
3,198,259

 
$
(175,754
)

Transfers between levels, if any, are recognized at the beginning of the period in which transfers occur. For the six months ended June 30, 2019 and 2018, there were no transfers.

The Company estimated that its other financial assets and liabilities had fair values that approximated their carrying values at June 30, 2019 and December 31, 2018 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, 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 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

16

 


Notes to Consolidated Financial Statements


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 June 30, 2019 and December 31, 2018. 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
 
June 30, 2019
Asset Category
 
 
 
Minimum
Maximum
Weighted Average
Assets:
 
 
 
 
 
 
 
 
 
 
Equity investment in Terra Property Trust
 
$
255,030,805

 
Discounted cash flow (1)
 
Discount rate (1)
 
4.75
%
15.03
%
14.07
%
 
 
Fair Value
Primary Valuation Technique
 
Unobservable Inputs
 
December 31, 2018
Asset Category
 
 
 
Minimum
Maximum
Weighted Average
Assets:
 
 
 
 
 
 
 
 
 
 
Equity investment in Terra Property Trust
 
$
263,092,585

 
Discounted cash flow (1)
 
Discount rate (1)
 
5.02
%
16.00
%
14.19
%
_______________
(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 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 consolidated statements of operations, any changes in fair value would directly affect the Company’s members’ capital.

Note 4. Related Party Transactions

Axar Transaction

On February 8, 2018, Terra Capital Partners caused (i) a new subsidiary of Terra Capital Partners, Terra REIT Advisors to become the external manager of Terra Property Trust, (ii) a new subsidiary of Terra Capital Partners, Terra Fund Advisors, to be admitted as the replacement manager of the Company and the equity interests in Terra Fund Advisors to be distributed to the equity owners of Terra Capital Partners on a pro rata basis and (iii) the equity interests in another subsidiary of Terra Capital Partners, Terra Income Advisors, which also serves as the external adviser to Terra Income Fund 6, Inc. (“Terra Fund 6”), to be distributed to the equity owners of Terra Capital Partners on a pro rata basis. After the completion of the above steps, a pooled investment vehicle advised by Axar Capital Management L.P. (“Axar”) entered into an investment agreement with Terra Capital Partners and its affiliates (which is referred to collectively as the “Axar Transaction”), pursuant to which Axar acquired from the respective owners thereof: (i) a 49% economic interest in Terra Fund Advisors; (ii) a 65.7% economic and voting interest in Terra Capital Partners (and thereby Terra REIT Advisors); and (iii) an initial 49% economic interest in Terra Income Advisors. On November 30, 2018, Axar acquired the remaining 34.3% economic interest in Terra Capital Partners. On April 30, 2019, Axar acquired the remaining 51% economic interest in Terra Income Advisors.

Operating Agreement

The Company had an operating agreement, as amended, with Terra Income Advisors whereby Terra Income Advisors was responsible for the Company’s day-to-day operations. As part of the Axar Transaction, on February 8, 2018, Terra Income Advisors assigned all of its rights, title and interest in the Company pursuant to the Amended and Restated Limited Liability Company Agreement of the Company, dated January 1, 2016, to 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.
    

17

 


Notes to Consolidated Financial Statements


Management Agreement

As part of the Axar Transaction, Terra Income Advisors, Terra Property Trust’s manager prior to February 8, 2018, assigned all of its rights, title and interest in and to its then current external management agreement with Terra Property Trust to Terra REIT Advisors and immediately thereafter, Terra REIT Advisors and Terra Property Trust amended and restated such management agreement. Such amended and restated management agreement has the same economic terms and is in all material respects otherwise on the same terms as the management agreement between Terra Income Advisors and Terra Property Trust in effect immediately prior to the Axar Transaction, except for the identity of the manager.

Dividend Income
    
As discussed in Note 3, for the three months ended June 30, 2019 and 2018, the Company received approximately $7.6 million and $9.1 million of distributions from Terra Property Trust, respectively, of which $7.6 million and $2.3 million were returns of capital, respectively. For the six months ended June 30, 2019 and 2018, the Company received approximately $15.2 million and $16.8 million of distributions from Terra Property Trust, respectively, of which $11.3 million and $4.5 million was a return of capital, respectively.

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 June 30, 2019 and December 31, 2018, the Company had 6,638.4 units and 6,638.4 units outstanding, respectively, and the net asset value per unit was $38,411 and $39,630, 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 referred 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%.

In addition, holders of Termination Units (membership interest in the Company that were issued to members of Terra Funds 1 through 4 who chose to enter the liquidation phase of their investments) received monthly distributions at a fixed rate of 6.0% per annum of the Unreturned Invested Capital (capital contributions less cumulative stated distributions of principal and less any amounts paid in redemption).

For the three months ended June 30, 2019 and 2018, the Company made total distributions to non-manager members of $7.5 million and $7.5 million, respectively. For the six months ended June 30, 2019 and 2018, the Company made total distributions

18

 


Notes to Consolidated Financial Statements


to non-manager members of $14.9 million and $15.0 million, respectively. For the three and six months ended June 30, 2019 and 2018, the Company did not make any carried interest distributions to the Manager.
 
Capital Redemptions

In the Merger, members of Terra Funds 1 through 4 who wished to enter the liquidation phase of their investments chose to receive Termination Units as merger consideration. These Termination Units were redeemed on the original expected liquidation dates of the funds. As of June 30, 2019 and December 31, 2018, there were no Termination Units outstanding. For the six months ended June 30, 2019, the Company did not redeem any units. For the six months ended June 30, 2018, the Company redeemed 3.6 Continuing Income Units for $0.1 million and 37.9 Termination Units for $1.6 million.
    
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 June 30, 2019 and December 31, 2018, no such reserve was established.

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. The following table provides a roll forward of the units outstanding of the Company for the six months ended June 30, 2019 and 2018:
 
 
Six Months Ended June 30, 2019
 
Six Months Ended June 30, 2018
 
 
Managing
Member
 
Non-Managing Members
 
Total
 
Managing
Member
 
Non-Managing Members
 
Total
Units outstanding, beginning of period
 

 
6,638.4

 
6,638.4

 

 
6,697.4

 
6,697.4

Early redemption of Continuing
   Income Units
 

 

 

 

 
(3.6
)
 
(3.6
)
Termination Units redeemed
 

 

 

 

 
(37.9
)
 
(37.9
)
Units outstanding, end of period
 

 
6,638.4

 
6,638.4

 

 
6,655.9

 
6,655.9


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 six months ended June 30, 2019 and 2018. These financial highlights consist of the operating 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 non-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.


19

 


Notes to Consolidated Financial Statements


The following summarizes the Company’s financial highlights for the six months ended June 30, 2019 and 2018:
 
Six Months Ended June 30,
 
2019
 
2018
Per unit operating performance:
 
 
 
Net asset value per unit, beginning of period
$
39,630

 
$
41,143

Increase in members’ capital from operations (1):
 
 
 
Net investment income
549

 
1,815

Net change in unrealized appreciation (depreciation) on investment
481

 
(26
)
Total increase in members’ capital from operations
1,030

 
1,789

Distributions to member (2):
 
 
 
Capital distributions
(2,249
)
 
(2,247
)
Net decrease in members’ capital resulting from distributions
(2,249
)
 
(2,247
)
Capital share transactions:

 
1

Net asset value per unit, end of period
$
38,411

 
$
40,686

 
 
 
 
Ratios to average net assets:
 
 
 
Expenses
0.21
%
 
0.16
%
Net investment income
2.76
%
 
8.92
%
 
 
 
 
IRR, beginning of period
6.56
%
 
6.26
%
IRR, end of period
6.46
%
 
6.62
%
_______________
(1)
The per unit data was derived by using the weighted average units outstanding during the applicable periods, which were 6,639 units and 6,683 units for the six months ended June 30, 2019 and 2018, 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 consolidated 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.


20

 



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 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 Secured Income Fund 5, LLC and its consolidated subsidiaries.

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

the acquisition of our targeted assets, including the timing of 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 investments;

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”), Terra REIT Advisors, LLC (“Terra REIT Advisors”), Terra Income Advisors, LLC (“Terra Income Advisors”); Terra Capital Partners, LLC (“Terra Capital Partners”), our sponsor; 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”); Terra Secured Income Fund 4, LLC (“Terra Fund 4”); Terra Secured Income Fund 5 International; Terra Income Fund International; Terra Secured Income Fund 7, LLC; Terra Property Trust, Inc. (“Terra Property Trust”), our wholly-owned subsidiary; Terra Property Trust 2, Inc., a subsidiary of Terra Secured Income Fund 7, LLC; 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;

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


21

 



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, 2018. 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
    
We are a specialized real estate finance 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. Our investments finance the acquisition, construction, development or redevelopment of quality commercial real estate in the United States. We focus on smaller, middle market loans in the approximately $3 million to $50 million range which are financing properties in primary and secondary markets because we believe these loans are subject to less competition, offer higher risk adjusted returns than larger loans with similar risk metrics and facilitate portfolio diversification. We were formed as a Delaware limited liability company on April 24, 2013 and commenced operations on August 8, 2013. We make substantially all of our investments and conduct substantially all of our real estate lending business through Terra Property Trust, which has elected to be taxed as a REIT for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2016. Our objectives are to (i) preserve our members’ capital contributions, (ii) realize income from our investments and (iii) make monthly distributions to our members from cash generated from investments. There can be no assurances that we will be successful in meeting our objectives.

On January 1, 2016, Terra Fund 1, Terra Fund 2, Terra Fund 3 and Terra Fund 4 merged with and into our subsidiaries (individually, each a “Terra Fund” and collectively, the “Terra Funds”) through a series of separate mergers (collectively, the “Merger”). Following the Merger, we contributed the consolidated portfolio of net assets of the Terra Funds to Terra Property Trust in exchange for all of the common shares of Terra Property Trust. We elected to engage in these transactions, which we refer to as the “REIT formation transactions,” to make our investments through Terra Property Trust and to provide our members with a more broadly diversified portfolio of assets, while at the same time providing us with enhanced access to capital and borrowings, lower operating costs and enhanced opportunities for growth.

On February 8, 2018, Terra Capital Partners caused (i) a new subsidiary of Terra Capital Partners, Terra REIT Advisors, to become the external manager of Terra Property Trust, (ii) a new subsidiary of Terra Capital Partners, Terra Fund Advisors, to be admitted as the replacement manager of the Company and the equity interests in Terra Fund Advisors to be distributed to the equity owners of Terra Capital Partners on a pro rata basis and (iii) the equity interests in another subsidiary of Terra Capital Partners, Terra Income Advisors, which also serves as the external advisor to Terra Income Fund 6, Inc. (“Terra Fund 6”), to be distributed to the equity owners of Terra Capital Partners on a pro rata basis. After the completion of the above steps, a pooled investment vehicle advised by Axar Capital Management L.P. (“Axar”) entered into an investment agreement with Terra Capital Partners and its affiliates (which is referred to collectively as the “Axar Transaction”), pursuant to which Axar acquired from the respective owners thereof: (i) a 49% economic interest in Terra Fund Advisors; (ii) a 65.7% economic and voting interest in Terra Capital Partners (and thereby Terra REIT Advisors); and (iii) an initial 49% economic interest in Terra Income Advisors. On November 30, 2018, Axar acquired the remaining 34.3% economic interest in Terra Capital Partners. On April 30, 2019, Axar acquired the remaining 51% economic interest in Terra Income Advisors. When used herein the term “Manager” refers to Terra Income Advisors for periods prior to February 8, 2018 and refers to Terra Fund Advisors beginning on such date.
    

22

 



Portfolio Summary

The following tables provide a summary of Terra Property Trust’s net loan portfolio as of June 30, 2019 and December 31, 2018:
 
June 30, 2019
 
Fixed Rate
 
Floating
Rate
(1)(2)(3)
 
Total Gross Loans
 
Obligations under Participation Agreements
 
Total Net Loans
Number of loans
13


12

 
25

 
17

 
25

Principal balance
$
117,585,920

 
$
270,094,846

 
$
387,680,766

 
98,020,504

 
$
289,660,262

Amortized cost
118,819,253

 
270,968,555

 
389,787,808

 
98,700,002

 
291,087,806

Fair value
118,570,027

 
272,025,350

 
390,595,377

 
98,620,770

 
291,974,607

Weighted average coupon rate
12.44
%
 
9.95
%
 
10.71
%
 
12.24
%
 
10.19
%
Weighted-average remaining
   term (years)
1.99

 
2.05

 
2.03

 
1.75

 
2.13

 
December 31, 2018
 
Fixed Rate
 
Floating
Rate
(1)(2)(3)
 
Total Gross Loans
 
Obligations under Participation Agreements
 
Total Net Loans
Number of loans
20

 
9

 
29

 
18

 
29

Principal balance
$
163,486,937

 
$
221,554,764

 
$
385,041,701

 
113,458,723

 
$
271,582,978

Amortized cost
164,989,811

 
223,254,163

 
388,243,974

 
114,298,591

 
273,945,383

Fair value
164,578,464

 
223,291,666

 
387,870,130

 
114,189,654

 
273,680,476

Weighted average coupon rate
12.54
%
 
11.35
%
 
11.86
%
 
12.22
%
 
11.70
%
Weighted-average remaining
   term (years)
1.84

 
2.05

 
1.96

 
1.84

 
2.01

_______________
(1)
These loans pay a coupon rate of London Interbank Offered Rate (LIBOR) plus a fixed spread. Coupon rate shown was determined using LIBOR of 2.40% and 2.50% as of June 30, 2019 and December 31, 2018.
(2)
As of June 30, 2019 and December 31, 2018, amounts included a $125.8 million and $57.3 million, respectively, of senior mortgages used as collateral for $82.1 million and a $34.2 million, respectively, of borrowings under a repurchase agreement. These borrowings bear interest at an annual rate of LIBOR plus a spread ranging from 2.25% to 2.50%.
(3)
As of June 30, 2019 and December 31, 2018, eleven and eight of these loans, respectively, are subject to a LIBOR floor.

In addition to its net loan portfolio, as of June 30, 2019, Terra Property Trust owns 4.9 acres of adjacent land acquired via deed in lieu of foreclosure and a multi-tenant office building acquired via foreclosure. The land and building and related lease intangible assets and liabilities had a net carrying value of $67.8 million and $56.0 million as of June 30, 2019 and December 31, 2018, respectively. The mortgage loan payable encumbering the office building had an outstanding principal amount of $44.9 million and $45.0 million as of June 30, 2019 and December 31, 2018, respectively.

Portfolio Investment Activity

For the three months ended June 30, 2019 and 2018, Terra Property Trust invested $8.6 million and $27.6 million in add-on loans, respectively, and had $9.8 million and $6.1 million of repayments, respectively, resulting in net repayments of $1.2 million and net investments of $21.5 million, respectively. Amounts are net of obligations under participation agreements, mortgage loan payable and repurchase agreement payable.
    
For the six months ended June 30, 2019 and 2018, Terra Property Trust invested $28.3 million and $61.8 million in new and add-on loans, respectively, and had $45.2 million and $45.0 million of repayments, respectively, resulting in net repayments of $16.9 million and net investments of $16.8 million, respectively. Amounts are net of obligations under participation agreements, mortgage loan payable and repurchase agreement payable. In addition, on January 9, 2019, Terra Property Trust acquired 4.9 acres of adjacent land encumbering a $14.3 million first mortgage via deed in lieu of foreclosure in exchange for the relief of the first mortgage and related fees and expenses.

23

 



Portfolio Information

The tables below set forth the types of loans in Terra Property Trust’s loan portfolio, as well as the property type and geographic location of the properties securing these loans, on a net loan basis, which represents Terra Property Trust’s proportionate share of the loans, based on its economic ownership of these loans.
 
 
June 30, 2019
 
December 31, 2018
Loan Structure
 
Principal Balance
 
Amortized Cost
 
Fair
Value
 
% of Total
 
Principal Balance
 
Amortized Cost
 
Fair
Value
 
% of Total
First mortgages
 
$
141,291,550

 
$
141,863,207

 
$
142,793,328

 
48.9
%
 
$
95,141,290

 
$
96,352,394

 
$
96,391,095

 
35.2
%
Preferred equity
investments
 
104,365,722

 
104,730,881

 
104,780,886

 
35.9
%
 
110,099,644

 
110,540,228

 
110,470,658

 
40.4
%
Mezzanine loans
 
44,002,990

 
44,493,718

 
44,400,393

 
15.2
%
 
66,342,044

 
67,052,761

 
66,818,723

 
24.4
%
Total
 
$
289,660,262

 
$
291,087,806

 
$
291,974,607

 
100.0
%
 
$
271,582,978

 
$
273,945,383

 
$
273,680,476

 
100.0
%
 
 
June 30, 2019
 
December 31, 2018
Property Type